Life Insurance

What is life insurance?
Can you provide a short history of life insurance in Malaysia?
Why do people buy life insurance?
What are the basic types of life insurance?
Where or from whom can I buy life insurance?
Is it legal to buy life insurance from a foreign life insurer?
What are some good reference books for life insurance?
What bodies are responsible for the life insurance industry in Malaysia?
If I have just signed a proposal form, when does my coverage begin?
What can I do to minimise my life insurance policy premium?
Is my life insurance policy premium tax deductible?
Are proceeds from my life insurance policy taxable?
Why did my insurance agent advise me to create a S23 trust?
What are the common reasons for a life insurer to refuse a claim?
Should I replace my present life insurance policy with that seemingly cheaper and better policy?
What should I look for when I am shopping for a life insurance policy?
How late can I pay my premium?
What are my options if I cannot continue paying my premium?
What are "limited payment" or "vanishing premium" policies?

1. What is life insurance?

Life insurance is a contract between an individual and a life insurance company. The individual agrees to pay a premium and in return, the insurance company promises to pay a predetermined amount of money to:

The insured, in the event he or she becomes disabled or when some specified event takes place, and/or;
A beneficiary or beneficiaries if the insured dies.

In order for the insurer to have enough money available to pay death benefits when they become due, insurance companies use a pricing system known as the legal reserve system. This system is based upon several premises:

The amount of the death benefit promised in the insurance policy should be calculable in advance of the insured's death;
The money needed to pay the benefits should be collected in advance, so that funds will be available to pay claims and expenses as they occur;
The premium an individual pays for an insurance policy should be directly related to the amount of risk the insurer assumes for that person.

2. Can you provide a short history of life insurance in Malaysia?

Records indicated that the first life insurance policy was written in 16th century England.

The insurance industry in Malaysia first started in the 18th century. The insurance industry then was based on the British system because it was introduced and managed by British trading companies and agencies. There were few locals involved due to lack of expertise.

The insurance industry really took off only in the 1950s. The market then was controlled by British and American firms. At the same time, locally incorporated companies had also started selling insurance. After independence in 1957, nationalistic policies gave much encouragement to domestic companies to improve their market share. However, this boom burst when many companies, without proper underwriting practices, went out of business leaving their policyowners holding worthless policies.

The government stepped in to remedy the situation by introducing the Insurance Act, 1963. The office of the Director General of Insurance was given the task of regulating the insurance industry. Today, the Governor of Bank Negara is also the Director General of Insurance.

There are at present 9 Takaful and 16 life insurers operating in Malaysia.

Of the 16 domestic life insurers, 3 are listed on the Bursa Malaysia, one of which is Manulife Insurance Berhad, which is sponsoring this FAQ.

3. Why do people buy life insurance?

The reasons are:

It provides a guaranteed source of income in the event of a wage earner's sudden death, to pay for funeral and final expenses, unpaid bills, taxes and other financial obligations e.g. our Convertible Term Plan.
It safeguards a family's present standard of living, preventing its sudden drop after the death of the breadwinner e.g. our Competitive Whole Life Plan.
It provides a convenient, disciplined way for a family to set money aside on a regular basis to ensure they will have the financial means necessary to pay for their children's university education e.g. our EduLink.
It offers a safe, reliable savings plan for future goals and opportunities.
It furnishes an important income supplement when earning power is destroyed by an illness or accident, as well as the means to pay for unexpected medical expenses e.g. our Comprehensive Medilife Riders and Lady's Comprehensive Medilife Riders.
It protects home mortgage payments against an untimely death e.g.our Convertible Term Plan.
It makes up an important part of a fringe benefits package provided to staff members by an employer e.g. our key employees and protection solution.
Life insurance has often been described as "a friend in time of need". Essentially, it is a safety net for those times when financial hardship is created by an unforseen emergency or when regular income is lost.

