9 Jul - 6 min read
Ideally, you should have your own medical and life insurance (you shouldn’t depend solely on your employee insurance coverage) as soon as you enter the workforce. Reason being, you need to have more monetary coverage for all your financial commitments including your student loan, car loan, rent or mortgage loan, home bills, helping your parents, and if you’re married, supporting your family.
After paying off all your commitments, it doesn’t leave you with a lot of money to pay for life and medical insurance policies, especially if you’ve just started working or are earning a middle-range income. This is where a term life insurance policy comes to your rescue, as it’s the cheapest way to have a basic life insurance coverage in the event of an untimely death. But is it suitable for you and your finances? We’ll explain what term life insurance is and its pros and cons for you to decide on your own.
Term life insurance is sometimes known as the most affordable and simplest life insurance product, and is designed specifically for those who are seeking temporary coverage over specific financial commitments – whether it’s a debt, a loan, or as a final means to support a family after passing into the void.
In a nutshell, a term life insurance policy provides death and total permanent disability (TPD) coverages from natural and accidental causes for a specific period of time (a term) without any added cash or investment values. This means if you’ve purchased a term life insurance policy with a coverage of RM100,000, the amount will stay the same throughout your pre-specified term – or until it expires.
If a policyholder dies before the term is over, the beneficiary – usually the parents, siblings or a spouse – receives the predetermined death benefit in full. However, if the policyholder dies after the term is over, neither you nor your beneficiary will receive anything. Learn more about term life insurance and how it works here.
Term life insurance is usually considered the cheapest form of life insurance there is. Depending on your coverage amount, these days you can get term life insurance for lower than RM20 a month – that’s just a couple of hundred Ringgit per year! Of course, these depend on several other factors such as your age and lifestyle habits, but the fact is that term life insurance is an affordable option to Malaysians. Higher coverage amounts will cost you more in premiums, but it offers bang for your buck considering the peace of mind you get knowing there is a safety net if you’re no longer around to provide for those you care for.
The inexpensive premiums make it especially appealing to young working individuals who are just starting to develop their financial security or young parents who are looking to safeguard their family’s future.
Term life insurance policies are generally easy to purchase. Most insurance providers offer it online, where you can purchase it after answering a series of personal and medical-related questions (honesty is the key here, you don’t want to end up with a revoked policy due to personal information discrepancies). What’s more, most term insurance policies don’t even require you to go through a medical checkup – you certainly get maximum convenience here.
One of the biggest appeals about a term life insurance policy is that it’s open to most everyone who is under 65 years old and in good health. Some insurance providers even set their policy eligibility to as young as 16 years old to encourage the younger generation to purchase insurance coverage.
Its simple, straightforward nature also adds up to its many advantages; people from all ages and background can understand the product easily without the need to research on confusing legal terms.
By its very nature, term life insurance does give you a slightly less comprehensive level of protection when compared to whole life insurance. For starters, you may not know whether the term you have selected is sufficient. It’s hard to predict the future, especially when the future lies 15 – 30 years ahead. Of course, you can always renew your coverage when the term ends, but by then premiums could have increased or you may face difficulties if you have been diagnosed with any health problems along the way.
While some term life policies allow you to add on optional riders like critical illness coverage or accidental death cover for more holistic protection, do note that most term life insurance plans do not come with any cash value. Therefore, if you are looking for insurance coverage that comes with cash value or investment features, you are better of considering a whole life policy.
While term life insurance policies can be quite straightforward, there is still some flexibility in terms of how you pay your premiums. There two kinds of term life insurance – yearly renewable term life and level term life. With yearly renewable term life, your premium increases after each birthday, which means you could have started out with an inexpensive premium but later on find that it has become slightly out of your budget.
If this is an issue for you, opt for a level term life insurance policy instead which will offer you a fixed premium rate for the length of the policy period which can be anywhere between 10 to 30 years. Of course, this requires a higher level of commitment compared to the more flexible yearly renewable terms, so make sure to have a think about which option you prefer.
There’s no hard and fast rule when it comes to choosing the best life insurance coverage, it all depends on how much you’re willing to pay and what your financial needs are in the long term. The best thing to do is to identify all your current financial commitments, and from there try come out with an estimate to how they will amount to in the next 15 – 30 years. From there, you can begin to pinpoint the amount of coverage you need, and whether whole or term life insurance policy will suit you better.
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