How much insurance do you need?

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The idea behind insurance protection is simple: we know things can go wrong, so we want to make sure if it were to happen, we have a plan to minimise the financial impact. This is a crucial yet overlooked area of a financial plan. Most adult in Malaysia owned insurance policy, but not many really understand their coverage and actual needs. End up either spending more than they need to, or too little in coverage that leave themselves and families vulnerable.

No one enjoys thinking about the possibility of an accident, death or illness. However, as a responsible adult, this is one of those unpleasant things that you should not avoid. It is hard to decide the type of coverage and amount of insurance you need down to the penny, but you can make a sound estimation by imagining what you and your loved ones will need financially in different undesirable scenarios. 

In order to identify the type of insurance you need, we got to explore the type of risk you exposed to and evaluate the potential financial impact to you and your family. Then estimate what are the amount of money you need to cover the bottom line in each scenario. The common life risk events are Death, Permanent Disablement, Critical Illness and Hospitalization.

Let’s explore the financial impact of each of the misfortune and areas that you should consider when calculating your insurance needs.

Death: 

Death put a permanent stop to your income and personal expenses, but leave on your dependents. So, this estimation surrounds along providing and protecting your loved ones who continue to live on.

  • How much debt you have? All your debts must be paid in full. All your loans and funeral expenses. Loans for your investment properties can be optional if you plan to sell it off in this scenario, but do spare out at least 2 years of repayment to avoid force selling.  
  • Provide for loved ones: Decide how much you need to support each of your loved ones? How many years to provide? It can be the numbers of years until your child graduates and can be on their own financially.
  • Future obligations: If you want to prepare for your child’s education, estimate the cost and factor in inflation.  

Permanent Disablement: 

Permanent disablement put the end of your income, but you and your family have to continue live on for years to come.

  • The estimated amount in the event of death.
  • Your living expenses: The amount that enough that allow you to live on for your lifetime.

Critical Illness: 

When critically Ill, you might need to stop working for a pro-long period of time, to get treatment and rest until you are recovered. You will need to make sure that you have enough for your family day to day expenses so that you can rest well. You might want to have some extra cash for some supplements.  

  • Your monthly expenses: The amount you need each month to survive. Your rental or mortgage repayments, car installments, food, transport, groceries. It is recommended to have at least 5 years of your expenses covered.  
  • Extra medical expenses: You should also buffer for extra expenses you may need like supplements, alternative treatment, home care, better food as well as equipping your home with adaptive or medical equipment necessary for your recovery.

Hospitalization (medical card): 

Medical card is a debit card that pays your hospitalization bills. You should always make sure that your medical card is up-to-date. Have sufficient coverage that is still relevant to current medical expenses needs. Different insurance company offer different level of benefits but also comes with different price range. Thus, review your plan and do compare before you decide on your medical plan.

In conclusion, you can estimate the amount of money you and your family will need for each of the event above, then minus the liquid assets that you can use in each of the event, if there is a shortfall, that’s the amount of insurance coverage you need.

Seek professional and unbiased advice

This is the area where unbiased advice can prove invaluable. Instead of being approached and sold an insurance products. Your adviser can help you in identifying your risk areas, guide you through in estimating your needs and create a protection plan tailored to you. They can freely source for most suitable and best value solutions from the market, supported with unbiased comparisons. Such a plan will help you focus your premium on your priorities, rather than on less-critical areas.