Why is Insurance Important?
Life does not always go as planned. There are certain unexpected events which may arise to set us back from our plans. Some of these events are too expensive for us to cover alone; which is where insurance comes in.
Insurance offers us protection from financial loss. It pays the expenses that may arise from unexpected events in your life so that you don’t have to. It is a form of risk management plan which is commonly used to protect people and businesses from risks of certain loss.
Insurance is provided by an establishment known as an insurance carrier, insurance company, insurer, or an underwriter. An insured or policyholder is the person who buys insurance. The transaction happens when the insured pays a regular certain amount of money known as premiums to the insurer in exchange for the insurer offering compensation to the insured in case of a covered loss. The insured receives a contract called an insurance policy which contains the entire details on the claims which the insurer is legally obligated to pay.
Functions of Insurance
Insurance functions can be divided into two categories- primary and secondary functions.
- Provides protection
The main function of insurance is to provide protection against future risks, unfortunate events, and uncertainties. It guarantees compensation in an event of loss ensuring that the person does not suffer a major financial crisis.
- Ensures certainty
No one knows what the future holds. Unfortunate events can happen at any time of our lives without a warning. Insurance provides certainty of payment in the uncertain event of a loss.
- Evaluate and shares risk
Just as the risk is uncertain, the loss is also unpredictable. Insurance assesses and evaluates the possible volume of risk and shares the financial loss with the insured through premiums.
- Prevents losses
By joining hands with institutions that are involved in loss prevention such as fire brigade, hospitals, education institutions, and others, insurance ensures that the assured is safe from loss. This increases savings while reducing the number of premiums which then stimulates more businesses.
- Provides capital
Insurance contributes to the growth of the economy by providing capital to the society. It invents the accumulated funds in various productive channels and also offers loans to businesses and individuals.
- Helps in economic development
By providing protection against huge losses, damages, and death, insurance ensures that people continue working hard for the betterment of the society. It also provides a cushion for individuals and businesses so that they don’t lose much in an event of a disaster which means that there is progress.
- Improves Efficiency
Insurance also reduces the grief and misery brought about by a loss at death and property distraction. This allows people to be less destructed and focus their attention on improving their lives.
Types of Insurance
There are many types of insurance covers available in Malaysia today- even more than you would think. Every insurance company has its fair share of insurance products that it is offering to its customers. Almost every possible risk has been assessed and covered by insurance companies.
However, there are three common types of insurance in Malaysia. These are:
Medical and Health
This is the most basic and important type of insurance that everyone should have. It covers all or part of your medical and hospitalization expenses if you fall ill or get into an accident. There are many types of medical and health insurance covers in Malaysia. They include a Medical Card or Hospitalization cover, critical illness plan, and hospital income insurance.
Here is a detailed review of medical and health insurance in Malaysia.
This type of insurance covers some of our most prized possessions such as our homes, properties and cars and others. The most popular covers under general insurance include:
- Car insurance:-It is compulsory to have a Third Party Liability Motor (TPL) Insurance if you own a car in Malaysia. Car insurance protects you as the policyholder from any financial liability if you injure someone in an accident with your car. The insurance company pays the injured third party so you don’t have to worry about it. In addition to this, you can pay for theft, fire, or own body protection to extend the coverage to your car. For better coverage, most people opt for a comprehensive insurance cover which ensures repairs to your car even if the accident was not your fault.
- Travel insurance:-This insurance makes sure that you are protected from any travel related risks such as travel delays and cancellation, medical emergencies, lost baggage, loss of passport and others. It is important to have travel insurance if you are a frequent traveler.
- Personal accident insurance: – In this type of insurance, the insurance company pays a fixed amount of money if you suffer temporary/partial/permanent injury, disability or death caused by an accident.
When you have a life insurance policy, an agreed sum of money (sum assured) is paid to your beneficiaries upon your death, critical illness, or permanent disability. The common types of life insurance plans are:
- Whole life insurance:-which provides lifetime coverage against risks in life. You pay periodic payments monthly or yearly up until a set maturity date which is usually 10 to 20 years, or until you retire. When you die, your beneficiaries receive a lump sum amount of money as a payout.
- Term Insurance:-this also provides coverage for you against life risk but the payment period is usually shorter than that of whole life. Your beneficiaries will only receive a big lump sum payment if you die within the policy period. If no death occurs, there will be no payment to be made.
Advantages of Insurance
- Provides economic protection: – it guarantees compensation against major financial losses in exchange for a little premium. It also offers financial security to beneficiaries in case of death or permanent disablement of the insured.
- Encourages savings and investing: – the insured person is required to pay a set amount of money at a regular basis on time in exchange for compensation in case of a probable loss in the future, during retirement, or upon death. This encourages disciplined saving and unnecessary money usage.
- Reduces risks:-We are all exposed to life’s uncertainties and risks that may lead to major losses. The risks and uncertainties are impossible to entirely get rid of, but it becomes easier if they are shared. Insurance helps the insured to share the risks which in turn reduces them to a manageable level.
- Grants loans: – An insured person can acquire the facility of a loan from his insurer or even take a loan from any other financial institution using his insurance policy as security.
- Provides employment opportunities:-Insurance companies offer employment opportunities to thousands of people either directly or indirectly. With the steady growth of the insurance industry, more and more people are getting involved in this line of work.
- Ensures smooth running of businesses: – There are many risks involved in the running of a business including theft, loss of stock and damaging of properties, insurance has managed to reduce the risks by offering financial compensation to business and their employees.
- Helps secure future goals:-Buying a house, higher education abroad, dream wedding, traveling, etc. Whatever your future plans are, insurance helps to make them a reality. By saving and investing in an insurance plan of your choice, you will be able to reap the fruits of your savings in the future. You can also secure the future of your family through a life insurance policy that will ensure that they will be taken care of even when you are no more.
- Peace of mind: – By managing your risks, you will be more at peace and will be able to enjoy life. With the rising medical cost, it is mandatory to have a health cover for you and your family. A life insurance plan will also make you rest easy without worrying about what will happen to your loved ones when you are not there.
Disadvantages of Insurance
- Insurance does not offer compensation to all types of losses
- Cash surrender value of a policy is usually less than the premiums you had paid.
- It may take some time to receive compensation due to lengthy legal formalities.
- Buying Insurance can be expensive for some people
- Claims are not always paid out
Having insurance should be more of a necessity than a luxury. It doesn’t matter how careful you are, calamities are unavoidable and can happen to anyone at any time so it’s better to be prepared. You don’t have to buy all the insurance covers, but make sure that you at least have a health cover for you and your family members then later you can consider getting a life insurance to protect your family in case something happens to you.