Everything You Need To Know About Term Life Insurance

Sharing the risks, that’s what insurance is all about. But what should you do when the risks involve your life? Find out how Term Life Insurance can help secure your financial liabilities and protect the future of your loved ones.

Adulthood is risky business. Unfortunately, we’re not just talking about your statistical mortality rate. Mortgage, bills, children’s education, long term financial stability – the list is long, and the risk of everything coming undone is not something any responsible adult should take for granted.

Life insurance helps you manage these risks by providing a safety blanket for your dependents if anything happens to you. There’s a lot of material to cover on the subject, but here's 'Everything You Need To Know About Term Life Insurance':

It’s called life insurance, but it’s really about leaving a legacy for your loved ones.

What is Life Insurance?

The mechanics are simple. Life insurance is an agreement between two parties, namely the policyholder and the insurer. You (i.e. the policyholder) will make payments called premiums to an insurer such as an insurance company or bank, for a fixed amount of coverage benefits.

These benefits will be paid out to you or the beneficiaries of the policy if events such as death, terminal illness, critical illness or total and permanent disability occur.

In case you didn’t know, beneficiaries are the individuals, such as family members, that you nominate to receive the benefits from your policy.

Example 1:

A policyholder by the name of Maisarah has a term life policy which covers death and total or permanent disability (TPD) with a sum assured of RM120,000. She has nominated her son as the beneficiary of her policy.

If she passes away during the coverage period, her son will receive the sum assured. But if she became totally or permanent disabled due to an accident or sickness, the benefits of RM120,000 will be paid out to her instead.

Types of Life Insurance

There are lots variations out there, but insurers will always offer two types of life insurance:

  • Whole Life Insurance is a permanent policy which provides lifetime coverage.
  • Term Life Insurance is a non-permanent policy which provides protection for a specific time period between 1 to 40 years.

Besides the different coverage periods, whole life insurance always comes with a savings plan. While you’ll pay much higher premiums, your policy will also gain cash value over time.

Example 2:

Adam has a whole life policy with a sum assured of RM100,000. He has paid his premiums regularly for the last 15 years, so his policy has accumulated a cash value of RM40,000.

At this point he can choose to surrender his policy and get a lump sum payment which is equal (or even greater) than the cash value of the policy.

If Adam does not surrender his policy and suddenly passes away, his beneficiaries will receive the sum assured of RM100,000 and an additional RM40,000 from the cash value of the policy.

Just remember that higher premium payments for a whole life policy won’t necessarily translate into a higher assured sum of benefits. Here’s a quick summary of term life and whole life insurance:

Term Life Insurance Whole Life Insurance
Protection period Between 1 to 40 years Lifetime protection
Premium rates Low High
Premium type Flat rate Flat rate
Protection coverage: ✔ Death ✔ Death
- ✔ Total or Permanent Disability ✔ Total or Permanent Disability
- ✘ Terminal Illness ✔ Terminal Illness
- ✘ Critical Illness ✔ Critical Illness*
Savings plan No, but there are exceptions Yes
Tax relief Yes Yes
GST charges No No
*Protection coverage may vary between whole life policies

Why should I get Term Life Insurance?

It’s about managing risks and your personal finances at the same time. The average Malaysian household has to manage increases in cost of living each year, while financial commitments remain high: car loans, mortgages, tertiary education and the monthly bills.

When it comes to family you should spare no expense. You have an obligation to provide, but finances can get especially tight if you’re a young family just starting out. What you need is an insurance policy which provides enough coverage when your liabilities are highest without breaking the bank.

Term life insurance offers three solutions for the average Malaysian household:

  1. Your premiums are affordable and you get high coverage benefits. You won’t have to dig deep into your pockets to ensure that your policy provides sufficient coverage for all the financial commitments.

  2. Your tenures are flexible anywhere between 1 to 40 years. This gives you greater freedom to fit your coverage periods around your major financial commitments, such as getting a term life policy which matches your home loan tenure.

  3. Your premiums are also flat rate so you won’t have to worry about increases to your commitments over the course of your coverage period. Once your policy expires, you’ll be given the option of renewing your policy or converting it to a permanent plan.

