YOU ARE STILL INSURED EVEN YOU DON'T BUY ANY INSURANCE PLAN.

Does the sentence above sound weird?

When a person doesn't buy insurance like medical card and personal accident, he is still insured. Why? It is because he is the insurance company. He pays his medical bills himself.

IS IT ALRIGHT THAT WE BUY INSURANCE ONLY AFTER WE GET MARRIED?

Last year, one of my friends told me that we should buy insurance only after marriage because family plans were better than individual plans.

I think it is wrong to say so as we all don't have the ability to predict when a critical illness or an accident will strike. In addition, no research says that humans will bear a higher risk after marriage. We only bear a heavier responsibility after marriage. Any lucky and unfortunate events can happen to us any time.

Is a family plan really better than an individual plan? It all depends on the size of a family.

For personal accident offered by AIA Berhad, a family plan is generally better than an individual plan.

But for medical card offered by AIA Berhad, a family plan is not necessarily better than an individual plan. For details, please click Medical Card (AIA Berhad).

WHAT DOES PERSONAL ACCIDENT ACTUALLY COVER?

I find that some people don't really know what a personal accident plan actually covers. They think that personal accident only pays us for injuries that happen on the road. In fact, the coverage of personal accident is very much wider.

According to a brochure by AIA Berhad, personal accident plans generally have the following benefits:

1. The definition of accidental injury does not require qualifying words of violent external visible means.
2. Injuries caused by gas inhalation, drowning or similar misfortune with no external sign of injury.
3. Food poisoning.
4. Immediate death or injury caused by harmful insects or snake bites.
5. No exclusion on intoxication.
6. Injuries resulting from hobbies on any sports or games.
7. Death or injury by murder or assault.
8. Injured as a non-participant in riots and civil commotion.
9. Injuries caused directly or indirectly by fire.
10. Motor cycling risk.
11. Injuries while on board as a passenger on scheduled or non-scheduled licensed flights.
12. Injury while on board as a passenger on military air transport service of any Government anywhere in the world.
13. Skyjacking risks.
14. Injury caused by natural perils like earthquake, volcanic eruption, tidal wave, floods or lightning etc.
15. Injury resulted from radio-active emission.
16. Grace period of 31 days provided. No worry for due dates.
17. Renewal bonus of 5 % on the original Accidental Death And Dismemberment sum assured (maximum RM 300,000) for 8 years.
18. No medical examination is required when applying.
19. No territorial limitation (except war zones).
20. World wide claim services.

However, some of the 20 benefits above may not be found in certain personal accident plans. For example, the 17th benefit (renewal bonus) can't be found in Easy Cover PA.

WHAT IS THE MAIN DIFFERENCE BETWEEN MEDICAL CARD AND PERSONAL ACCIDENT?

Before we can understand the main difference between medical card and personal accident, we must know the meaning of in-patients and out-patients and how to differentiate them.

An insured is usually considered as an in-patient only if he physically stays in a hospital for minimum six continuous hours upon the recommendation of a physician. He must be a registered resident bed patient being charged for using the room and board facilities of the hospital. Patients who don't fulfil the requirement are considered as out-patients. In other words, out-patients are receiving medical are or treatment without being hospitalized.

Generally, medical card is used by in-patients whereas personal accident is used by out-patients. In other words, we usually use medical card when we have to stay in a hospital for treatment due to serious illnesses and serious accidents. We usually use personal accident if we don't have to stay in a hospital and we receiving treatment in a clinic.

WHY IS LIFE INSURANCE A VERY USEFUL FINANCIAL INSTRUMENT IN ESTATE PLANNING?

After receiving insurance proceeds, do beneficiaries have to pay tax?

In general, after a beneficiary receives life insurance proceeds, he doesn't have to pay tax as the money is not a profit or income. It is a compensation. This rule also applies to personal accident insurance proceeds.

