Do you have dependants? A history of medical ailments in the family tree? Not enough savings? All these questions leading to – what should I know before buying life insurance?
Note: This info article deals with the morbid but inevitable fact of life – death, so please continue reading with an open heart and mind.
What Is Life Insurance?
Insurance that is meant to payout to the beneficiary if you were to pass away or become totally and permanently disabled. So, the question prevails – what should I know before buying life insurance?
Does Anyone Depend On You Financially?
This typically applies to people with a spouse and children, but may also be relevant to those supporting their parents, siblings and/or other family members.
When we use the word depend, we do mean that your income fuels their expenses, at least to a sum that’s significant enough – such that a loss of that income would create a hole in their financial needs.
Of course, if you already have a lot of savings prepared, you may see the bulk of your savings as sufficient to buffer all future expenses. But generally, even at middle age and with all those self-funded preparations, a life insurance boost could be helpful to your family in getting back on their feet.
If your income has been used purely for independent usage, then financial dependence does not apply to you. But there are other factors to consider.
Do You Have Debt?
We’re fortunate in Malaysia to have an education loan like PTPTN that’s already covered by a government scheme, if the borrower is no longer able to pay back.
However, there are still other obligations you might be tied to, like car loans, mortgages, credit card debts, etc. Nobody likes talking about it, but it is something you definitely have to review in buying life insurance.
The calculation is mostly on how much your next of kin or guarantor will be liable to if you were no longer able to pay off those debts. Some people might think – settle your debt first before purchasing insurance. Of course there is no question here that clearing debts is indeed a priority for the individual, but here’s the thing.
If you forego insurance to focus on debt clearance (assuming you’re really pinching pennies here), it will indeed help lessen your burden. But if you don’t clear it before death, the rest of that burden would be someone else’s to bear. Could be your parents, siblings, or relatives.
How Much Coverage Is Enough?
It is important for us to know before buying life insurance! According to the Life Insurance Association of Malaysia (LIAM), the rule of thumb in the life insurance industry is that individuals, especially the primary provider, should have a coverage worth ten times their annual income.
This would guarantee the family’s livelihood for a minimum of five years. You could also break down future needs by summing up all debts that will need to be paid in full, including interest.
Some people add on education costs for their children, especially for those yet to enter tertiary education. Others account for inflation and subtract their liquid assets such as savings and trust funds.
For a quick calculation, you can find various calculators online, such as this.
Does Buying Life Insurance Benefit Me In Any Other Way Besides Pay-out Upon Death?
It could – depending on the type of policy that you get. As discussed in a previous article, life insurance actually comes in various forms – including term life and whole life.
Cash value is a major difference between the two, so that might affect how you decide on the type of life insurance you want to get. More generally, life insurance could also pay a benefit upon Critical Illness (CI) or Total Permanent Disability (TPD).
Remember, life insurance is NOT an investment. Sure, you may think of life insurance as an investment in the sense that you are paying a relatively small amount in exchange for a large death benefit.
However, that does not serve the purpose of creating wealth for yourself, which investments are supposed to do – especially when compared to savings accounts or other funds in the market. Nope, instead, think of life insurance as a financial safety net.
Now that you know the advantages of buying life insurance, you’re well on your way to deciding the most suitable policy to purchase.
Should You Get It Through An Agent, Through A Group, Or Online?
Now that you’re thinking of buying life insurance – the first thing you have to do is check whether you already have life insurance. Usually you would be aware of this if you had an agent, or if you work alone.
Often, the ones who are not aware are those who got their life insurance through a group policy purchased by their employer. Group policies are typically cheaper, so if you had the option, then great!
When it comes to online insurance, people still consider it new and obviously, in this PolicyStreet piece, you will think that this section is going to be extra biased. Well guess what, you’re right.
But today, the world of online insurance is making leaps and bounds. For some term life policies, you no longer have to take medical exams. Which means all you have to do is click honest answers on the digital form before receiving the quotation and making the payment.
The claims process is also made as clear and seamless as possible. This is especially useful if you were already tech savvy, which most people today are, and prefer complete transparency on your insurance purchases.
Some would say that the best value provided by insurance technology is the convenience, where DIY is not an issue.
However, let us be honest. If you were the type who would rather be hands off and appreciate the comfort of having someone else handle the claims, then insurance agents are probably more up your alley.
It is important though, to check that your agent has good reviews. Because you’ll most likely be depending on the same agent for a lot more than life insurance, and you would not want to be stuck with insufficient coverage or excessive coverage that costs you more than you should have to spend.
For many, life insurance is a need. Sure, none of us takes pleasure in the discussion of what happens after death, much less the possibility of an unexpectedly early death.
Heck, even the subject of death at all is never a comfortable dinner conversation. Regardless, once it is done, you receive a peace of mind that your loved ones are protected from a hard fall that can be caused by the unfortunate event.
So the next time someone asks you: “What should I know before buying life insurance?”, you’d be the subject matter expert.
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