Take note that the premium rates for a term life policy increase with age. Each time you renew your policy you should expect to be charged higher premiums.

What do I need to know about Term Life Insurance?

Not all of us are insurance underwriters. There’s a lot of fine print that goes into your insurance policy; the worst time to ask questions is after you’ve signed the paperwork! Educate yourself on life insurance terminology with our glossary below:


Most term life insurance policies will only provide protection benefits for death and total or permanent disability (TPD). If you’re on the lookout for additional coverage, you’ll want to check if your insurer has the option of add-on riders.

Riders allow you to customise the coverage of your policy to fit your needs. For example, if you’re looking for coverage benefits for hospitalisation and critical illness, you’ll want to find a term life plan which also has the option for a medical card rider.

Sum assured

When an event occurs which triggers the payment of benefits, the insurer will usually make a lump sum payment to the beneficiaries of the policy or the next of kin. This payment is called the sum assured.

The amount may vary depending on the coverage of the policy and the attached riders. Some policies offer higher benefits for death and TPD due to accidents or travel using public conveyance.


The premium rates for your term life policy will be determined based on various factors, such as your age, sex, health, occupation and your lifestyle habits such as smoking and drinking.

A major plus when getting a term life policy are flat rate premiums. Otherwise known as level premiums, your premium rates will stay the same throughout the duration of your policy, so you won’t have to worry about increases in costs.

Depending on your policy you may be given the option of monthly, quarterly, semi-annually, annual or lump sum payments.

Policy period

Term life insurance always comes in a variety of packages, with wide coverage period anywhere between 1 to 40 years. One thing to find out from your insurer, besides the right coverage period, is if the policy is renewable or convertible.

Short term policies such as 1 year and 5 year plans can usually be renewed once they expire. But since age is a factor in calculating your premiums, don’t be surprised if the charges increase when you try to renew your policy.

Not all term life policies are renewable. If so, you’ll want to check if the policy can be converted to a permanent plan if you’re planning to extend your coverage after your policy expires.

Cash value

There are two components to life insurance: protection coverage and a savings plan. While the savings component is usually only associated with whole life insurance, there are some term life policies that come with a savings plan attached.

You’ll pay more on your premiums and it’ll take a few years before you start to see the growth, but your policy will increase in cash value over time. You’ll have the option of claiming its value upon maturity or by surrendering the policy.

Otherwise upon death or TPD, benefits equal to the cash value will be paid out, in addition to the coverage benefits of the policy.

No-claim bonuses, refunds & loyalty benefits

The popular conception of term life insurance is that unless something happens to you, there aren’t any actual benefits to getting a policy. In our opinion, that’s good because it means you’re still alive.

However, some insurers have taken the extra step by offering a no claim bonus. It can take the form of a refund of your premiums, in full or partial; or it can be a discount on your premiums if you decide to renew your term life policy as a loyalty benefit.

You’ll have to pay higher premiums, compared to a term life policy which does not have this feature, but you might save a lot more cash in the long run.

Age restrictions

There are benefits of getting a term life policy early. Your premiums will be much lower compared to when you sign up for a policy when you’re older and with higher health risks.

You’ll want to take note of the age restrictions of your term life policy before you sign up. Most plans are catered to adults, which mean there is usually a minimum age entry at about 18 years of age. But there are also term life policies designed for children and teens.

All term life policies will have a maximum age and an expiry age. The maximum age is the age limit for new customers to sign up for a policy. The expiry age on the other hand is the age coverage limit for a policy, or simply when it’ll expire.

Late premium payments

Life insurance is a contract between the insurer and you. In order to be eligible for the benefits guaranteed by the policy, you’ll need to fulfil your obligation by paying your premiums regularly and on time.

Insurers will issue a notice if you do not pay your premiums. Your policy and coverage will be terminated if you default on your payments for more than 30 days. For term life policies with a saving plan attached, the insurer will deduct the premium payments that you owe from its cash value.

Goods and Service (GST) Tax

You won’t have to pay and GST charges on your life insurance premiums and life-related riders. However riders which are not related to life insurance, such as critical illness, medical cards and personal accident will be subject to 6% GST.