4. What are the basic types of life insurance?

There are four basic types of life insurance policies. They are

Term Insurance
Whole Life Insurance
Endowment Insurance
Investment-Linked Insurance

All policies sold by life insurers in Malaysia are a variation and/or combination of these 4 basic types.
A fifth type of life insurance is Family Takaful. At present, only nine companies, empowered by the Takaful Act 1984, Syarikat Takaful Malaysia Bhd, Mayban Takaful Bhd, Takaful Ikhlas Sdn Bhd, Takaful Nasional Sdn Bhd, MAA Takaful Bhd, Prudential BSN Takaful Bhd, HSBC Amanah Takaful (Malaysia) Sdn Bhd, Hong Leong Takaful Bhd, Tokco Marine and Commerce Aviva Takaful Bhd are selling this type of life insurance.

Annuities are the opposite of life insurance because the annuitant will receive the policy benefits provided he is living.

Superannuation is also offered by some insurers.

5. Where or from whom can I buy life insurance?

Of course, the answer is Manulife
And if you had to know about the alternative channels, they are:

Ordinary life insurance agents.
Home Service or industrial life insurance agents.
Some of the credit card companies like AMEX and some of the banks sell life insurance by mass mailing to their charge, credit card and bank accountholders.
Bancassurance, which is selling of insurance through a bank's established distribution channels.
In theory, a Malaysian insurance broker will also procure life insurance for its clients but brokers are relatively inactive with respect to life insurance in Malaysia.
Some companies buy group insurance directly from life insurers or indirectly through insurance brokers and offer it as a form of benefits to their employees.
In theory, you can walk into a life insurance company and ask to buy a life insurance policy. But why not go through an agent? His valuable service will not cost you anything.

Home Service life insurance agents differ from ordinary life insurance agents in the area of premium collection. A Home Service agent will visit his customers every month to collect premium. Except for the first premium, customers of ordinary life insurance agents, are expected to pay direct to the insurers. However, some ordinary life insurance agents also offer the collection service.
All of the life insurers and many life insurance agents and brokers are listed in the Yellow Pages.

If you wish to contact a life insurer right now, you can contact us here or at our address or telephone number below:

Manulife Insurance Berhad
12th, Floor Menara Manulife
Jalan Gelenggang, Damansara Heights
50490 Kuala Lumpur
Tel: (03) 2719-9228
Fax: (03) 2093-5487

6. Is it legal to buy life insurance from a foreign life insurer?

It is perfectly legal to buy life insurance from one of the four foreign constituted life insurers that are registered under the Insurance Act to transact life insurance business in Malaysia.

However if the foreign insurers are not registered under the Insurance Act of 1963, then they are prohibited from selling life insurance in Malaysia. Furthermore, the same Act states that no person shall carry on insurance business in Malaysia as an insurance agent for an insurer not entitled under this Act. The same prohibition applies to brokers.

Thus, it stands to argue that if you buy insurance from an agent of a foreign insurer, you may be accused of aiding him or her in breaking the law. Bank Negara has been investigating such agents to protect Malaysians from the risks involved in dealing with non-registered companies.

7. What is the Consumer Education Programme?

The Consumer Education Programme (CEP) on insurance and takaful is known as InsuranceInfo and is a joint effort between Bank Negara Malaysia and the insurance and takaful industry. The InsuranceInfo is designed as a long-term programme to provide educational information to enable consumers to make well-informed decisions when purchasing insurance or takaful products.
Click here for InsuranceInfo.

