If you’re a person that is always passionate about the topic on investment, you must have heard the saying “buy term and invest the difference”. I have no idea where is the origin of that phrase, but it is definitely not from Malaysia.
For those of you reading personal finance articles/books from outside of Malaysia, and following the advice of buying term from agents in Malaysia and invest the difference, I’m sorry to say that you are actually paying waaaaaaaay more than people that buys an investment-linked plan (ILP) with the same amount of coverage in the long run.
Buying term and invest the difference works for countries like the US, UK or even Singapore, because the premium for term life insurance is actually very low but that is not the case here in Malaysia….
… until lately!
Direct Term Life
Just like direct medical cards, direct term life is a term life insurance that you can buy directly from a Malaysian insurer without the need of any intermediaries. This means 0% commission!
A Term Life Insurance or commonly known as term insurance, is a plan that typically covers Death and Total and permanent disability (TPD) for a pre-determined period (term).
As mentioned in Part 1, all 14 life insurance companies in Malaysia releases their respective Direct Term Life plan to adhere to Bank Negara’s LIFE Framework. Here are the list of Direct Term Life that can be found on the internet.
- AIA – AIA Starter Plan
- AIA – AIA One Plan
- Allianz – i-EssentialCover
- AmMetLife – Protect20
- AXA – eLife Protector+
- Etiqa -Ezy-Secure
- Etiqa – Ezy-Life Secure
- Gibraltar – i-Care
- GE – Great Term Direct
- HLA – Term Cover 10
- Manulife – ManuProtect
- MCIS – MyLife Protect
- PRU – PRUdirect protect
- SunLife – Sun eSsential Life
- Tokio Marine – TM StarterPack
- Tokio Marine – TM TermDefender
- Zurich – Zurich Direct Term
(Note: These information are obtained directly from the insurer’s website. Best effort has been made to ensure the accuracy of these information. However, these information may change without notice. The purpose of this article is to provide a bird’s eye view on the direct insurance landscape, should you choose to purchase any of these plans, please read all the T&Cs and Product Disclosure Sheet from the respective insurers.)
Majority of the plans above can be bought online by visiting to their official website. However, if you wish to purchase Protect20 (AmMetLife) or ZurichDirectTerm (Zurich), you will have to visit their respective branch as you can not buy these products online (yet).
How to choose the right Term Insurance?
Do not be fooled by the short policy contract of a Term Insurance (unlike a long medical card contract), purchasing a term insurance can be incredibly personal.
A medical card in general only covers your hospital bills. A term life insurance, is extremely flexible in terms of coverage. Have you heard of the following ‘insurance’?
- Income protection
- Living expenses protection
- Children education protection
- Retirement protection
- Parents’ living expenses protection
- Children business start-up capital protection (🙄)
- Mortgage Reducing Term Assurance (MRTA)
These are actually covered by the same insurance – term insurance (can also be protected using whole life insurance, the major difference is the length of term).
Here are some tips on how to choose the right term insurance:
1. Understand the basics of Term Life
A term life insurance covers death and TPD. Before you hop onto any insurer’s website, let me briefly explain the basics of a term life insurance.
Term : The length of the insurance coverageIf the term is 10 years, it means the policy/contract will last for 10 years.
Maximum Coverage Age: The maximum age that the insurer will coverRegardless of the term, the insurance will mature at the maximum coverage age.
What is the difference between Term and Max Coverage Age?If you buy a 30 year term at 60 years old, if the max coverage age is 70, you policy will end in 10 years instead of 30 years.
Renewability : The capability of a policy being renewed.If the renewability is guaranteed, one can purchase a new term without going through additional underwriting.
Is the premium guaranteed?Most direct term insurance has a 1 year Term (yearly renewable), therefore the premium is not guaranteed and may subject to change after the 1 year period. However, if the insurance is a 10 year Term, the premium is guaranteed for that 10 years (with the exception of Etiqa’s Ezy-Secure).
Who is the Beneficiary?A beneficiary is the person who would receive any insurance benefits if the life assured pass away. In the case of TPD, the life assured will receive the money.
Do I get back anything at the end of the term?As term insurance is a pure protection insurance, there will be no cash/savings value at the end of the term.
