roseliza hamid/uitm kelantan/2010 chapter 5:. roseliza hamid/uitm kelantan/2010 chapter outline ...

ROSELIZA HAMID/UITM KELANTAN/2010

CHAPTER 5:CHAPTER 5:


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


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.


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


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


Types of Insurance policy

Term policies Whole-life policies Endowment policies Investment-linked policies Life annuity plan Supplementary/rider cover MRTA


TERM POLICIESTERM 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.


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.


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.


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.


LIFE ANNUITY PLAN

Series of payments paid to you until you pass away. Types of annuity include immediate annuity or deferred annuity.


SUPPLEMENTARY RIDER/COVER A rider is a supplement attached to the

basic insurance plan such as endowment or whole life.


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.


HOW MUCH TO INSURE?

2 approaches:

1. Multiple salary approachMost 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.


Table: Multiple salaryGross annual

pay

Age of insured

(RM) 25 30 35 40 45

20 00030 00040 00060 00080 000100 000150 000200 000

141413121211109

131312121110109

1212111110998

10101099887

99988776


HOW MUCH TO INSURE?... Cont.2. The needs approach

Involve four steps:

i. 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


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


INSURANCE POLICY

Life insurance Health care and disability insurance Educational insurance Auto insurance Home insurance


LIFE INSURANCE

roseliza hamid/uitm kelantan/2010 chapter 5:. roseliza hamid/uitm kelantan/2010 chapter outline ...

Documents