Life Insurance

Life insurance is a financial tool designed to transfer life’s risks to an Insurer. Commonly, the risks covered include death from natural and accidental causes, as well as total and permanent disability (TPD).  Suicide is also covered but subjected to the policy being inforce for more than 12 months.

The premiums of life insurance policies are determined by the mortality experiences of the populace.  Cost of management and returns on investments also affect the premiums.  The actuary is responsible for managing the life insurance pool.

Generally, there are 3 kinds of life insurance policies:
i. Whole Life which provides death and TPD cover throughout the life of the insured.  There is usually a cash value at the end of the day. Whole life policies are usually designed to protect loss of income, provide for trust planning or create an estate.
ii. Endowment which provides death and TPD cover over a limited period of time, eg. 20 years, ending with a maturity value.   Endowment policies are often used to set up a fund for retirement, children’s education and others.
iii. Term Life which provides the cover for a limited period or term usually without any cash value.  Term Insurance is usually used by corporations to cover their keyman or to cover a loan.

Additionally, there are Critical Illness policies as well as Investment-linked policies.
i. Critical Illness Policies not only cover death and TPD, but also pay out the death proceeds upon diagnosis of one of the 36 critical illnesses. It serves as a lump sum medical fund.
ii. Investment-linked Policies as it is so named, provide investment returns apart from death and TPD cover.  The returns of an Investment-linked policy depend on the performance of the investment funds of the insurer.

Various riders may be attached to the Life insurance policies to enhance its coverage.  Common riders include Term riders, Critical Illness riders, Waiver of premium riders, Payer Benefit riders or medical and accident riders.

Life Insurance premiums of individual are tax deductible up to RM6,000 including personal EPF contributions.  Proceeds of life insurances may be paid to nominees or absolutely assigned depending on the objectives of the purchase.

The administration of Life Insurance policies is under the purview of the Financial Services Act 2013.  Bank Negara Malaysia oversees the operation of the Life Insurance business by Life Insurers.