1. ROSELIZA HAMID/UITM KELANTAN/2010 CHAPTER 5:

2. ROSELIZA HAMID/UITM KELANTAN/2010 CHAPTER OUTLINE  Definition of insurance/takaful  Objectives of buying the policy  Types of insurance policy  How much to insure?  Choosing an insurance policy  Tips on choice of insurance policy

3. ROSELIZA HAMID/UITM KELANTAN/2010 DEFINITION Insurance is the transfer of risk by an individual, such as yourself, or an organisation, such as your business, to the insurance company. You or your organisation will thus be known as the policy owner. The insurance company receives payment in the form of premium and will compensate you in the event of losses or damages sustained by you.

4. ROSELIZA HAMID/UITM KELANTAN/2010 DEFINITION Takaful is a protection plan based on Shariah principles. By contributing a sum of money to a common takaful fund in the form of participative contribution (tabarru’), you undertake a contract (aqad) to become one of the participants by agreeing to mutually help each other, should any of the participants suffer a defined loss

5. ROSELIZA HAMID/UITM KELANTAN/2010 OBJECTIVES  To pay off the family’s outstanding loans  To replace lost income after the insured dies or disabled  To pay medical bills for critical illness  To provide cost of children’s education  To provide fund for retirement expenses

6. ROSELIZA HAMID/UITM KELANTAN/2010 Types of Insurance policy  Term policies  Whole-life policies  Endowment policies  Investment-linked policies  Life annuity plan  Supplementary/rider cover  MRTA

7. ROSELIZA HAMID/UITM KELANTAN/2010 TERM POLICIES  The cheapest policy (no savings & investment features)  Pay the premium and get the coverage but get no money back  Provides protection for a specific period (1 – 65 years)  Covers only death and PTD  If death or PTD occurs during the term of the policy, the insurer pays the sum assured to the policyholder or beneficiary but no payment will be made if the life assured survives the term.  Main benefits: provides max. cover at low cost.  2 types of term policy: Straight term: the sum assured is fixed throughout the term. Decreasing term: the sum assured decreases over time until zero at the maturity of the policy.

8. ROSELIZA HAMID/UITM KELANTAN/2010 WHOLE-LIFE POLICIES  Life-long protection and premiums are paid throughout your life and the money including any bonuses will be paid when you pass away or suffer PTD.  It acquires cash surrender value after the policy has been in force for sometime.  The cash surrender value is what is left of the premiums paid after the insurer has deducted all the costs & profits of the company.  Normally cash surrender value will be given after 3 or more years of policy.

9. ROSELIZA HAMID/UITM KELANTAN/2010 ENDOWMENT POLICIES  A combination of protection and savings whereby the money will be paid at the end of a specific period upon your demise or if you suffer PTD.  It has fixed maturity: 15, 20, 30 up to 65 years.  Covers the insured against death, PTD and critical illness.  Benefits comprise the sum assured and accumulated bonuses.  Commonly used as savings plan to meet future commitments.  Provides less protection per dollars of premiums but it is the most expensive of life insurance.

10. ROSELIZA HAMID/UITM KELANTAN/2010 INVESTMENT-LINKED  Your premium is used to buy life insurance protection and units in a fund managed by the life insurance company. The benefits paid to you or your nominee will depend on the price of the units at the time you surrender your policy or when you pass away.

11. ROSELIZA HAMID/UITM KELANTAN/2010 LIFE ANNUITY PLAN  Series of payments paid to you until you pass away. Types of annuity include immediate annuity or deferred annuity.

12. ROSELIZA HAMID/UITM KELANTAN/2010 SUPPLEMENTARY RIDER/COVER  A rider is a supplement attached to the basic insurance plan such as endowment or whole life.

13. ROSELIZA HAMID/UITM KELANTAN/2010 MRTA  An insurance protection plan that covers the repayment of an outstanding property loan to the financial institution in the event of untimely death, disability or critical illness of the borrower.

14. ROSELIZA HAMID/UITM KELANTAN/2010 HOW MUCH TO INSURE? 2 approaches: 1. Multiple salary approach Most insurance companies have devised tables indicating our income maintenance needs as a multiple of our gross earnings. It based on the assumptions: ○ Family requires 75% of its previous after tax income to maintain its standard of living ○ There is a surviving spouse with 2 children. ○ The support will continue until the insured reaches age 65.

15. ROSELIZA HAMID/UITM KELANTAN/2010 Table: Multiple salary Gross annual pay Age of insured (RM)2530354045 20 000 30 000 40 000 60 000 80 000 100 000 150 000 200 000 14 13 12 11 10 9 13 12 11 10 9 12 11 10 9 8 10 9 8 7 9998877699988776

16. ROSELIZA HAMID/UITM KELANTAN/2010 HOW MUCH TO INSURE?... Cont. 2. The needs approach Involve four steps: i. Determine objectives of buying insurance Determine objectives of buying insurance ii. Calculate monthly expenses for the dependent family unit. (estimate amount of funds needed) iii. Compute amount of financial resources available. iv. Estimate amount of insurance needed

17. ROSELIZA HAMID/UITM KELANTAN/2010 TIPS ON BUYING POLICY  Understand the policy or plan including the product features, conditions, benefits limitations and exclusions  Ensure that the premium or contribution payable is affordable  Ensure that the amount of coverage taken is adequate and suits your needs  Ensure that all material facts are fully disclosed  Deal only with registered agents/licensed brokers or directly with an insurance company or takaful operators  Monitor the period of coverage and time for payment of premium or contribution

18. ROSELIZA HAMID/UITM KELANTAN/2010 INSURANCE POLICY  Life insurance  Health care and disability insurance  Educational insurance  Auto insurance  Home insurance

19. ROSELIZA HAMID/UITM KELANTAN/2010 LIFE INSURANCE