Malaysians are generally familiar with the concept of life insurance. Many urban, middle-class Malaysians have purchased one or more life insurance products.

They are prepared to sacrifice immediate short-term gains and desires for long-term benefits. They are financially responsible and plan ahead.

But there are still many who remain uninsured, especially among the rural population.

The number of people buying life insurance is likely to increase in the future, given that about 40% of the population is under 20.

It is important to do your homework and compare policies to find the one that suits you best.

1. There are various products for different needs

A range of products and services is offered under the life insurance umbrella, depending on the service provider/organisation.

These include income protection, savings and investment plans, retirement plans, education plans, business continuity plans and of course, health and medical plans.

2. You must go through an application process

To buy an insurance policy, the applicant goes through an underwriting process.

The insurance company determines the risk of mortality and assigns a risk class based on criteria such as medical history, age, habits, occupation and other details.

The company studies the information provided by the applicant as well as medical reports, comes up with the appropriate risk profile and decides whether or not to issue a policy.

3. Not everyone is eligible for life insurance

Those who have been diagnosed with certain illnesses may find that they cannot buy life insurance, or that their premiums are heavily loaded.

This could happen even if the applicant did not disclose the information in the application form. An insurance contract is premised on full disclosure on a good faith basis.

If you withhold information, eventually, the insurance company will find out, and deny you coverage when you make a claim. Honesty is the best policy.

4. The best time to buy insurance is when you’re young

People tend not to think about things like life insurance until later in life but the best time to buy is when you are young and healthy, preferably in your 20s.

The older you are, the more likely medical complications would have surfaced or would have started to surface.

5. A trustworthy agent is essential

Find a good agent who can be trusted to advise you. Ask family and friends for personal recommendations, but always check their background.

The agent should be representing one life insurance company. They should be registered with the Life Insurance Association of Malaysia (LIAM) and you should ask to see the agent’s authorisation card prior to accepting their advice.

Licensed financial planners with a Financial Advisory licence, are allowed to represent more than one life insurance company though they are not considered agents.

6. Participating and non-participating policies

Understand the difference between a participating and a non-participating life insurance policy.

A participating policy means the policyholder shares in the profit of the life insurance company, usually in the form of dividends or bonuses.

Non-participating policies do not offer this. Ask your agent to explain anything you do not understand.

7. Buy what you can afford (think very long term)

Make sure you can afford the premium payments right from the start. Once you have signed up, your agent will help you to set up a direct debit facility on your credit card to deduct the premiums.

Calculate beforehand how much you can comfortably afford to maintain a policy that provides sufficient security for your loved ones.

8. Read the policy details

Read the policy very carefully. A few questions apply across the board.

What are your commitments, rights and obligations? What is the extent of your coverage? How are the premiums calculated? What are the exclusions?

Go through it line by line with your agent and ask about things that are not clear. Don’t be afraid to ask questions. Never ever just sign without understanding what you are getting into.

9. Don’t surrender your policies

Do not jump from policy to policy, regardless of what people may tell you.

A life insurance policy is a long-term commitment and there are penalties for premature termination.

The surrender value (also known as the cash value) is what is refunded to you if you terminate early, but it will likely not match what you have paid.

Taking a new policy when you are older will subject you to higher premiums and tighter conditions.

10. Review your protection needs regularly

Review your insurance portfolio at least once in three years and keep in touch with your agent.

If your circumstances have changed, ask your agent whether any information needs to be updated. Ask of there are any special deals or offers to increase your coverage for little or no additional premium.

As with all matters of a complex nature with potentially far-reaching implications, always consult a licensed agent for professional advice about any particular class of insurance or product offered by any insurance company.

This article first appeared in kclau.com

KC Lau’s first book Top Money Tips for Malaysians has sold thousands of copies. He launched the first online personal finance course specifically designed for Malaysians, entitled the Money Automation System. He also co-founded many other online financial courses including the Bursa Method, Property Method, Founder Method and REIT Method.