8. What bodies are playing a significant role in the life insurance industry in Malaysia?

They are :

a.	Director General of Insurance This office is set up under the Insurance Act of 1963 to regulate and supervise the life insurance industry in Malaysia . At present, the director general of insurance is also the governor of Bank Negara. Thus, we often use the term Bank Negara and director general of insurance interchangeably.	Bank Negara Malaysia (Jabatan Insuran) PO Box 10922 Jalan Dato' Onn 50480 Kuala Lumpur	03-2098 8044
b.	Life Insurance Association of Malaysia (LIAM) This association represents all the registered life insurers operating in Malaysia.	4, Lorong Medan Tuanku Satu, Medan Tuanku, 50300, Kuala Lumpur	03-2691 6168 03-2691 6628 03-2691 8068
c.	National Association of Malaysian Life Insurance & Financial Advisors (NAMLIFA) This association represents the life insurance agents of the registered life insurers in Malaysia.	Wisma NAMLIFA, 55 Jalan 3/93, Taman Miharja, Cheras, 55200 Kuala Lumpur	03-9281 3167
d.	National Insurance Association of Malaysia (NIAM) With 31 member companies comprising 18 general insurance companies, 6 composite insurance companies, 4 life companies and 3 reinsurers.	NIAM Secretariat c/o Shamsir Jasani Grant Thornton Level 11-1, Faber Imperial Court Jalan Sultan Ismail 50250 Kuala Lumpur	03-2692 40
e.	Actuarial Society of Malaysia (ASM) This society represents the actuaries. (http://actuaries.org.my)	c/o Actuarial Dept, Great Eastern Life Assurance (Malaysia) Berhad Level 20, Menara Great Eastern 303, Jalan Ampang 50450 Kuala Lumpur	03-4259 8024
f.	Malaysian Insurance Institute (MII) This is a non-profit organisation that conducts courses for the staff and agents of the insurance industry.	5 Jalan Sri Semantan Satu, Damansara Heights, 50490 Kuala Lumpur	03-2094 4234
g.	Kesatuan Agen-Agen Melayu (JAMIN) This is an association representing the Malay life insurance agents.	Suite 9C , 9 th Floor, Menara MAA, 12, Jalan Dewan Bahasa 50460 Kuala Lumpur	03-2146 9083 03-2146 9091

9. If I have just signed a proposal form, when does my coverage begin?

The answer to this question is complicated.

If you have only submitted a life insurance proposal or application form, then you are not covered at all.

If you have submitted payment together with your proposal form, then the life insurer is liable to the extent specified in the receipt. Usually the receipt will specify the insurer's liability as a maximum sum or your proposed sum insured, whichever is smaller, for a certain maximum period.

Most of the insurers intend their full liability (which is your proposed sum insured unless they counter propose) to start from the latest of the following four dates:

Date of receipt of application or proposal form by the insurer.
Date of receipt of full payment for 1st premium.
Date of receipt of last compulsory underwriting document.
Policy date stated in insurance policy.

Common sense may suggest that date of coverage will start with the policy date stated in the policy. However, in practice, some policyowners prefer to back date their policy so that the premium is calculated based on the lower age. This results in a lower premium at the expense of being not covered for the backdated period.

10. What can I do to minimise my life insurance policy premium?

There are several options. They are:

Buy the policy as early as possible. The premium amount is usually dependent on the age of the insured, rising together with the age of the insured.
Depending on your age and chosen policy plan, there is an upper limit on your proposed sum insured beyond which you are required to undergo a medical examination. It is possible that the medical examination may uncover factors which will make you ineligible for preferred risk discounts or even worse incur a higher than normal premium amount. Subject to the condition that you are not currently aware of any such medical condition, you should first purchase all the life insurance that you may require just up to the sum insured limit for no medical examination. After that, if you still require further insurance, by all means, go for the medical examination and purchase the additional coverage. The findings of such subsequent medical examination will have no bearing on the premium of the first policy provided that you are not aware of these findings prior to applying for the first policy.

Always answer the questions in the application form truthfully and completely to the best of your knowledge, even if the truth may cause the premium to be higher. Insurance contracts are based on the doctrine of utmost good faith. In the event of a claim, if the claims manager discovers that you have withheld information material to the claim, your policy can be invalidated and your beneficiaries may receive nothing. A policy that returns nothing is infinitely more expensive than a rated up policy.