Life insurance is a very useful financial instrument in Estate Planning because it is a very liquid asset besides the benefits I have explained previously in my post titled IS IT TRUE THAT RICH PEOPLE DON'T NEED INSURANCE PROTECTION AND FINANCIAL PLANNING? (January 13, 2009). Once an insured dies, the insurance company will usually pay the life insurance proceeds to his beneficiaries in less than a week provided that he has made nominations and his policy is immediately submitted by his family together with related documents like death certificate to the insurance company. The high liquidity of life insurance is very important to ensure that his family daily life will not be affected significantly after his demise. Besides life insurance, a person who has bought personal accident will be compensated immediately after his death due to an accident. In other words, the liquidity of personal accident is also very high.

Life insurance and personal accident are very important especially when we are no longer around because our wealth can't be distributed immediately to our loved ones even though we have a will like what I have explained previously in my post titled FINANCIAL PLANNING SEMINAR (THIRD DAY). (January 21, 2009). Once our wealth becomes an estate, our loved ones have to wait for at least six months before they can get the money. Within the period, they can still live comfortably if we have bought life insurance. For details about the importance of personal accident, please read my post titled WHY IS A PERSONAL ACCIDENT (PA) PLAN VERY IMPORTANT IN OUR LIFE? (January 9, 2009).

It is hard to know how much assets and liabilities we have. We will usually know how wealthy we are after we are no longer around or bankrupt. There was a real case where an old woman got nothing from her husband's will because his assets were not enough to settle his liabilities. In other words, a will just makes sure that the process of transferring a wealth from one person to the other people is smoothly done after all debts are settled. Furthermore, he didn't buy life insurance. As a result, the old woman suffered from two pains, financial (no money to live comfortably) and mental or emotional (loss of her spouse) due to her irresponsible husband. We may say that they had no money to buy insurance. In fact, they lived in a bungalow before his demise. But, the bungalow was already sold to settle his liabilities.

ARE INSURANCE PROCEEDS A PART OF AN ESTATE AND WHY ARE NOMINATIONS VERY IMPORTANT?

Insurance proceeds are compensation or money received by his beneficiaries after an insured's death.

The answer for the first question above can be yes or no. It all depends on whether a policyholder makes nominations during the application of life insurance. If he does, the life insurance proceeds will usually be distributed to his beneficiaries in less than one week. If he doesn't, the life insurance proceeds will become a part of his estate and the money will be distributed according to his will or the related law. It usually takes at least six months to get the money. This rule also applies to personal accident insurance proceeds.

So, it is very important to make nominations when we are buying insurance so that our family will get the compensation as quickly as possible in order to prevent them from facing the problem of getting the money in a short time. When we are no longer around, six months will be a very long period for those who depend heavily on us such as our surviving spouse and children. They still need to spend money on food, education and others.

For details about the elements of an estate, please read my post titled WHAT ARE THE ELEMENTS OF AN ESTATE? (January 29, 2009).

WHY IS A PERSONAL ACCIDENT (PA) PLAN VERY IMPORTANT IN OUR LIFE?

Source: Modified from http://www.hanger.com/

I met a prospect yesterday. He has already bought life insurance and medical card two years ago. So, I recommended him to buy a personal accident (PA) plan. He asked me why he should buy it. The picture above shows the importance of PA in our life.

If the old man has only bought life insurance in his entire life and he losses one leg now due to an accident, will he be compensated by insurance company? The answer is NO. The reason is that life insurance doesn't cover this kind of disability unless he losses two legs like what I have explained previously in my post titled WHAT IS TOTAL AND PERMANENT DISABILITY (TPD)? (January 9, 2009). As a result, he will now have a problem to continue paying his bills, daily expenses, life insurance premium and so on. His life insurance now becomes a burden to him. At the end, what he only can do is blaming his insurance agent for not telling him the types of disability his life insurance doesn't cover. However, it doesn't mean that life insurance is not important. It is just that life insurance is only one part of a comprehensive coverage we should possess in our life.

How can we solve this problem? The solution to this problem is PA. By having PA, permanent total loss of one limb is covered. So, the old man will only be compensated by insurance company if he has bought PA.

In sum, buying life insurance without PA is like buying a BMW car without an airbag. For sure your car is still safer to drive compared with other cheaper cars but it doesn't reduce your risk on the road to the lowest level.

So, for those who have not bought PA, what are you all waiting for?