Insurance planning is the foundation of a good financial plan, ensuring that you have a backup plan to provide enough family income and to fund medical expenses in the event of unforeseen circumstances such as premature death, total permanent disability, critical illness, accidents and hospitalisation, in terms of personal risk.
You should also extend your insurance planning to cover properties risk, liability risk and professional liability risk based on your circumstances and needs.
In the financial planning process, you must first determine your current financial position and make sure you have emergency funds for six to 12 months before you proceed to insurance planning.
With proper assessment of your current financial position, which includes your cash flow and net worth statements, you can determine your insurance needs more clearly in terms of family expenses and outstanding debts obligations.
As a financial planner, I would normally advise my clients to have adequate emergency funds and insurance coverage before they consider venturing into investment. As far as investment is concerned, all investment assets need time to mature to meet your financial goals without any disruption from personal risks, property risks, liability risks or professional liability risks arising from unforeseen circumstances.
Insurance serves as the cheapest and most effective tool to cover potential financial losses without touching your investment assets.
When engaging in insurance planning, seek advice from your trusted professional financial advisor to assist you while working out which insurance plan will best fit the requirements of you and your family, according to the following guidelines:
- What kind of insurance do you need?
- What will your insurance policy cover?
- How much insurance coverage do you need?
- How much will you be paying for the insurance coverage?
- What happens if you fail to pay the required premiums?
- Should you replace an existing insurance policy?
- What happens if you terminate your policy?
Your active participation is required when working with your financial advisor to work out an insurance plan that best suits your needs. Be honest about your financial situation. Communicate your goals and objectives. Do not be afraid to ask questions!
In the attached charts, I have provided some guidelines as to the types of insurance coverage to consider. You may then determine the quantum of coverage to ensure you and your loved ones are protected. Take time to make your decision. Regard your financial advisor as a trusted partner, and not merely a salesperson.
What Type of Insurance Do You Need?
| If you are worried about… | You may want to consider this type of insurance… | How it helps… |
| Life insurance | ||
| Death of breadwinner | Life | Provides some money for your family if you die. |
| Total & permanent disability | Life | Provides some money for your family if you suffer from a total or permanent disability. |
| Death of mortgagor/main borrower of home loan | Mortgage term reducing insurance (form of life insurance) | Pays off mortgage if mortgagor dies. |
| Health insurance | ||
| Trauma/critical illness | Critical illness | Pays a portion or lump sum on first diagnosis of serious illness. |
| Medical bills for major illness or accident | Medical expense, other hospital and medical plans & riders | The main medical expense insurance plan pays a portion of hospital and surgical costs if you are ill or suffering from injuries due to an accident. Complementary plans such as riders cover co-payment portions (eg deductibles and co-insurance) that are not covered under a main plan. |
| Long-term care for disability | Long-term care, eg supplements | Pays a fixed monthly amount for long-term treatment upon the insured’s inability to perform a number of “activities of daily living” like bathing, dressing, etc. |
| Loss of income because due to hospitalisation | Hospitalisation cash plans | Provides income if you are hospitalised. |
| General insurance | ||
| Loss of or damage to your belongings | Home contents | Pays for repairs or replacement if you suffer loss or damage to your home or contents. If you are renting your home, it’s your responsibility to cover loss of or damage to the contents of your home. |
| Damage to car/theft | Car | Pays for repairs or replacement if your car is stolen or damaged. |
| Damage to your home | Fire/home | Pays for repairs or replacement if you suffer loss or damage to your home as a result of perils such as fire, flood, and burglary. |
| Loss of luggage/trip delays/cost of medical care while travelling | Travel | Pays for repairs or replacement if you suffer loss or damage to your belongings. Also pays for financial loss if there are delays or cancellations. Pays for costs related to personal accidents while overseas, including medical and repatriation expenses. |
About the Author
Tan Kim Book, CFP, IFP is a Licensed Financial Planner with Phillip Wealth Planners Sdn Bhd and certified member of Financial Planning Association Malaysia (FPAM).