In general, term insurance which offers only protection is the cheapest. Whole life insurance which offers a mix of protection and savings is middling in cost, while endowment insurance offers maximum savings at a higher cost. Try to buy according to your needs and what your wallet can bear. Nothing is more expensive than a policy that you buy and abandon after a few years.
If you are in good health, it is better to buy one large policy than several smaller policies. You will save by paying stamp duty only once and enjoying the size discount. Normally, insurance companies offer a discount on your premiums if your sum insured exceeds a certain amount. For instance, our Whole Life Special offer size discounts when your sum insured exceeds RM20,000. Thus your cost per RM1,000 of sum insured is reduced.
Some companies offer policies that cover all members of your family. Such policies may be 30% to 100% cheaper than if you were to cover each member individually.
If you are buying for the purpose of saving for a child's education, buy a plan insuring that child timed to mature at the time when the money is needed or that can gives you the flexibility to withdraw a lump sum of money when needed. Add a payor income rider insuring your life so that, in the event of your death, a regular income is payable to help keep the policy in force. Thus, your child is assured of a tidy sum when he or she needs it for education.

Manulife Insurance Berhadoffers an education plan known as EduPlan. The premium on such education policies will be deductible against your taxable income up to a maximum of RM 3,000, subject to final approval by Inland Revenue Board.

Many life insurers allow their policyowners to pay premium in advance by placing such advance premium in a special account that will earn interest until premium payment is due. Check with your insurer on the interest rate that they offer. You may be pleasantly surprised! However, please note that the rate is no more guaranteed than your savings account interest rate.

11. Is my life insurance policy premium tax deductible?

Section 49 of the Income Tax Act, 1967 allows some relief for premiums paid on life insurance policies or deferred annuities.
The premium is allowable when the life insurance or deferred annuity is on the

Individual's life
Spouse of the individual
Her husband and any other wife or wives

Now, the relief from premiums on the life of the individual or his wife for one contract is restricted to the lower of the premiums paid or 7% of the capital sum insured. However, as of year of assessment 1997, this 7% restriction no longer applies.

The total relief allowable for all insurance premiums and contributions to approved funds (such as EPF) in the same basis year is RM 6,000. Married couples are entitled to separate relief of RM 5,000 each if the wife opts for separate assessment.

In addition to the above relief, an additional relief up to a maximum of RM 3,000 is given to a resident individual for premium paid for education or medical insurance. This is extended to premium paid for insurance on education or for medical benefits contracted for or by an individual for himself/herself, his/her spouse or child. In the case of separate assessment, the wife is also given a relief of up to a maximum of RM 3,000. Our EduPlan and ManuCare100 policy will qualify for this additional tax relief.

For taxable income for the year of assessment 2004 (Current year basis), the proposed tax relief for individuals has been increased to the following:

Personal relief increased from RM5,000 to RM6,000

In the case of an employer purchasing life policies for his employees, the premium paid is usually treated as an allowable deduction (for the employer).

12. Are proceeds from my life insurance policy taxable?

Currently, the proceeds of a personal life insurance policy do not come under the definition of income under the Act, and hence, no income tax needs to be paid on the proceeds. The same applies to policy dividends and reversionary bonuses as these items are considered as refunds of premium, and additions to capital sum insured respectively.

From the 1995 year of assessment onward, the proceeds of annuity contracts are also not treated as taxable income.

13. Why did my insurance agent advise me to create a S23 trust?

S23 refers to Section 23 of the Civil Law Act. This section of the Act states that a policy of assurance set up by any person on his/her life for the benefit of his/her spouse or children or both will be considered a trust in favour of the beneficiaries. Thus, the policy benefits shall not form part of the estate of the insured or be subjected to his/her debts. Please note that this type of trust is effective only if the beneficiaries are his/her spouse and/or children. Thus, the beneficiaries are guaranteed to receive the benefits, free of any claims from creditors of the policyowner.