What are Riders?A rider is an optional coverage you can ‘top-up’ to the main insurance.
2. Determine your objective
As mentioned above, a term plan can be ‘crafted’ for many purposes. Why do you need a term insurance?
To determine the objective is very important especially when it comes to buying a Term Insurance. You do not want to buy a term insurance and pay for it well over your retirement age, and get nothing in return when it expires.
For a start, you may look at this list again for reference:
Living expenses protection
Children education protection
Parents’ living expenses protection
Children business start-up capital protection ( 🙄 )
Mortgage Reducing Term Assurance (MRTA)
But if you ask me, I would say just focus on income protection.
Why? It is because all the other expenses originates from your income, i.e. if you can protect your future income, all the other expenses can be covered by this lump sum payment from the insurer.
Without the introduction of this direct term insurance, it is quite impossible to cover your entire future income as the insurance premium is too expensive.
3. Determine the correct coverage
Most of the direct insurance plans covers both Death and TPD. Calculate how much do you need for your coverage, if you need help, you can hire my service here. Of course, I will be charging a fixed fee.
You should also pay extra caution to the exclusion clause for each direct term life, especially on the TPD coverage. Every company covers TPD up to certain age, usually shorter than the death benefit. As I do not have full access to the policy contracts for most direct term life, I couldn’t comment on what was included in the full exclusion clause.
If you proceed on buying these direct term insurance, I highly encourage you to read the exclusion clause once you’ve gotten your policy, and utilise the free 15-day free look period to return the policy should you find something that doesn’t suit you.
Other than that, some insurance companies (Gibraltar, HLA, Manulife and SunLife) provides additional benefits, do look at the comparison table below for more information.
4. Choose the correct term
Most of these direct term insurance have a term of 1 year, it means that you will need to renew your policy every year. Most of the time, this process is automatic and you are not required to fill up a form every year. To enjoy this convenience, look for a direct term that guarantees the renewability of the policy.
However, the premium of these insurance are not guaranteed. Every insurer have their indicative premium tables for different age groups, you may want to have a look at that, I also did a summary for you if you fall within the 20, 25, 30 or 35 age group.
If you’re not comfortable with the increase of premium every year, you may want to look at the few companies that offer a term longer than 1 year. These companies are Allianz, Etiqa, HLA, MCIS and Tokio Marine.
Say if you choose a term of 10 years, the premium will not increase throughout the whole of 10 years. Note that the longer the term, the more expensive it gets.
5. Nomination process
As there will be no agents servicing your policy, you should be very clear on the nomination process, especially when it comes to a death claim.
After you purchase the policy, find the nomination form from the insurer’s website. Even though direct insurance can be bought online, the submission of the nomination form have to be done in the insurer’s branch with a hardcopy. This is the same across all insurance companies.
It is also very important to inform your family members or other beneficiaries on the existence of this insurance that you just purchase. Also inform them on the number to call should the unfortunate event happens. If not, the purpose of purchasing this insurance to protect your loved ones is defeated.
Should you have any queries about the nomination, will writing or even setting up an insurance trust for your beneficiaries, do drop me a message here. I have other colleagues (also licensed financial planners) that specialises in estate planning to help you with this matter.
So there you have it, these are the overview of all the direct term life insurance available in Malaysia. I would say that the direct term life insurance are much more attractive to me than the direct medical cards.
I know, to most of you, the fact that you won’t be getting anything in return at the end of the policy is a huge mental barrier. Why I say a mental barrier? It is because no matter which insurance that you purchase, be it a Whole-life insurance or an Investment-linked plan, the cost of insurance is also not ‘refundable’.
The ‘refund’ that you are getting is actually the excess money (Premium minus Cost of Insurance) invested by the insurance company on your behalf. There’s nothing wrong with this if you just want to have a peace of mind; but, if you want to be more hands-on with your investments, direct insurance is the way to go.
Stay tuned and follow planNERD.io (FACEBOOK / INSTAGRAM) to get the latest updates on personal finance. I will be comparing direct Critical Care insurance next. If you missed my article on the comparison of direct Medical Card, here’s the link.