Back in 2014, I was shopping for medical insurance. In case I lost my job (and the medical coverage they give) or something happened to me.
So I looked through as many websites as I could, spoke to as many agents as I could, and read almost every page of the insurance proposals they gave me.
After a couple of months, I finally made my choice. I initially thought it was going to be easy to choose, but boy was I wrong. There’s a lot more to insurance than I thought. Even after countless hours studying, plus discussions with insurance agents and an actuary — I can only claim to understand the basics.
Anyway, I thought all that “research” might be helpful, so here’s my advice on how to choose the “best”; and the thought process behind my choice.
Hopefully it’ll guide you when you’re looking to buy insurance too.
How to Read Your Insurance Proposal
Let’s start with the insurance proposal/quotation. After collecting some basic information from you like:
- Your age
- Your gender
- Your job
- Do you smoke
Your helpful agent will generate you a rather confusing document that’s about 15 pages long.
Here’s a simplified breakdown of the important parts:
This is the first page, where they typically show you all the money you stand to get, and how much you need to pay.
2. Description of Benefits
These pages explain in non-layman-friendly words what kind of benefits you’re getting.
They also explain the limits of your coverage. Most importantly:
- The age your benefit expires (e.g. you’re covered till 100 years old)
- Exclusions (e.g. you don’t get money if you do drugs and get HIV)
- Special terms and conditions (e.g. your overall annual limit will increase by 5% every two years, over 20 years)
3. Investment-Linked Illustration
This section is for finance geeks like me.
It shows where the money you pay goes every year, how much the company takes from you, and demonstrates how math can fool people into spending money.
Because the first thing an unscrupulous agent will point to is the large number at the bottom: “Ooooo… you’ll have RM 100,600 after 30 years. AND you get ALL this while protecting yourself!”
The important thing here is to not be overly-impressed by the large numbers you see. This will cloud your judgement (because hey, every other insurance company can show you the same large numbers). The other important thing is to see which fund they are planning to invest your money in. Since we’re talking about insurance, and not gambling here — please be conservative and choose something like a balanced fund.
(Actually this part warrants an entire 2,000-word post on its own, but think I’ll leave the details out for now).
4. Product Disclosure Sheet
The final section reads like an FAQ in more layman-friendly terms.
For example, this question nails it: “How much premium do I have to pay?”
I think Bank Negara requires insurance companies to put this section in, because the above sections are too difficult to read on their own. It’s actually a great place to start from, so some companies will have this sheet right at the front.
(Different insurance companies will structure the insurance proposal differently, but the above four sections will always be included).
p.s. Bank Negara, if you’re reading — we think insurance proposals are still too difficult and confusing to read. We need to make things simpler, and educate people better!
Comparing Insurance Proposals
Now that you’ve read your first proposal, meet with a few other agents and get alternative proposals. And it’s time for mr-stingy’s favorite activity — comparing between alternatives, and choosing the best.
Here’s the thing about insurance plans though. They may have similar features, but each has its own unique characteristics. It’s not like comparing an iPhone to a Samsung Galaxy. It’s more like comparing an iPhone to a digital camera to a tablet.
To add to the difficulty, insurance is a highly personal thing. So a 31-year-old single guy (like me) needs very different insurance from a 50-year-old married lady with three daughters.
Here are the things you should consider anyway:
- The Company
- The Benefits and Features
- The Agent
And just because I hate articles that end with “there is no best, you have to choose what’s right for you”, here’s how I decided on my policy.
Which Insurance Company to Go for?
In their attempts to convince you, agents from insurance companies will tell you stuff like this: “We’re the largest (or 2nd/3rd largest) insurance company in the country. We’ve been operating here before Sir Francis Light discovered Penang.”
Bank Negara doesn’t publish individual insurance company statistics anymore, but if you’re interested to know how big the insurance companies are, here’s a look at their balance sheets in 2012:
Source: Bank Negara
But is company size and history really so important?
Not really if you ask me. History just means that the company is great at adapting with the times, that they can continue to make money over different eras. And size just means they’re really good at getting more customers.
What’s more important to me is reputation. Does the company have a reputation for paying out claims quickly, without difficulty? Or do they make things difficult when people need them the most?
If you dive through enough forums on the Internet, and speak to enough people, you can start to make your own conclusions on which companies you should be careful of. Whether it’s the fault of the company, the agents or people who have a grudge against them — I don’t know.
But I really believe in the power of peer reviews. (Anyone wanna start a TripAdvisor for Insurance?)
Beware The Most Common Mistake — Investment Returns
When I was 12 years old, my mom bought a life insurance policy for me — sold on the promise that she would just have to pay premiums for eight years, and then returns from investments would cover the premiums forever. Guess what happened? The stock market crashed in 1997, the “projected investments returns” never happened, and the company never declared the “expected bonus.”
So I’m still paying for the policy now, 19 years later.
I do have some cash value, but this would run out in about eight years if I stopped paying premiums today.
Moral of the story? Unless explicitly guaranteed, investment returns are “projected.” In reality, you never know how well those investments are going to do. So be prepared to pay your insurance premiums for a long time.
Investment-linked Plans or Traditional Insurance?
Up to this point I’ve only spoken about investment-linked insurance. It’s the most popular type of insurance sold today. But there’s actually another type of insurance: traditional.
Critics of investment-linked plans say they are expensive, have no guaranteed returns and you’re better off dealing with insurance and investment separately.
The cheaper alternative to buying investment-linked plans?: buy a standalone medical card + traditional term life insurance. Invest the rest of money in higher yielding investments.