14. What are the common reasons for a life insurer to refuse a claim?

For death claims, the common reasons are:

The policyowner's or insured's failure to disclose material facts with intention to defraud the insurer. The keyword here is material. If the insured died of a heart attack and he/she was known to suffer from heart problems prior to applying for the policy and yet did not disclose this information in the proposal form, then the insurer is likely to deny the claim. On the other hand, if the insured died of an accident entirely unrelated to his heart problems, then the insurer is likely to pay even if the heart problems were not disclosed in the proposal form provided that the heart condition was not so severe that the insurer would have rejected the application had the insurer knew.
Policy lapsing before the insured died. Malaysian life insurers usually offer a grace period of 30 days for premium payment. If insured died on the 31st day after the premium is due, then his/her policy will have lapsed and no claim will be payable.
It has been ruled that it is the duty of the policyowner to pay his premium on time.
The insured died as a result of suicide within a fixed period of time from date of commencement of the policy. In such an event, the insurer is not liable to pay the claim except to refund the premiums paid. In Malaysia, this fixed period ranges from 1 to 2 years depending on the insurer and the product.

For hospitalisation and surgical claims, the usual reasons for claims rejection are:

Claiming on a non-covered event e.g. cosmetic surgery.
There is usually a waiting period of 30 days before any claim is accepted. Without the waiting period, the number of claims would be much higher, resulting in a higher cost of claims. This would, in turn, lead to higher premiums, making such policies much less affordable.
Excluded risks e.g. hospitalisation due to alcoholism or substance abuse.
Claims arising from a pre-existing condition e.g. claims on an operation to treat a condition that the insured was already suffering from before taking up the policy.

For totally and permanently disability claims, a common reason for claims rejection is that the insured's conditions do not satisfy the definition of total and permanent disability.

Accidental death claims may also be rejected for deaths arising from suicide, alcoholism and substance abuse. Outside the suicide period, the basic plan will always pay, even for suicide. Of course the suicide clause does not apply to accident riders.

15. Should I replace my present life insurance policy with that seemingly cheaper and better policy?

This is about comparing two policies. Life insurers have packaged their products with myriad features and it is difficult to get two identical policies from different insurers. Furthermore, there are the intangibles like reliable service from the agent and the insurer, financial stability of insurer, etc.

In general, a policy that has been in force long enough to acquire cash value should not be surrendered for another policy. The drawbacks of surrendering a policy after it has been inforce for some time include:

Immediate loss of protection for the insured
Higher cost of purchasing a new policy as the insured is now older
The three year period for the cash value build up will have to start again
The suicide and incontestibility clauses will begin anew

It is therefore recommended that you confer with your agent before surrendering your policy. If your agent is no longer working for the same company, then you should check with the original company. They may assist you in working out an amicable solution.

16. What should I look for when I am shopping for a life insurance policy?

First, you must identify your needs and the amount of premium that you can afford. Your possible needs are protection and savings. Protection refers to your need to provide financially for your loved ones in the event of your untimely death. Savings refers to your need to accumulate funds for future use.

Just as you insured your car, your house or your business for their value, so should you insure your life for its value to your dependents. If you are married and have children, an amount of 5 to 10 times your annual income should be sufficient unless you have extra debts or obligations or business interests. A professional agent can properly assess your actual need for protection and savings and recommend the proper policy to meet your needs.

17. How late can I pay my premium?

You must pay your premium before the due date plus grace period stated in your policy. Most Malaysian insurers prescribe a grace period of 30 days or 1 month for most policies. However, please read your policy to determine the exact grace period.

If you die before the grace period expires, then you are still covered even if you have not paid your premium. If you die exactly on the date of grace period expiry, and premium has not been received before that date, then you are not covered.

If you are paying premium directly to an office of the insurer, you will normally be given an official receipt immediately. The receipt is normally adequate proof that you have paid your premium. This is provided that your payment is by cash or by cheque and the cheque is honoured by the bank.

