Last
week when I withdrew some cash at Maybank, there was a booth there. There was
an insurance agent promoting Etiqa Takaful. I tried to ask several things about
the product he was selling. As usual like normal insurance agents, he talked
and boasted too much about how good he is in this subject
(insurance/investment), I never try to argue with as I am not the similar kind
of person as he is.
He
talked on how he only promoted 4 products because he claimed these as “killer
products”. He further explained that such products are perfect and suit
everybody. When I raised the issue that each person has own circumstances so
they may need different products, he couldn’t answer properly. As I threw to
him more technical aspects of insurance, he became insecure, suspecting me as
someone who may know a lot of things, he started to be more reserved.
No
one can deny we need protection, but the question is how much we should spend
for insurance. The right answer is as little as possible. The more correct
answer according to experts (not agents, because agents certainly want you to
spend all your money on insurance), we have rules of thumb.
Everyone must only spend 5% of their gross income for life
insurance.
Let
say your salary per month is RM2,000, your 5% is RM100 only. Of course, this an
estimate. But the 5% is very correct. Even if you want to spend more, RM150 is
still reasonable, as it is within range of that RM100. Spending RM180 if your
monthly pay is RM2,000 is wrong !
Once
you decide that you will only spend RM150 for life insurance / takaful
keluarga, you must study and buy necessary insurance only.
For
example you must know these and avoid below as these usually what cost your
insurance expensive.
1) Cash value or saving – Insurance that claims will give you
some money back after sometime are expensive. If you really want to save or
invest money, don’t buy life insurance, just buy ASB !
2) Riders –
Riders are additional feature attached to a policy that cost you a lot of
money. Trust me, unless you are rich, beware of riders. Normal people that are
not rich must only buydread diseases and critical illness,
don’t buy other riders.
3) Medical card – Medical card or hospitalization
insurance are actually not life insurance. It is a general insurance that works
on indemnity basis. Although it is a general insurance like car insurance
(except it doesn’t have Average clause), hospital/medical card is attached to
saving policy or portfolio policy. As it is indemnity based, it is costly and
it increases as time passes.
For
Medical / hospital insurance, usually companies offer co-insurance clause,
which means need to pay several hundred from own pocket, or pay half of the
hospital expenses. The main purpose is insurers don’t want us to choose the
more expensive hospital when cheaper is available. We,, it is reasonable. But
the most important thing, Co-insurance is good as it reduce the monthly premium
that we pay.
For
people who are persuaded by agents to buy expensive hospital insurance, the
agents claimed that if you do not buy this, you need to go to government
hospital, and government hospital is slow and bad. So, people become scared and
without thinking spend a lot of money on insurance.
But
don’t be naïve !
Do
you really think that the coverage is enough even you pay RM100 per month only
for the medical card (this not include yet other insurance that comes along) ,
do you really think that it is enough ?
At
the end of the day, you will still go to government hospital. If you just
suffering 4 or 5 days not serious illness/injury, ok, you can stay in the
private hospital, but still with normal people type hospital insurance, the
longest they can stay in 2 weeks, after that the maximum limit is reached and
you must go to hospital insurance. So, if your illness is very severe, you
still need to go to government at the end.
If
you are just lightly sick, ok, you can stay several days in private hospital,
but come on, does it worth it to spend big proportion of your income for that
medical insurance if just for staying in private hospital when you are not that
sick ?
I
am not saying you shouldn’t buy hospital insurance at all , but minimize it. If
your company has group insurance to cover hospital costs, just do not buy
medical / insurance.
Again,
the most important thing in whatever we do is the product is cheap and we must
can afford it.
Thus,
hold that 5% rule, but this 5% rule doesn’t include general insurance like car
and house insurance. Only for the life insurance/takaful you buy from the
insurance agent, use the 5% rule. If you already spend more than 5% for life
insurance, reduce it to about 5% of your income.
Remember
the 5% rule !
Spend for life insurance / takaful – not more than 5% of your
gross income only !!
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