Married Millennials: Is Immediate Insurance Coverage A Vital Need?

Greetings to readers who are married millennials (or Gen Y age group) in Malaysia.

By visiting this website, we can anticipate you may have some uncertainties regarding the need for insurance cover on your life at this juncture. We can anticipate your doubts may be:

When should I consider signing up? What type of cover fits my situation? Where (company, service provider) can I source for holistic information? How can I conveniently view an array of information on insurance plans, offered by more than one company, before deciding? How much should I insure myself for? And how to avoid sales pressure from a sales representative after I have made inquiries? The same questions may also apply to your spouse, presuming that both of you are gainfully employed.

May I paraphrase your doubts/uncertainties more specifically in the following context and then respond accordingly with answers:

1) Since I am still young, perhaps I should defer the need to sign up for the first cover (if not yet owning any insurance plan) or additional cover (if already being initially insured). After all, I am healthy. I can still sign up at a later stage. At this moment, there may not be an immediate need to do so.

Response:

Noted your rationale that being young and with the belief in your health status, your urgency to be insured now is lesser than people who are older or having some health histories. Put it this way – nobody can predict what could happen to himself/herself at any point now or future. In the newspapers, we read calamities which were never expected and deemed unlikely to take place. There is a saying: Insurance on a person’s life is available when not needed, but when much needed, it may no longer available. In other words, young working individuals should secure protection now while they are young and healthy – they should not leave for fate to decide at a later stage whether they would be insurable or not.

People always insure their residential or commercial properties with fire insurance, also probably covering other relevant perils. What is the probability of experiencing a house fire incident? Perhaps nil? I have been holding fire insurance cover for more than 40 years, yet I keep renewing year after year although no experience of any fire incident so far. People value their properties at a specific worth, hence they take insurance on the properties to recoup from losses in case of fire or related incident (yes, “in case of”), even though very remote. Every person places an important value to his/her property and insure it just “in case of” ……… yet hesitates to insure on themselves?

If I were to ask you about your regular expenditure on your family, with your spouse and at least one child (presume you have a child now or in near future), I believe you would list out the following items according to priority: (1) Food & non-alcoholic beverages. (2) Housing & household utilities/equipment/maintenance. (3) Transportation costs, including car loan instalments. (4) Child’s education. (5) Communication, e.g. mobile phone bills. (6) Clothing/footwear. (7) Recreation/culture/family outing. (8) Tobacco/alcohol (if applicable). (9) Miscellaneous. Would you agree that categories (1) to (6), which represent the necessities of livelihood, constitute about 70% of your family’s regular expenditure bills?

But wait, what about life insurance bills? Shouldn’t life insurance bills on your life be included? Think for a moment. The bills relating to the essentials for living by the family will continue to run monthly, which will be the surviving spouse’s passed-on responsibility in event an unwarranted incident happens to the breadwinner. Bear in mind that a life insurance bill is the only one that will stop after the demise or permanent total disability of an insured life; not only that, the compensation proceeds will come in to fund the other necessary bills. Otherwise, the burden of bearing all the bills will fall entirely on the shoulders of the surviving spouse. So, shouldn’t the insurance bill be accorded top most priority?

Nobody can predict he or she will still be in perfect health in near future years. The prudent move is to acquire protection as early as possible at standard rates instead of paying rated- up premiums (raised from the standard rates) after physical impairments have unexpectedly set in, or worst, have become uninsurable.

A news report in The Star on 17 November 2017 showed some intriguing facts. See the extracts of the report, as follows:

+ The number of youths being hospitalised annually for chronic diseases has doubled in just four years (2012 – 2016).

+ About 33.9% of Malaysian youths also had high blood cholesterol levels, and another 14% were obese.

+ On the whole, more than 47% of Malaysians were overweight and of these, 15% were obese.

2) With the cost of living rising faster continuously than average increments in salaried remuneration (if you are on payroll employment), should I not focus on taking care of our living expenses and defer life insurance cover until my financial situation is in better shape? Should I not leave some of my current earned income for savings instead of insurance?