Tax relief

For individuals in the tax bracket you can claim tax relief of up to RM6,000 from life insurance premiums. Tax relief lowers your deductible annual income to reduce the amount of taxes which you’ll have to pay.

Your filings for tax relief from life insurance premiums will be subject to approval from the Inland Revenue Board of Malaysia (LHDN), so remember to keep the receipts of all your premium payments.

Don't forget, you can always use the Tax Calculator by SaveMoney.my to figure out your taxes!

How To Make Claims

Insurance claims can often be a challenging process for all involved. Expenses have to be paid, family members are dealing with loss of loved ones, and amidst these trying changes a lot of paperwork has to be completed and filed.

The first thing to do is contact the insurer immediately. The claims representatives will help walk you through the claims procedure. Make sure to get your hands on the original insurance agreement, this will help speed up your claims report.

Next, you’ll have to start preparing the required documents. Incomplete submissions will only cause delays, so be sure to file everything that you need to. We’ve prepared a list of required documents below.

Documents For Death Claims
  • Original Insurance Agreement
  • Death Claim Form from insurer
  • Statement by Physician
  • Certified copy of Death Certificate
  • Certified copy of Policyholder’s NRIC
  • Certified copy of Claimant’s NRIC
  • Certified copy of Marriage or Birth Certificate for proof of relationship
  • Certified copy of Police Report for accident and suicide cases
  • Certified copy of Post Mortem Report if applicable
  • Consent Letter for Medical Report Release if applicable
  • Newspaper Cutting of Obituary or news report (if any)
  • Burial Permit (if any)
  • Other supporting documents (if any)

Documents For Total And Permanent Disability (TPD)
  • Original Insurance Agreement
  • TPD Claim Forms to be filled by Claimant
  • TPD Claim Forms to be completed by physician
  • Certified copy of Policyholder’s NRIC
  • Certified copy of Claimant’s NRIC
  • Termination letter / Medical Board Out letter
  • Photograph of Dismemberment if applicable
  • Newspaper Cutting of Obituary or news report (if any)
  • Other supporting documents (if any)

Should I Consider Getting Whole Life Insurance?

Think about it as both an umbrella for a rainy day and a piggy bank. Whole life insurance is permanent policy which provides protection throughout the lifetime of a policyholder, and also works as a savings plan for you to put aside cash for the long-term.

You’ll pay much higher premiums than a term life policy, but you’ll also get to see the cash value of your whole life policy increase over time. You can either grow it till it matures, or choose to surrender your policy in return for equal or greater value.

However, whole life insurance policies aren’t ideal for everybody because they limit cash flexibility and the returns from your savings may take a while to show. Whole life insurance typically works better as a savings plan for retirement.

What Is Investment-Linked Life Insurance?

Ever wonder what insurance companies do with all the premiums that they collect from their policyholders? No, they don’t just stick it into a bank account. Rather they invest this money into profitable ventures and get returns from it.

Investment-linked life insurance gives you an opportunity to both enjoy protection benefits and earn dividends from the insurer’s profits. We call this a participating policy. This is different from a savings plan where profits are guaranteed and your policy grows in cash value over time.

Premium payments will be divided into two funds: protection fund and investment fund. Policyholders can manage allocations in the investment fund according to their appetite for risks, and enjoy profits or suffer losses from these investment choices.

Your premiums will be higher than a non-participating policy, and you’ll be given the option of single premiums which are lump sum payments to increase your investment fund. Not all insurers have investment-linked policies. If they do, they may call it a different name such a unit trust fund.

Quick Recap: Term Life Insurance

What are the risks involved when it comes to your life? Chances are you won’t get involved in a fatal accident or contract a deadly disease in your lifetime – or the lottery for the matter. Even if the odds worked in your favour, can you risk the same for your loved ones?

Term life insurance is an affordable means to secure your liabilities and ensure the long term financial security of your family members. Even if you’re not around to see the legacy you leave behind, one simple financial commitment here can be the difference maker in their lives when you are no longer there.


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