” Fun is like life insurance; the older you get, the more it costs.”
Frankly, I hate insurance! The older I grow, I realize that lot of money is spent monthly by average Malaysians on insurance. And most of the times, we don’t quite understand what we are buying because insurance policy is often bought based on recommendations by insurance agents and family members.
I know it is essential to have a good insurance coverage especially during wealth accumulation phase of our lives. No one can predict the future. And a good insurance policy is of vital importance. One of the very important insurance policies to buy is life insurance. Recently I learned about an alternative security scheme ( similar to life insurance) that saves you thousands of ringgit!
What is a Life Insurance?
According to Investopedia, life insurance is a contract between an insurer and a policy owner. A life insurance policy guarantees the insurer pays a sum of money to named beneficiaries when the insured dies in exchange for the premiums paid by the policyholder during their lifetime.
It makes a lot of sense for you to buy life insurance once you start a family. If you are young and single, don’t bother about buying a life insurance.
The purpose of buying a life insurance is that you hope that your loved ones can continue their lives as usual after your death with the payouts.
Term or Whole Life?
The difference between term and whole life /endowment insurance can be boiled down to cost and length. Term life insurance is cheap when compared to whole life. And we Malaysians as well as Singaporeans are mostly told by our agents to buy a whole life insurance.
However there are pros and cons of both types of life insurance. If I am given a choice again, I would most probably choose a term life insurance than a whole life insurance due to the cost.
More than 45% of Malaysians spend more than MYR200 per month in life insurance. Before you decide to buy a life insurance, remember to avoid making these common mistakes.
- Never try to buy a life insurance policy primarily for investment purpose. The return of investment linked to a life policy sucks! And the insurance company is happily charging you a management fee of 3-3.5% per year. ( Remember that I told you the expense ratio of my ETFs, VWRD is only 0.22% and VUSD is only 0.07%!). Insurance companies are charging 15x-50x what Vanguard is charging you.
- Don’t buy on impulse and remember your objective of buying the insurance policy. Never listen to your insurance agent! They have to sell you something to earn. Do your homework!
Alternative to Life Insurance for self-employed Malaysians
I learned about PERKESO (SOSCO) Self-Employment Social Security Scheme one year ago. It was previously only available for the Passenger Transportation Sector (ie e-Hailing drivers), but as of January 2020 have since been extended to cover 19 more sectors. I am so happy to find out that those who work as professionals ( including doctors and lawyers) are included.
The benefits under PERKESO Self-employment Social Security Scheme are good.
According to the website, this Scheme provides protection for self-employed insured persons against employment injuries including occupational diseases and accidents during work-related activities.
Self-employment injury means personal injury to self-employed insured person caused by an accident or an occupational disease arising out of and in the course of his or her self-employment activity including while travelling for the purpose of his or her self-employment activity.
Occupational disease is a disease caused by or arising from any occupation specified in the Fifth Schedule of the Employees’ Social Security Act 1969. This scheme provides cash benefits to the insured persons and their dependants besides medical treatment, physical rehabilitation and vocational training.
What are the benefits?
Benefits under the scheme include – Medical Benefit, Temporary Disablement Benefit, Permanent Disablement Benefit, Constant Attendance Allowance, Dependants’ Benefit, Funeral Benefit, Education Benefit and Facilities for Physical or Vocational Rehabilitation.
The higher the insured monthly earning, the higher your contribution per month/year. There are four plans, ranging from RM13.10 to RM49.40 contribution per month:
| Plan | Insured Monthly Earning | Contribution Payment Per Month | Contribution Payment Per Year |
| 1 | RM1,050 | RM13.10 | RM157.20 |
| 2 | RM1,550 | RM19.40 | RM232.80 |
| 3 | RM2,950 | RM36.90 | RM442.80 |
| 4 | RM3,950 | RM49.40 | RM592.80 |
According to the website, if you take up plan 4, should something happen to you, your wife or dependents will get monthly pension of 90% of RM3950 which is RM3555.
You can pay your contribution monthly, 6 monthly or yearly.
How to apply?
To apply for PERKESO Self-Employment Social Security Scheme, you have to (1) register at matrix.perkeso.gov.my, (2) fill and submit a form and (3) pay your contribution.
You can download a copy of flyer of this scheme HERE.
You can go through the video below how to apply one.
My Suggestion to you
If you happen to be a self employed Malaysian, I would suggest you to enrol yourself in this insurance scheme.
There is no other cheaper insurance plan than this in Malaysia. I have seen so many dialysis patients benefited from the scheme because under PERKESO/SOSCO coverage, outpatient dialysis treatment cost is covered if you have kidney failure.
If you think the coverage is not not good enough since this scheme does not pay out a lump sum of money, get yourself a term life insurance.
You are covered adequately if you buy a term insurance that covers a period of 25 years together with this scheme. I always tell my wife, my life is worthless once our sons are grown up and finish schooling, therefore a term insurance that covers up to 25 years is good enough when you start a family.
Conclusion
Don’t overbuy yourself a life insurance policy because it costs a fortune! And remember, if you depend insurance companies to invest for you, you are going to enrich the insurance companies and not yourself. Insurance companies charge you15-50x what Vanguard is charging you to manage your investment.
