What is Insurance?

221 Views  ⚫  Asked 4 Years Ago
asked on Jun 10, 2014 at 18:07
by   Roy Steven Ung
It is sad when insurance product is being sold as investments, and it is not only being practice in insurance companies, but banks who sells insurance plans. Go up to any bank and ask for good savings plans, most probably you’ll end up with an insurance plan that gives you exorbitant returns but when you calculate the ROI, it may be worse than bank FD.

Truth is, Insurance has always been meant for protection and it is NEVER for investments. The plan Investment link plan (ILP) DOES NOT mean it is for investment. Even if the amount is being put into saver (which provides 95% premium allocation).

The main purpose of ILP over the traditional plan is that the premiums being paid are subjected to the performance of the underlying funds. This is so that the plan accumulates cash values over time. Since insurance charges goes up at older age, the accumulated cash values will eventually be used (especially if there is medical card attached to it).

Having said that, it does not perform like pure unit trust as the accumulated cash values are subjected to insurance charges when pure mutual fund is not. If you read the proposal form you will see a clear wording in bold that says that your insurance charges will go up by age. Even if your premium does not go up, your insurance charges will.

You see when it comes to insurance the riskier we are the higher the insurance charges it will be. An example is our car insurance. For cars that are over 10 years and above the loading (extra premium) may be as high as 100%.

Also, as long as you want to drive the car the premium will need to be paid.If the medical card cover term is up to age 80, the insurance charges will also need to be paid till age 80.Take note that I mention insurance charge, not the monthly premium.

The projected insurance charges is outlined in the quotation together with the projected cash values (high and low).As I said, insurance charges goes up by age, for example when we are in our 30s, the insurance charges may be in the range of Rm 1500 per year.

This means if we are paying Rm150 per mth =Rm1800 year, it is sufficient to cover for the insurance charges.However, when we are 60-65 the insurance charges is now Rm3,000 per year!

This means our premium of Rm150 is not sufficient to cover for the insurance charges. When that happens, the variance of the insurance charges will need to be deducted from your cash values, or you will need to do top up in order to cover for the variance of insurance charges.Otherwise your policy may be at risk of lapsing even before the end of the term even if you are paying the premium.

Sure, some agents will say that you can opt to withdraw the accumulated cash values, this is pure sales talk, whereby clients always like to hear when they get money, who doesn’t, right? If you were to withdraw the cash values and when the insurance charges goes up, the policy may lapse prematurely and you’ll lose the protection benefits even more earlier than expected.

Always buy insurance with PROTECTION in mind, NEVER for investments. There is no investments here in the context of insurance, only protection.

However, if you hd bought any insurance plans, my advise to you is that do not cancel the plan as no matter how good or bad the agent’s explaination is to you, one fact still remains, you buy it for its protection values.

Also the claims are being paid by insurance company, and not the agent. As humans, and we are bound to need to use the medical card sooner or later. I frequent hospitals almost daily. Having seen a sight of relieve for having a medical card cover for having a heart bypass that costs RM60k-RN80K is very common in any ICU ward.


Feel free to leave a questions if you have any or drop me an email at stevenung1971@ or H/P 016-451 5957. My phone is on 24/7 including Public holidays.

I am an agent attached to Prudential Assurance (M) Bhd, from Penang
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