You might have purchased your first insurance policy or medical card while you were in college, or when you first started working and had a lower starting pay.

Presumably, over the years, your salary would have increased. But have you upgraded your medical card, added critical-illness coverage, or raised your assured sum accordingly? For many, the answer would be “no”.

It’s common for people to make mistakes when it comes to buying insurance, which, in many instances, involve being penny wise, pound foolish. Here are just four ways you can be smarter as a policyholder in Malaysia.

1. ‘I already have insurance’ syndrome

Many people have one or two insurance policies today. Some of you might have purchased your life policy a decade or more ago. The question is, what and how much does each policy cover? Are they adequate?

You might have, for instance, a policy that covers RM50,000, but will this be enough to pay off your debts and offer financial support to your loved ones should something happen to you?

The issue here pertains to the coverage amount, not merely about having insurance.

This “syndrome” also applies to medical cards. Ten years ago, medical cards offered annual limits of RM100,000 to RM500,000. These days, new cards offer seven-figure coverage, which is critical owing to medical inflation.

Don’t be complacent about the policies you have. Instead, carry out a policy review at least once a year, and stay abreast of the latest developments in the industry so you are better able to adjust to suit your needs.

2. Wrong purpose, wrong plan

The purpose of having insurance policies is to obtain financial protection. Sadly, many Malaysians these days are still underinsured – not because they do not buy insurance, but ostensibly because they have purchased the wrong policies for the wrong reasons.

Indeed, it is common these days for some to expect some sort of financial return on investment through their policies, resulting in them overpaying for their life insurance.

How helpful might this RM750-a-month saving plan be if you were to be hospitalised due to an accident or critical illness today?

The bottom line is, get the right plan for the right reasons, and always consult a trustworthy insurance agent for recommendations.

3. Choosing agents based on ‘relationship’

It is common for people to want to “provide business” to their friends, family members, or those they like or trust. This is OK – naturally, you would want them to succeed in their careers.

But do bear in mind that loyalty is not necessarily rewarded with good financial service. Here’s an example: assume two life-insurance agents from the same company present you with a policy that covers RM500,000 in assurance.

The premiums, however, are vastly different – one of them quotes RM300 a month, while your “buddy” quotes RM800 a month. Which of these agents would you buy from?

Logically, it should be from the first person, as much as you would want to be kind or supportive to your friend. It is best to compare similar quotes from at least two or three other agents before committing to a policy.

4. Wrongful nomination

A nominee receives the predetermined assured sum after the unfortunate demise of the policyholder. Unfortunately, it is common for the wrong person to be nominated. Examples include:

• Parents

Parents are not legal beneficiaries but are trustees to the sum assured. If the policyholder passes on, his or her parents will receive the money and will be tasked to use it to pay off creditors, settle taxes, and/or distribute the balance to the rightful beneficiaries, such as the spouse or children.

Parents can be sued for misuse of funds if they fail to execute their tasks as trustees.

• Minor children

A minor cannot receive any payout due to them not being of legal age. The policyholder should keep this in mind and consult a professional to do proper estate planning, or at least be advised accordingly by an insurance agent who is knowledgeable about such matters.

Hopefully these tips will allow you to be smarter with your insurance purchases so you can build adequate financial safety nets for yourself and your loved ones.

This article first appeared in KCLau.com. Ian Tai is a financial content writer, dividend investor, and author of many articles on finance featured on KCLau.com in Malaysia, and ‘Fifth Person’, ‘Value Invest Asia’ and ‘Small Cap Asia’ in Singapore.