What insurance do you really need?

Having the right insurance when things go wrong can be critical to protecting your financial future.

The recent health crisis has highlighted how important it is that you are prepared and protected for the unexpected. You've worked hard to build a life and a solid financial position for yourself and your loved ones. So you should be confident that if disasters or accidents happen - and they do happen – then what you've built is protected.

Insurance is your protection. It may not be something we like to talk about because it forces us to consider some uneasy truths about life, but insurance is an essential element of sound financial planning. It can protect your ability to earn income, to look after your family and to keep a roof over your head.

There are many types of insurance out there so it can be difficult to determine what policies you really need. Your choice should be determined by your specific situation, including factors such as age, children, lifestyle and employment benefits. 

Generally, financial experts recommend that all of us have these four insurance policies¹ in place to protect ourselves: life, medical, disability and property. Each of these covers a specific aspect of your life and is important to your financial future.

Life insurance will help provide your loved ones with a level of financial security when you pass away; medical insurance will help cover medical costs for yourself and your family; disability insurance will cover potential loss of income if you can't work; and property insurance will cover your home while a car insurance will protect your vehicle.²

Ask yourself this question: if you were to pass away suddenly, how would your family cope financially?

Life insurance is to provide for those you leave behind. This is critical if you have family that is dependent on your income to pay the bills.

Industry experts¹ say you should consider a life insurance policy worth ten times your annual income. This should provide enough of a financial cushion for your family to cover existing expenses, pay debts and re-group after your death. However, if your life is complicated - kids, business, high amounts of debt – then you might want to increase your coverage.³

When estimating the amount of life insurance coverage you need, take into account funeral expenses, mortgage payments, living expenses like loans, credit cards and taxes, child care and future education costs, as well as business liabilities if you are a business owner.

There are two basic types of life insurance: whole life and term life. Whole life is a policy you pay until you pass away and term life is a policy for a set amount of time. There are considerable differences between the two policies, and it is advisable to seek financial expert advice when planning your life insurance needs.

Another popular option these days is an investment-linked insurance plan. This type of life insurance policy combines investment and protection, where some of the premiums you pay are invested into funds of your choice.⁴

Medical insurance is designed to cover the cost of private medical treatment, which can be very expensive, especially if it involves hospitalisation and surgery.⁶ It ensures that you don't have to worry about the cost of seeking treatment during emergencies and can also provide you with an income stream while you undergo treatment and recover from sickness.⁶

For those who prefer to seek private medical care, it is worth noting that in recent years⁷ Malaysia's medical rates have seen inflation of more than 12% per year⁸ - some of the highest inflation in ASEAN. This means the cost of private healthcare here will probably get more and more expensive.

Having medical insurance in place will allow you to seek the medical treatment of your choice knowing that you will be financially taken care of when you are ill.

No one assumes that they will become disabled due to an accident, so we rarely think we'll ever need total or permanent disability insurance. But numbers may tell a different story.

For example,¹ in the US, the Social Security Administration reports that three in 20 workers entering the workforce will become disabled and will be unable to work before they reach the age of retirement. Of the US adult working population, 12% are disabled in some form and nearly 50% of those workers are in their working years.

While things might be different in Malaysia, the statistics show that accidents can happen and will impact a person's ability to continue to work and earn an income. Even if you have good life and health insurance coverage and sufficient savings, the inability to work for weeks or months - or perhaps even returning to work at all - can be financially debilitating.

Disability insurance, or what typically falls under the "personal accident insurance" umbrella in Malaysia, can provide financial compensation for injury, temporary or permanent disability, medical and hospitalization expenses, and in some cases income replacement to reduce your financial burden.⁹

For most of us, our home is our biggest asset. So it makes sense to protect it with adequate insurance coverage. If you have a mortgage, you may already have some form of homeowner's insurance in place as required by the bank.⁵ However, that insurance might only cover what you owe the bank - and not necessarily the entire value of your property.

You also want to make sure your property insurance takes into account renovations and enhancements you have made to your property.

To ensure you have full protection, you can opt for these three types of policies to protect your home: houseowners insurance, householders insurance and basic fire insurance.¹⁰ For comprehensive coverage for your home as well as the contents, you might even want to buy a combination of all three of these.

There is no one-size-fits-all solution for insurance. Your best bet is to take a close look at your personal situation and talk to an expert.

At HSBC, we have a wide variety of insurance plans, ranging from life to medical to retirement and more. Your Relationship Manager can tell you more about how you can put the right protection in place for yourself and your family.

Get comprehensive protection for life, health and more

Wherever you are along your life's journey, HSBC's EliteCare is a comprehensive insurance plan that can help secure your family's future, protect your health and grow your wealth - all at the same time. It is an investment-linked plan which offers death and Total and Permanent Disability (TPD) protection with an associated suite of optional riders you can include to gain comprehensive protection. The plan has a 20-year tenure with guaranteed renewability every 20 years up to 100-years-old.

Critical Edge

Access world-class medical treatments. Critical Edge covers 5 major diseases and its medical procedures allowing you to seek medical treatment overseas.

Critical Cover

Get extensive critical illness protection with financial support from early to advanced stage critical illnesses. This allows to focus on your recovery journey rather than worry about your financial situation.

PA Care

You never know when an accident may happen. PA Care provides comprehensive accidental coverage to help you and your family get through difficult times with financial support.

Critical Waiver/Secure Waiver

Even when an unexpected event derails your life, know that your protection is secure. Critical Waiver/Secure Waiver rider lets you lock in the security of an uninterrupted protection and savings journey.

This product is underwritten by Allianz Life Insurance Malaysia Berhad (104248-X) The coverage on the plan is effective subject to acceptance by Allianz Life Insurance Malaysia Berhad who reserves the right to accept or reject any application without assigning any reason. HSBC accepts no responsibility for the decision made by Allianz Life Insurance Malaysia Berhad. To learn more about HSBC's EliteCare, contact your Relationship Manager.

Sources:

¹Investopedia, 4 types of insurance everyone needs, 7 May 2019.

²The Balance, Why do I need insurance? 20 November 2019.

³Forbes, Yes, you probably need life insurance and here's why, 11 May 2017.

⁴Insurance Info, Investment-linked insurance, undated.

⁵The Balance, Types of insurance policies you need, 20 March 2020.

⁶Insurance Info, Medical & health insurance, undated.

⁷New Straits Times, Why do my medical, health plan premiums/contributions keep increasing? 22 October 2019.

⁸New Straits Times, The lowdown on medical and health insurance/takaful, 16 October 2019.

⁹Insurance Info, Personal accident insurance, undated.

¹⁰Insurance Info, Home insurance, undated.