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Life Insurance Malaysia: Basics and How to Choose the Right One

Life Insurance Malaysia

At any time of your life, you may encounter life-changing events, some amazing, while others not so much. Whether you like it or not, accidents are often unpredictable and inevitable. You should take the precaution through careful planning so that you can account for the “what ifs”. One of the ways you can do this is by purchasing life insurance.

Life insurance is extremely beneficial in the occurrence of events such as injury or contraction of a disease, retirement, protection of loved ones in your absence, and even the loss of income.

The process of getting life insurance may seem daunting as you may find it difficult to choose between the various types of life insurance available in Malaysia.

Hence, this article will serve as an introductory class to life insurance in Malaysia. Here, we will cover everything you need to know so that you can choose the right coverage for yourself.


Do you need life insurance?

Do you need life insurance

Before we begin, you should check if you even need to sign up for life insurance in the first place. To help you determine that, we have come up with a checklist:

  • Will someone suffer financially after your death?
  • Do you have financial dependents?
  • Do you have any family members under your care?
  • Will your spouse suffer financially in case of your passing?

If you answered yes to at least one of these questions, do read on to find out about the different types of life insurance offered in Malaysia.

How It Works

How Life Insurance Works

Let us start with the fundamentals of life insurance. This is how life insurance works: you form a contract with an insurance company to whom you pay a premium. In exchange for this, members will receive a lump-sum payment known as a death benefit. This is a payout given out in the account where you pass away.

The interval at which you perform this payment depends on your contract. Intervals may range from a monthly or quarterly basis to a bi-annual and annual basis. 

Individuals may also receive another form of payout called the Total Permanent Disability (TPD). TPD is provided alongside the death benefit in some plans, and as a separate payout in others.

TPD is a form of protection for your family in the event where you have sustained a permanent disability which results in your loss of ability to generate income. Your family can then use this amount to cover immediate expenses, loss of income, and your debt (if any).

Types of Life Insurance

Types of Life Insurance

Here is a brief overview of the different types of insurance and what each type entails:

  1. Endowment – this insurance is a combination of protection and savings. In endowment insurance, money is paid at the end of a specific period upon your demise or in the event where you suffer total and permanent disability. It is suitable for managing your savings, wealth transfer, preservation, and tax-deferred wealth accumulation.
  1. Investment-linked insurance – this insurance is a combination of investment and protection. Here, your premiums are divided into life insurance cover and investment in specific funds of your choice. Investment-linked insurance is also best for savings, wealth transfer, preservation, and tax-deferred wealth accumulation. This insurance type is appealing to many, as it allows you to invest more when you have extra money or withdraw from your investment funds when needed.
  1. Life annuity – Life annuity offers payoffs over a set period until your death. This allows you more freedom in deciding how you want to use the money. As such, life annuity is most suited for retirement savings and tax-deferred wealth accumulation.
  1. Mortgage Reducing Term Assurance (MRTA) – MRTA is ideal for individuals with an outstanding property loan. MRTA repays any outstanding property loan to the financial institution in the event of your untimely death, disability or critical illness. Therefore, you don’t have to worry about your loved ones taking over your loans. This insurance is ideal for estate planning and asset transfer.
  1. Supplementary Rider – this is more of an add-on to your primary insurance. There are several types of supplementary riders, including those relating to medical, personal accidents, and critical illness. This insurance type is suitable for those interested in coverage for those areas.
  1. Term insurance – this is one of the most basic and cheapest life insurance and is perfect for those below 50. It has no cash value, meaning no returns on maturity. Term insurance allows you to activate it only for a set amount of time, unlike other insurances. Its flexibility makes it an ideal form of income replacement if you suffer total and permanent disability in your working years.
  1. Whole life insurance – on the contrary, this insurance provides lifetime coverage, making its premium payments generally higher than the rest. Nevertheless, the premium amount is fixed and can function as a savings component that may accumulate tax-deferred over time, guaranteeing cash value/return upon maturity. Hence, you may use this for wealth transfer, preservation, and tax-deferred wealth accumulation.
  1. Takaful Plan – an insurance plan which abides by Islamic rules on finance. The Takaful plan is a protection plan which embodies the concept of helping one another. Members here contribute money into a pooling system, which secures each member against any losses or damages.

Factors that affect your premium

Factors that affect your premium

To maintain any insurance policy, the payment of premium would be something you cannot escape from.

Even so, the amount of premium that you have to pay would differ depending on various factors. Some of the key elements include:

  • Age: the younger you are when you purchase your insurance, the more affordable your premium will be
  • Risk of occupation: High-risk occupations have a higher premium tied to it
  • Health condition: Certain factors such as smoking, and BMI will affect your eligibility and premium rates
  • Types of policy: Your premiums will vary depending on the length of your policy term and the amount that you are covered for

Factors to consider when choosing a plan

Now that you’ve come this far, we hope that you have grasped the basics of life insurance in Malaysia. Now, it is time for you to get down to business and decide which one of these life insurances is best suited for you.

During your pursuit of the best-fitted life insurance type, it will be essential to consider several key factors such as your needs and financial goals. To give yourself a head start, you can refer to the list below.

  • For single professional individuals with the need for life-long protection and future financial goals, the recommended coverage would be either the whole life insurance or the term insurance.
  • Newly married individuals with the need for future savings for couple needs, and tax planning and death benefit protection should opt for investment-linked insurance or whole life insurance.
  • As for married couples with kids with the need for tax planning, future needs, and support for child’s education, the recommended coverage would include either the mortgage reducing term assurance or the whole life insurance.
  • Individuals who wish to retire soon and need savings for retirement and guaranteed plans should obtain the endowment or the life annuity plan.
  • For retired individuals with the need of saving for medical expenditures, and a continued stream of income, the recommended coverage would be either the life annuity plan or the term insurance.

Even if you have bought insurance before, it is always important to reassess your coverage as you go through different phases of life as a change in lifestyle could change the amount of coverage that you need.

If you do not fit any of the criteria above, or want a specific estimate as to the amount of coverage you need, you can use this coverage calculator here.


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