Legally, if you are paying premiums through your ordinary life agent, then it depends on whether the agent has authority to collect premium. If he has, he usually can provide you with a temporary receipt immediately upon receiving the premium. Usually such authority is given to the agency supervisor and more senior agents. However, not withstanding this legal position, most insurers will recognise even payment to agents that are not given official authority to collect premium, provided that the agent admits receiving the premium or the policyowner can prove that he paid the premium to the agent.

Home Service agents are always given authority to collect premiums. Indeed, after collecting the premium, the Home Service agent will always acknowledge receiving the premium by signing the relevant pages of the premium receipt book held by the policyowner.

The above discussion on non-coverage is further subject to the provision that if, on the premium due date, the policy has been in force long enough to accumulate surrender value, then the policy remains automatically in force for a period equal to what the surrender value will buy. Furthermore, if the policy has accumulated any dividends or if the insurer is holding some money on behalf of the policyowner in respect of his/her policy, the insurer will usually use this money to keep the policy in force for as long as the money will cover.

For further details, please refer to the discussion on non-forfeiture options.

18. What are my options if I cannot continue paying my premium?

In life insurance jargon, these are known as non-forfeiture options or discontinuation benefits.
If you are unable to pay even one more sen, and if your policy has accumulated some surrender value, then your options are:

Surrender your policy and you will receive the surrender value. Within your policy contract, there will be a table stating the surrender value for each policy year i.e. the complete number of years for which premium has been paid. If you have paid for a few more months, the insurer will usually interpolate between the two surrender values. The exact interpolation formula varies by insurer.
To take a loan against the surrender value that your policy has accumulated instead of surrendering your policy for its surrender value. This way, you get your money and the policy is still in force provided that you have paid your premium.
Surrender one or more of the riders or surrender some or all of the existing bonuses for their surrender value. This way, you are still covered under the basic plan.
Convert to a reduced paid-up policy according to the amount of surrender value available. This means that your sum insured is reduced but you are still covered for the original period. You are not required to pay any further premium.
Convert to an extended term insurance according to the amount of surrender value available. This means that your policy has now become a term policy with a sum insured equal to the original sum insured less any policy loans. The period of coverage depends on the amount of surrender value available. All of the original riders will be terminated. You are not required to pay any further premium.
Exercise an Automatic Premium Loan. This means that on each premium due date, the life insurer will automatically make a policy loan equal to the premium due, and use it as your premium payment. This is often the basis of "vanishing premium" and "limited payment" policies. For such policies, their surrender value accumulates so fast that the insurer can use them to pay premium until the policy matures.

If you do nothing, the insurer will follow the non-forfeiture option that you chose in your application form. If you did not select any non-forfeiture option in your application, then the insurer will take the default non-forfeiture option stated in your policy contract. In Malaysia, this is often automatic premium loan. Our Insurance Act and the Director General of Insurance have not mandated any standard default non-forfeiture option. Also, please note that even for a given insurer, he may specify different default non-forfeiture options for different products and/or for contracts issued at different times.

19. What are "limited payment" or "vanishing premium" policies?

These are policies in which the premium paying term is less than the actual term of the policy. There are two such types of limited payment schemes. One is guaranteed and the other one is not guaranteed.

In "guaranteed" schemes, the insurer guarantees that you will have to pay premiums for no more than the stated period or until a stated date.

"Non-guaranteed" schemes are always for policies with profits or which are participating. In such schemes, the life insurer is saying that, based on the expected investment return, interest rate, etc., you can probably stop paying premium by the end of that calculated period or date. Under Bank Negara guidelines on sales illustrations, there is always a statement alerting the prospect to the non-guaranteed nature of this payment scheme. However, selling of insurance using this practice has been discontinued by Bank Negara Malaysia since April 2001.

Generally, all else being equal, the guaranteed policies are usually more expensive than the non-guaranteed ones. Normally, an insurer will do the utmost to achieve the projections given in the sales illustration as failure to do so may be disastrous to the company's new business growth, even though the insurer is not under any legal obligation to meet these projections. Of course, the guaranteed portion, if any, of the policies represents a legal commitment the insurer must meet.