Types Of Insurance In Malaysia: Know The Basics

Most of us Malaysians know the importance of having insurance. Yet with so many types to choose from, we may end up confused. Knowing the basics will help us end at a better decision!

The new normal has been tough on us Malaysians. We have endured a year and a half of living under multiple restrictions and standard operating procedures (SOPs). This prolonged situation has also taught us the importance of having protection from the unexpected. One of the forms of those protections is, of course, having insurance!

However, with so many types of insurance in Malaysia, many do end up confused. So many questions pop up -- which type of insurance do we really need? Am I getting the best deal? Which insurance is redundant to have? Knowing the basics of insurance types will help you arrive at the correct decision so today’s focus is to help you achieve that!

Insurance in a nutshell

Insurance is a contract, represented by a policy, in which an individual or entity receives financial protection or reimbursement against losses from an insurance company.

As the policy owner, you pay the insurance company money, which is called a premium. This premium is usually paid either monthly, quarterly, half-yearly or annually, for a specified period of time. In return, the insurance company undertakes to protect you, by compensating you for the damage or loss of what you have insured.

Insurance in Malaysia can generally be categorized as the following:

  1. Health insurance

  2. Life insurance

  3. Property insurance

  4. Protection Insurance

The basics of health insurance

This is emergency cover for hospitalisation, treatment, and your recovery. This is the most basic insurance that covers you in case of illness or injury due to an accident or illness. It covers all medical expenses and if necessary, hospitalisation costs.

The types of insurance in this category include:

  • Medical Card or Hospitalisation and Surgery Cover -- This helps mitigate the risk of financial loss when someone falls sick. The insurance company saves you the hassle of immediately paying the medical bill.

  • Critical Illness plan -- Protects you against the financial burdens of critical illness. One cash amount (also called lump sum) is paid to you upon diagnosis of any critical illness.

  • Hospital Income Insurance -- This insurance pays out an agreed amount of money to you when you are hospitalized.

The basics of life insurance

This provides cash benefits for your family in case of death. The types of insurance in this category include:

  • Whole life insurance -- Standby cash for the family and you into the best years ahead. When the insured dies, the beneficiaries will receive a fixed amount of money as pay-out. It will also give you savings benefits, which is why a lot of people use it for retirement planning.

  • Term insurance -- Financial protection for your family if the unexpected happens. The insurance period is usually shorter than Whole Life insurance. There are no savings benefits here, so term insurance is usually cheaper.

Basic of property insurance

This is a plan to protect your personal assets and things that are valuable to you. The types of insurance in this category include:

  • Motor insurance -- Get your car or motorbike insured against accident, theft, and more.

  • Home insurance -- Cover for your house and contents from fire, theft and other damages.

  • Pet insurance -- Acts like health insurance but for your pets!

Basics of protection insurance

Coverage plans for travel, commuting, and everyday life. The types of insurance in this category include:

  • Travel insurance -- Travelling can be risky, so protect yourself from accidents, flight delays, and trouble.

  • Personal accident insurance -- Coverage that allows you to focus on your recovery without worrying about costs.

Why takaful is a better option than conventional insurance

Takaful, or Islamic insurance, is a concept whereby a group of participants mutually guarantee each other against loss or damage. Each participant fulfils his or her obligation by contributing a certain amount of donation (tabarru) into a fund. A third party - the takaful operator, manages this fund.

In the event of loss or damage suffered, the takaful operator will disburse the funds accordingly to its participants. Any surplus is paid out only after the obligation of assisting the participants has been fulfilled. Through this principle, takaful operates as protection and profit-sharing venture between the takaful operator and the participants.

Here are four reasons takaful is better than conventional insurance:

  1. You get profit, instead of a bonus -- all participants and shareholders share profits from investments. This differs from conventional insurance. Any extra money or profit under this coverage belongs to the shareholders of the insurance companies.

  2. Free from riba -- Conventional insurance companies aim to collect premiums under-owned accounts to achieve profits. The goal of Takaful, by comparison, is to achieve cooperation among its participants.

  3. Cashbacks -- For certain Takaful products, there is a certain amount of cash back if you do not have any claims to make during the coverage period.

Good deeds -- Mutual cooperation is the underlying concept of takaful. A pooled fund provides mutual financial aid. This is collectively contributed by a group of people under takaful coverage.

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