Response:

Apart from categories (1) to (6), it is advisable as married millennials to curtail a bit of expenses from (7) to (9) as these are non-essentials for livelihood of your family. Try to reduce such expenses by 50%, and you will have the budget for insurance cover. Moreover, a prudent breadwinner will try to manage family expenditure at 70% of take-home income, which leaves a leeway of 30% for savings, personal expenses and affordable premium for basic life insurance cover.

Because of continual inflationary increase, the more the need for insurance cover on a breadwinner – and then top up along the way – to cover inflated bills relating to essential household expenditure, which would be borne entirely by a surviving spouse should either one predeceases or sustains total permanent disability. The very pertinent question for your consideration is, how important is it for you to provide an assurance of peace of mind to your beloved family?

3) Can I afford the substantial premiums if I want to be adequately insured?

Response:

Young married millennials breadwinners should immediately acquire the first line of cover according to the affordable budget based on present earned income. Additional cover should be acquired at later phases to keep in line with higher family needs as income increases.

Pure protection Term life plans are priced at the lowest premium rates. Whole Life plans which grant guaranteed gradual build-up cash value with or without participation in annual policy dividend/bonus are at higher pricing, yet still affordable to many in the upper middle-income range. Endowment products are costliest among the three types because of specific cover periods (ranging from short to longer tenures) and refundable accumulated savings elements, both in the form of high build-up guaranteed cash value and policy dividend/bonus, at the end of the tenure (at policy maturity). Investment-linked (IL) insurance dons the hybrid structure of unit trust investment combined with yearly renewable Term insurance; I prefer not to delve into IL for now in view of its complex features. I shall touch on it in a separate article next time.

First-time young purchasers of life insurance may prefer to take up a Term plan – probably a short tenure one because of the low premium rates. Most Term products either have the Renewable feature only or Renewable & Convertible options. Policyholders can opt to renew for another round of the same cover before expiry of the existing tenure, at new premium based on then attained age at time of renewal; or opt for guaranteed conversion to a Whole Life or Endowment plan anytime while the policy is in force, without proving evidence of insurability.

Way back in 1984, as branch manager attached to a life insurance company, I was the “adviser” to a young medical professional when he wanted to know what life insurance plan would fit him best at that time. At age 30, after serving a few years as medical officer in a government hospital, he decided to venture into private practice. He secured a bank loan of RM50,000 to set up his clinic in one of the large towns down South. He had a bit of savings but did not own any property. He stayed in his father-in-law’s house. He rented the ground floor premises of a shop-house for his clinic while having to repay his loan by instalments. His wife, meanwhile, resigned as a civil service officer to care for their two young kids.

I advised him to sign up a short-tenure Term at RM150,000 sum assured based on his last monthly remuneration of around RM3,000. Why? His immediate concern: If an unfortunate fate occurred to him, his wife and his children would be stranded for at least a few years. Short-tenure Term was most suitable for him as the premium rate was most affordable. Knowing him well, I anticipated he would thrive as a private medical practitioner within the next five years. He could either renew the same policy at the end of the expiry period, or convert to a Whole Life plan when his financial standing became much better. Even if he opted for the cheapest Term with only the renewable option, he might most likely be able to re-apply for another plan type since he would still be young 5 years later. Finally, he signed up for a 5-Year Renewable & Convertible Term.

Five years down the road, he was earning quantum folds, treating an average of 120 patients per day. In addition to converting his Term to Whole Life participating with accumulated bonus, he also applied for a second Whole Life policy at RM500,000. He is still holding the two policies until today, besides having bought more. His first Term plan had provided initial peace of mind to him and his spouse.

4) Should I look only at basic life cover, or critical illness indemnity, or personal accident cover, or a combination?

Response:

It depends on your situation, including your current financial standing relating to your affordability. If you are an employee, it also depends whether your employer provides any form of employee benefit cover (for example, medical benefits taken from an insurance company). Presuming there is no cover on your life at all now, my recommendation is in the following order of priority.

