Understanding your insurance policy

Chuah: 'Generally, Malaysians are not that financially literate and rely on agents to propose plans.'

MANY of us purchase insurance for the pure reason of having that added protection - should something unfortunate happen. 

However, how many of us really know what we’re buying into?

According to MyFP Services Sdn Bhd managing director Robert Foo, many people are often sold products that are not ideal for them.

“A lot of times, people don’t purchase insurance policies.

“Instead, it’s something that’s sold to them,” he tells StarBizWeek.

Foo adds that most people also do not read the terms and conditions of the policy.

“It’s because it’s very daunting. You could spend three hours reading it and still not understand it.

“There are a lot of jargons that the lay person will not understand.”

Foo says policies have become a lot more “reader-friendly” in the United Kingdom (UK).

“They have passed a legislation in the UK to make insurance policies easy to understand, even for the average man on the street.”

Foo: ‘You could spend three hours reading it and still not understand it.’

Knowing what’s right for you

Foo feels that people looking to buy insurance should look for products that are catered to their needs, affordability and type of coverage.

“An insurance agent should be able to explain in detail what the policy is about and not just sell it to the customer,” he says.

Success Concepts Life Planners chief executive officer Joyce Chuah admits that the insurance industry was a sales-orientated one, with lucrative commissions and attractive incentives.

“The education level of agents - some are part-timers, housewives or have SPM-level education.

“Can they truly understand things like internal rates of return (IRR) and other technical terms?

“Generally, Malaysians are not that financially literate and rely on agents to propose plans.”

Chuah adds that the word “guarantee” was a common word used within the insurance community.

“The word “guarantee” is a magical word. Insurance is probably one of the only financial tools (besides fixed deposit, of course) where the word is used by agents in some of their proposal plans to clients.”

Knowing what to ask

Licensed financial adviser and syariah financial advisory for Excellentte Consultancy, Jeremy Tan, says customers need to know what they want, and be able to ask their insurance agents if the product that’s being offered is suitable.

“Questions to ask are what are the different types of insurance plans available based on my areas of needs? Will it ensure continuity and non-disruption of my dependents’ lifestyle financially?

“Does it have provisions that can cater to me if I am disabled for the rest of my life? Will it assist in the provision of funds for medical treatment and full recovery? Also, will it ensure all outstanding debts are paid should anything unfortunate happen?”

And what about factors such as death?

“What type of events or occurrences does the policy cover? Is it only death, death and disability, or death, disability and dreaded diseases? Or is it all three?

“What is the sum assured for each of these events or occurrences, the corresponding premium to be paid and the period or years covered? Will the premium level that is to be paid remain the same throughout, or is it on an increasing scale,” asks Tan.

Better education

At the end of the day, efforts need to be made to educate the public when it comes to buying insurance. After all, a person’s livelihood is at stake.

Tan says educational talks, public forums and road shows should be organised by financial institutions in collaboration with the regulators for the interest of the general public.

Tan concurs that Bank Negara is the best body to help regulate the local insurance industry.

“One could also consult a financial planner or adviser for an independent view,” he says.

Chuah believes that Bank Negara Malaysia can step in to help.

“The central bank needs to be more vigilant about the current practices by the agents and conduct their own analysis and disallow savings or so called investment plans that cannot meet certain IRR rates.

“They could also propose more stringent training requirements on agents, or perhaps higher penalties for mis-selling.”

Tan concurs that Bank Negara is the best body to help regulate the local insurance industry.

“The central bank has increasingly regulated the insurance industry and continued to come up with new guidelines to increase public awareness and enhance the professionalism of the industry.”

BY EUGENE MAHALINGAM