This article was first published on Ringgit Plus. Visit the site for more articles on personal finance.
What Is Insurance?
At its most basic level, an insurance policy is a contract between you and your insurance provider. When you purchase insurance, you pay the price of the policy (called the premium) to your provider. In turn, your insurance provider will give you financial compensation if an unwanted event covered under your insurance policy occurs.
The reason why there are so many different types of insurance out there is because each policy provides coverage for different things. Some types of insurance may not be as necessary for you to get just yet, whereas some are crucial or even compulsory by law – so educate yourself on the different types of insurance and see which you will need the most.
Types of Insurance
General Insurance: Motor, Travel, And Property Insurance
These types of insurance are tied to a specific object of coverage and are quite straightforward.
If you own a vehicle, you’ll need to purchase motor insurance (third-party motor insurance is mandatory by law in Malaysia).
If you’re going on a trip, a one-off payment from as low as RM10-20 can insure you against emergencies and inconveniences for up to hundreds of thousands of Ringgit.
Most home insurance policies aren’t compulsory in Malaysia, but you can choose to insure your home and belongings against a variety of events.
Like with all kinds of insurance policies, you’ll have to carefully study what occurrences are included in your coverage and what is excluded from protection.
Health Insurance: Medical And Critical Illness Insurance
Medical insurance is the most basic type of health insurance and should be the first insurance policy you get. Also known as hospitalisation and surgical coverage (but more commonly referred to as medical card insurance), it reimburses the cost of your in-patient hospital treatment and medical expenses. With a medical card, you don’t need to go through the claims process to make an insurance claim – just present your medical card at a recognised panel hospital and the bills will go straight to your insurer for evaluation.
Once you’ve gotten yourself medical insurance coverage, you shouldn’t assume that you’re fully protected from a health insurance perspective. Having a medical card may be good enough in the case of one-off medical emergencies, but what if you’re diagnosed with a critical illness? A medical card would only cover your hospital expenses, whereas you’ll need more financial protection than that if you’re diagnosed with cancer. Critical illness insurance provides a lump sum payment to your or your beneficiaries upon diagnosis, which can help with your long-term recovery and cover any loss of income.
Life insurance provides you or your beneficiaries with a payout (called a benefit) if you happen to die or suffer from total and permanent disability (TPD) during the policy period. The phrase "during the policy period" is key because there are two types of life insurance policies: term life insurance and whole life insurance.
Term life insurance only covers you for a set timeframe – usually 10, 20, or 30 years. If you die or suffer from TPD during this period, your loved ones will receive the benefit, but if you do not, you and your beneficiaries will not receive anything. On the other hand, whole life insurance covers you for the rest of your life, but the premium is significantly higher compared to a term life policy with the same sum of coverage. You can watch our informative videos to find out more about the differences between term life and whole life insurance to find out which is better for you.
Meanwhile, personal accident insurance provides you protection for death, disability, and medical expenses arising from an accident. Personal accident insurance is a bit more limited compared to life insurance as you won’t get the benefit if your death or TPD is caused by natural causes.
Savings and Investment-Related Insurance
Did you know that insurance plans have elements of savings and investment too? With a savings and investment-linked policy, you or your beneficiaries will receive the death or TPD benefit as with life insurance policies. The savings and investment elements kick in when the policy offers additional features such as guaranteed cash payments, non-guaranteed dividend payouts, and a maturity benefit (a sum of money you get back when your policy ends).
How To Choose Your First Insurance Plan
As you can see, there are many types of insurance coverage out there. Of course, you aren’t expected to purchase all these different policies at one go – especially if you’re just starting out on your own financially. It goes without saying that better coverage and higher premiums come hand-in-hand, so think carefully about the level of protection you need and how much you can afford to pay. A good strategy is to start off with some basic policies first, and then add on riders (additional coverage that sits on an existing insurance policy) or different plans along the way.
If you would like to find out more about each type of insurance on a deeper level, you can read up on some of our insurance-related articles here. And if you’re ready to look at what insurance policies there are in the market right now, you can find, compare, and apply for insurance products all in one place at RinggitPlus.