First: Basic life protection plan (Term or Whole Life, depending on affordability) pays a lump sum indemnity based on the sum assured (plus accumulated dividend/bonus, if any) upon demise either by natural or accidental cause. It also pays advance payments from the sum assured over three years if total permanent disability cover is incorporated in the policy.

Second: Critical Illness plan (CI) which pays lump sum indemnity upon being diagnosed of any of the covered critical illnesses while alive. It can either be attached as a “rider” to a basic life plan or acquired separately as standalone. CI riders are either in accelerated form (advance claims pay-out from the sum assured of basic life plan), or in addition to the basic (indemnity paid upon evidence of diagnosis while alive, and indemnity also paid from the basic plan upon subsequent demise). The accelerated version is at lower premium rate than the other. For those who are already provided group life cover by their respective employer, then they may give preference to a standalone critical illness plan; or alternatively consider at least a cancer plan.

Third: Hospitalisation & Surgical plan which provides reimbursement for incurred medical bills relating to admission into any recognised hospital, subject to stipulated limits. Treatments at government hospitals in Malaysia may be at nominal costs, but many Malaysians prefer private hospitals and physicians of their choice in event needing serious medical attention. We all know treatment at private hospitals are not cheap, and costs continue to go uptrend.

Fourth: Basic Personal Accident (PA), covering accidental death & total permanent disability due to accident, may be added as a rider to the basic life cover. The premium for basic accident rider cover is comparatively much lower than any life product. The sum assured indemnity pay-out is on top of the basic life plan if demise or total permanent disability due to accident. PA is also available as a standalone product. Blue collar workers and those whose daily tasks are exposed to higher accident risks, like a vehicle driver or machinist, should at least own one if they cannot afford a life plan.

5) Any way for us to view various products offered by different companies without much hassle? We wish to decide at our pace and own will after viewing various product;.

Response: Either you wish to check it out with agency intermediaries attached to different insurance companies or with a fintech enterprise like PolicyStreet. Please consider the comparison table below, as to which is more expedient for you to deal with for information.

Note: More products/plans will be available for display in PolicySstreet.com in due course.

5) How much is my life worth to be insured? What quantum of cover will fit my situation?

Response:

There is no definite rule of the thumb for the right amount of cover on a life. Holistic factors should be considered – like whether the life in question is the sole breadwinner of the family, how many dependents such as spouse/children/aged parents/siblings, any loans/mortgages, assets/investments/business in hand/retirement funds, other important obligations etc. All these have a bearing in determining a person’s net worth.

If a breadwinner has been able to sustain the holistic elements with his earned income presently, then I shall recommend the minimum sum assured of a basic life plan at no less than: 10 times the annual after-tax income minus EPF contribution (if any) and minus the portion of personal expenses (estimated at 40%) not related to family essential needs (like personal consumption, recreation, entertainment etc.). Take for example a breadwinner’s latest after-tax annual income less EPF contribution is RM100,000; out of this, 60% or RM60,000 goes to meet obligations to his dependents. To upkeep the obligations for around 10 years in case of sudden demise, RM600,000 would be desired. Probably, the surviving spouse/dependents would be better able to fend for themselves after 10 years.

Prudent married millennials, or specifically the breadwinner wanting to own his first life insurance policy will cut down a bit of personal expenses to fund the annual premium for a pure protection Term plan at RM600,000 sum assured. For example, the annual premium of Etiqa i-Secure Takaful, the yearly Term available from PolicyStreet, is definite affordable – starting from RM11 per month for a millennial aged below 35 years old at policy inception, depending whether smoker or non-smoker.

As part of our special launch, we are giving away RM50 rebate for every purchase of Etiqa Takaful i-Secure, plus a free membership subscription of Bereev, a legacy planning platform that helps you to plan your legacy and make sure that your family will know what to do when your time comes.

Caveat: This article provides general advice, opinions and overview information. My purpose is to offer pertinent perspectives for your consideration. For specific details on any product available from Policystreet, please feel free to enquire further for details.

(Article contributed by Jimmy Fok – author & freelance consultant)