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.

WHY MUST WE USE OUR MEDICAL CARD WITH CARE?

We must use our medical card with care because we may not be able to buy another new medical card from the same insurance company or other insurance companies in the future.

When we are old, we need the medical card the most. However, our medical card may not be enough to cover our medical bills as we keep making unnecessary claims when we are young. We may say that we can buy another new medical card. We can only do so if we are still healthy. Although we are still healthy, some insurance companies may not want to cover us because we make too many claims in the past.

Some insurance companies promise us that our medical card is renewable every year but they never promise us that we can buy another new medical card any time. If some insurance companies want to cover us, they will charge a higher premium or impose more exclusions or both.

In addition, if we use our medical card with care, the premium rates of medical card will probably remain unchanged in the future. In other words, our next generation will probably not pay more for the same medical card we have now.

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.

WHAT IS THE COST OF AN OPERATION IN MALAYSIA?

''Critical Illnesses Explained: Second Edition'' is an eBook (e-book) that I downloaded from www.meshio.com last week.

The eBook is very useful as a guideline to all Malaysians. It explains in details the 36 critical illnesses which are covered by insurance companies. To me, the most important information from the eBook is the costs of operations in Malaysia. It is very important to create an awareness among us on how expensive an operation can be in Malaysia.

The author will update his eBook from time to time. So, for those who want the latest version of the eBook, please click http://www.meshio.com/2007/02/free-critical-illnesses-insurance-booklet/.

WHAT DOES FIRE INSURANCE ACTUALLY COVER?

I find that some people always think that fire insurance only pays us for loss or damage to the building caused by fire. In fact, the coverage of fire insurance is very much wider.

Besides fire, fire insurance also pays us for loss or damage to the building caused by

1. explosion
2. theft
3. malicious damage
4. strike & riot
5. aircraft damage
6. impact damage
7. bursting of pipes
8. floods
9. other perils.
   

The building here includes fixtures, fittings, interior decorations, walls, gates and fences.

Then, is fire insurance very expensive? Fire insurance offered by AIA Berhad is called Home Plus. To me, the premium of the plan is reasonable. If a building (house) is worth RM 100,000, the annual premium is RM 116 (0.116 % of RM 100,000) or RM 119 (0.119 % of RM 100,000) depending on the type of the building.

IS IT GOOD THAT WE ASK OUR INSURANCE AGENTS FOR A DISCOUNT ON OUR INSURANCE PREMIUM?

Generally, we should not ask insurance agents for a discount because most of the insurance agents don't have a basic salary. In other words, most of them are heavily and solely dependent on commission. When we ask for a discount, their commission will be affected. In addition, insurance agents have to bear themselves any expenses incurred when they need to serve their clients in the future and insurance companies will never subsidize them. So, some of them will not be willing to serve their clients who ask for a discount. That's why we hear a lot of stories on how an insurance agent serves some of his clients badly.

Generally, an insurance agent gets a six years commission from insurance company but he must serve his clients forever. Insurance agents will never get their commission from their clients. In fact, it is the insurance companies which pay them commission. So, if we want our insurance agents to serve us well, we should never ask for a discount. However, a free gift is OK.

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.