A standalone medical card offers you similar benefits to an investment-linked policy plus a medical “rider.” The only difference is, it’s pure insurance. Same thing goes for traditional term life insurance. You define a term (say 25 or 30 years) and pay only to cover that term.
There’s no investment portion, no fund management charges, and no fancy bells and whistles. You don’t get to tweak your plan once it’s set. The good part? It’s cheaper.
But Here’s Why I Chose Investment-Linked Insurance
1. Insurance companies provide incentives when you package plans together in an investment-linked policy. For example, if I had bought an RM 250 standalone medical policy from AIA, after 10 years the expected cost of insurance is RM 1,617.56. My investment-linked plan (with identical RM 250 medical benefits) is expected to cost RM 1,249 — but it also includes life insurance + a critical illness benefit. In other words, there’s a discount when you package medical plans with investment-linked policies.
2. Certain benefits are unavailable if you purchase standalone medical plans. For example, AIA’s RM 300 and above plans are not available as standalone plans. If you look at their website, Prudential doesn’t even have a standalone medical plan. It needs to be a rider on an investment-linked policy.
3. Word on the street is that standalone medical plans have “guaranteed renewal” when you get them from reputable insurance companies. But more than one agent has told me if you really want “guaranteed renewal”, you have to package it with an investment-linked policy. It looks like a grey area; as to whether standalone medical cards have guaranteed renewal or not.
I wouldn’t want to be in a situation where I got terribly sick, only to have my medical insurance tell me they don’t want to renew my plan next year. With an investment-linked policy — it’s clear. As long as I’m still alive, and the rider is still active — I’m covered.
4. I showed my actuary friend some investment-linked plans. And he told me that they were about 22% more expensive than traditional term plans. Because I’m an optimist, I’m willing to pay 22% more for the chance that my investments will prosper over the next forty years.
5. A standalone medical policy can lapse if you do not make payments on time. When you have a “savings/investment” portion, this fund can be utilized to cover premiums if you don’t have enough cash at that moment.
6. The fund management charges by insurance companies are expensive (~1.5%). But you would be hit with the same charges if you invested in mutual funds.
Will I be able to beat the investment returns by the insurance company if I invested money on my own? I honestly don’t know. And I have just enough faith in the insurance company.
Which Insurance Plan Did mr-stingy Choose?
After months of research, I finally decided on an investment-linked policy which combines life + critical illness + medical. For the following reasons:
I spoke to quite a few people within and outside the insurance industry. I scoured Internet forums and websites looking for what people are saying about the insurance companies. For better or for worse, some insurance companies have a worse reputation than others.
AIA seemed the most reputable to me.
Benefits Which Suited My Unique objectives
I’m 31 years old, healthy and have no dependents. My primary objective was insurance that can cover any medical costs when I’m old (~40 years from now). I liked that AIA covers medical till 100 years old.
My agent also recommended me to take Early Critical Illness coverage, and I agreed. This is important, because with just normal Critical Illness coverage — insurance companies don’t pay until your disease reaches a certain severity. I don’t want to have cancer, then be told, “You need it to get worse,” before I get any money.
Finally, I decided that the mid-range RM 250 plan was sufficient for now. This one was a bit of a balancing act: Do I buy an expensive package now, so that I’m guaranteed premium medical care when I’m old; or do I buy a really cheap one now, and then run the risk of the company not wanting to increase my coverage later?
I decided to choose the mid-range plan. In twenty years’ if I need higher coverage — I’ll think about it then.
This was the biggest factor. No disrespect to all the other agents I spoke to. Most of them are my personal friends, to whom I’d refer prospective clients to in a heartbeat.
My agent from AIA was something different though, in terms of presentation, response time and product knowledge. She also offered me the highest level of customization among everyone I spoke to. “Want to add critical illness coverage here, but reduce life coverage here? No problem.” “I’ve increased your savings account contribution here and reduced your protection account contribution here. This is why.”
Can’t help it; I’m an engineer. I love to tinker, tweak and optimize. And I like it when I’m given solid reasons for everything.
So, RM300 a month will get me:
- RM 10,000 if I’m permanently disabled (up to 70 years old)
- RM 10,000 to my beneficiary if I die (up to 100 years old)
- RM 100,000 of early critical illness coverage (up to 85 years old), including an RM 300/month waiver of premiums
- RM 250 per day allocation for hospital stays
- Hospitalization and surgical benefits – as charged, up to an annual limit of RM 150,000
People used to say:
“Forget about the company, the insurance agent is the most important.”
I didn’t believe it at first. I thought I would take the human element out — go purely on black and white documents and bypass all the agents. I would get the best insurance package ever, and share the story with everyone.
But now I realize there’s a lot of truth in that statement.
My honest assessment of the insurance industry in Malaysia is there’s still a lot of human element involved. Maybe too much. That’s why it’s so difficult to compare. That’s why everyone has different experiences in dealing with the insurance companies. And that’s why sometimes people don’t get paid when they need it the most.
Even if you have the best plan with the best company, when it’s time to submit a claim — if your agent sucks, you’ll have a sucky experience. It’s really the most important factor when it comes to insurance.
You can leave the detailed calculations to nerds like me (heck, if you’re confused about your plan, and want my thoughts — write to me). But my sincere advice is to look for an agent who is knowledgeable, ethical, and looks after your best interests. If you have one who isn’t performing — dump him/her and look for someone new.
There are really good ones out there, and I hope that you find one.
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Update Sept 2020: If you’d like my recommendation for an insurance agent, feel free to contact Elizabeth Ong at firstname.lastname@example.org.
Pic from Pexels