Buying life insurance is a sound investment

Only 54% of the Malaysian population are covered by life insurance or takaful plan, 90% of those insured are considered underinsured

By MARK RAO / Pic By BERNAMA

MICRO and investment-linked life insurance products can help bridge the coverage gap in Malaysia, as planning ahead for your health is not only a sound investment but potentially life-saving.

According to the Life Insurance Association of Malaysia’s (LIAM) latest findings, only 54% of the Malaysian population are covered by life insurance or takaful plan.

Taking into account policyholders with more than one life or takaful policies or certificates, this means that only 34 out of 100 people are insured, it noted.

Galen Centre for Health and Social Policy CEO Azrul Mohd Khalib (picture) said what is just as troubling is the fact that, as many as 90% of those insured are considered underinsured but are unaware of the fact.

He said among the reasons is the lack of acknowledgement and recognition that insurance is a form of investment or protection against the unknown and unpredictable.

“Young people, in particular, may not want long-term financial commitments, may not actually be able to afford the premiums or feel that agents are only concerned about their sales targets without understanding their customers’ needs,” he told The Malaysian Reserve.

Many find purchasing insurance too much trouble and unnecessarily complicated he added.

Insurance is also perceived as something the upper- and middle-class income groups need but not the lower income or B40 group, he said.

This is because the traditional long-term insurance models may be out of the range of affordability for this group, resulting in them being largely underserved and often experience financial catastrophe when hit with a health issue.

What options are available for individuals who have long felt themselves excluded from traditional life policies but have to nonetheless plan for the unknown?

Microinsurance
For a person starting a new job and is already saddled with steep monthly commitments in terms of student, car and housing loans, paying towards a life insurance policy is far from their minds.

If they do not have a family or group policy to fall back on, they are at risk in the unfortunate event they become critically ill or injured.

Paying out of pocket for private healthcare is not feasible for the vast majority of Malaysians.

Microinsurance, or insurance plans with premiums as low as a few ringgit a day, could be the answer.

Microinsurance products which bundle life insurance and medical benefits together but purchased through directly accessible means, such as through mobile phone prepaid reloads, may be the way forward, Azrul said.

“This should complement existing initiatives such as ‘Perlindungan Tenang’ by Bank Negara Malaysia (BNM).”

Via Perlindungan Tenang, the central bank is partnering industry players to provide affordable policies and address the issue of insurance penetration among Malaysians.

Announced in October 2017, the initiative’s aim is to reach eight million working-age Malaysians and over 700,000 micro enterprises in need of insurance and takaful protection against key risks.

At the same time, the life insurance industry has been making basic-term products available through direct distribution channels, typically via online platforms or walk-ins, as early as July 2017.

BNM now requires insurers to provide critical illness and medical products via these direct distribution channels — a move that came into effect in March this year.

According to LIAM, the life insurance industry made significant progress in migrating to electronic or e-payments, with payments made by insurers via this platform constituting 91% of the total volume of transactions at the end of December last year.

Eighty-seven percent of premiums received by insurers in the same period were also via e-payments, it added.

For the life insurance industry, these developments allow insurers to tap into potential customers given the low penetration rate and provide greater and more convenient access to life insurance products in the market — something which was not available when the industry was hovering at 25.3% coverage level in 1996.

Investment-linked Insurance
For those looking to put some of their premiums in the financial market for capital gains, investment-linked policies offer both investment and protection elements.

Through such plans, part of the premiums paid for life coverage will be invested in specific investment funds of the policyholder’s choosing.

Subject to certain constraints, policyholders can choose how to allocate their insurance premiums towards protection and investment, while the coverage provided could include death benefits, disability and critical illnesses.

Azrul said these policies allow for higher or a reduction in health coverage depending on a policyholder’s needs.

“The plans are often flexible, allowing customisation of portfolios, and some even have a savings plan,” he said.

“Unlike traditional insurance, these policies also allow for withdrawals to be made in the future if necessary. These features make such policies a lot more attractive.”

Investment-linked insurance made up 41% of the total RM1.51 trillion in sums assured for life policies in 2018 in Malaysia, followed by group policies at 37% while traditional policies made up the remainder.

It is important to bear in mind the investment risk when purchasing an investment-linked insurance product will be borne entirely by the policyholder.

If a fund does not perform, the value of the investment could be adversely affected.

The performance of the investment-linked funds, ranging from one-month to five-year total returns, can be accessed via LIAM’s website.

Awareness and affordability remains the key issue that needs to be addressed in the life insurance industry, and Azrul believes microinsurance or usage-based products could be the building blocks towards this.

“The majority of the population continues to be underserved both in urban and rural areas, representing an opportunity to grow the life insurance market,” he said.

“Innovative approaches, such as developing microinsurance or usage-based products, must be developed to bridge the current gap.”

The industry is ripe for disruption as greater user awareness reduces the reliance on third party channels such as agents when accessing health coverage.

Azrul said the emergence of portals such as RinggitPlus.com and RinggitOhRinggit.com is already facilitating this disruption.

“(These platforms) are essentially cutting out the middleman such as agents and giving information and decision-making power directly to potential customers,” he said.

“The comprehensive discussions and comparative analysis provided allows for people to decide for themselves on the quality and coverage provided by the companies,” he said.