Bean Musing

Malaysia Medical Insurance 101

2020-07-05insurancepersonal-finance

Do you need medical insurance? What are the different types of medical insurance? What should I look out for? Get your questions answered.

Post originally appeared in Money Monies

What Is Medical Insurance?

Medical (or health insurance) is a type of insurance policy that pays for your medical expenses if you become ill or injured. You can either buy a standalone medical policy (“SMP“) or buy a medical insurance rider as part of an investment-linked life insurance plan (“ILP“).

What Is the Difference Between a Standalone and a Rider Plan?

ILP is the most popular medical insurance plan in Malaysia, with close to 70% of all medical insurance policies being an ILP. Does popularity say anything about how good it is? Let us look at the differences below.

1. An SMP is a pure protection product, whereas an ILP has a protection and savings/investment element.

What this means is, if you terminate your SMP, there is no residual value. You stop paying, you stop being protected.

If you terminate your ILP (depending on how long you have been paying), there might be a cash value attached to your plan, which you can cash out. This also acts in your favor when you miss some payments. Your plan has the likelihood to grow in value, but please, don’t put your hope in this.

I have reviewed my mom’s ILP (not medical insurance, it was pitched to her as an investment product) after 17 years. The return per year is less than 1.5%. I got her to cancel it and cash out.

2. An SMP starts cheaper and is subjected to revision in rates, depending on age and medical inflation. For an ILP, the premium is going to be more expensive as it is supposed to stay the same throughout the term.

To be honest, I think it is hard to work out the difference in savings given how opaque the industry is. But one thing is for sure, your premium increases with age and medical inflation with an SMP. It is hard to say how frequently they will revise the rates, just don’t be surprised when you get a notice. The good news is, your income also (hopefully) increases with age.

For an ILP, you will be paying a lot more than an SMP plan, but the premium you are paying (depend on your package) is not supposed to increase every year.

How an ILP works is by premium allocation into two buckets, paying for medical insurance, and buying mutual fund units. As you age, your medical insurance cost will increase, even though you are still paying the same premium. Your plan is also paying for the management fee, service fee, and yadi yada. You might have built up cash value in the early days, but slowly the medical insurance cost will eat into the cash. The premium will increase once the insurer realizes your plan is insufficient to cover the rising cost.

There is also something called a “Premium Holiday” for ILP holders, which means you can take a break from paying your premium. However, do watch out for that as your cash value may not be able to sustain the coverage.

The ugly truth is, your investment return is negative the moment you sign up for an ILP because of 1) agent’s commission and 2) sales charge of purchasing units in the mutual funds.

If you are not willing to invest in mutual funds, then don’t buy an investment-linked plan. Do note that it is unlikely an ILP canceled in its first 3-5 years will have any cash value.

Find out how to manage your ILP. (Technical Guide)

3. An SMP has no bells and whistles, whereas, with an ILP, you can buy a bundle.

An SMP, as its name suggests, is a standalone policy. You can purchase personal accident insurance, critical illness, and term life insurance separately.

An ILP usually offers you a bundle with life insurance, investment plan, critical illness, and death+disability payout. It is in the insurance agent’s interest to sell you such a plan (higher premium, higher commission).

You will have to assess your risk appetite and do a price comparison to see if such a bundle is worth it. My hunch is it will be cheaper to buy them separately since you are able to choose the best plans from different insurers versus buying from one. It is going to involve work though.

Is an Investment-Linked Plan Better Than a Standalone Medical Plan?

It is difficult to say strictly which one is better. If you want to pay fewer premiums and customize your own insurance coverage, an SMP is better. If you want your agent to take care of everything, you want the flexibility and you don’t mind paying a little more, an ILP is better. Just don’t put high hopes in the investment part.

There is also the aspect of paying little while you are young and paying more as you age with an SMP; whereas an ILP will just start off high and maintain at the same level.

There are of course other aspects, such as guaranteed renewal (no one really knows), annual limit (maximum payout per year) and lifetime limit (maximum payout throughout the life of the policy), age limit, second opinions, alternative treatments, and so on, you will have to do your own research, although those factors are pretty straightforward.

While I was informed that ILPs generally have higher annual limit than SMPs, you can still find SMPs with a high annual limit, though the price difference favors ILP in the case of a high annual limit SMP.

There is no best plan, only the plan that is the most suitable for you, depending on your age, income, lifestyle and how you would like to manage your risks.

Do You Need Medical Insurance?

Now, the million-dollar question.

The answer is, it is very much a personal choice, in my opinion. It is a risk management tool and a personal finance tool.

Let’s say shit hits the fan and you have no insurance, what will you do? You will go to the public hospital. Or you can go to the private hospital and burn a hole in your wallet. Or… you simply cannot afford treatment and you will have to accept your fate.

If you are self-employed, or belong to a high-risk group (high-intensity sportsman, hereditary diseases – make sure you buy them before they manifest themselves, and DO NOT LIE!), make sure you have a medical insurance plan. Go for a cheap SMP, it is better than nothing.

For those that are under the company’s insurance plan, medical insurance is a good-to-have, although you must note that nowadays there is no career for life. If you are unemployed, it can put you in a very unfavorable situation. For those who would still like to rely on company’s insurance, do check the annual limit of the plan your employer has and assess if it is sufficient. Having a personal medical insurance plan provides optionality, i.e. you can seek medical treatment from both the public and private hospitals. It can be a tad bit faster, and hey, nothing wrong with hedging your downside risks.

Insurance Is Not a Substitute for a Healthy Lifestyle.

Insurance is a good hedging tool, though I have to say the ‘YOU HAVE TO BUY INSURANCE’ messaging takes the limelight away from taking good care of yourself. While it is good practice to be prepared for the rainy days, do note that insurance is not a substitute for a healthy lifestyle. c.70% deaths of the economic productive group in Malaysia are caused by non-communicable diseases such as high blood pressure and diabetes. And you know what? These diseases are preventable.

My friends and I often joke about how Malaysians are here for a good time, not for a long time. That is not the right attitude but is not far from the truth. After all, we pride ourselves on our delicious but extremely unhealthy food.

Eat healthily, exercise, don’t smoke or drink, and do regular checkups. By following these simple steps, you can live a happy and long life.

Preventive Healthcare >>> Treatment

How to Save Money on Medical Insurance

I am not going to end the post here without telling you some tips on how you can save money on insurance. Here are some ideas.

1. Use Public Healthcare

Yes, it is overcrowded; yes, it has a long wait time. But if you can’t afford medical insurance, or you can afford to wait, definitely go to a public hospital.

While medical treatments at public hospitals are affordable, if you are hospitalized, the cost can add up. It is also terrible if you have cancer. In that case, you have three options.

One is to sign up under the MySalam scheme which covers 45 critical illnesses. It is available to the B40 and M40 group.

Another is to become a regular blood donor. You can check out the benefits offered to a regular blood donor.

2. Opt for High Deductible Insurance

A deductible is what comes out of your pocket before your insurer starts paying. You can see it as a form of self-insurance. It works ingeniously, whether you are covered by your employer or not. There are two ways you can utilize high deductible insurance

One, you use your employer’s coverage to cover the deductible amount. Let’s say your employer has an annual limit of RM30k, you can opt for a deductible of RM30k and cover the rest with your personal medical policy.

Another way is to say, have a small deductible (that you can afford) of RM1-5k, and if shit hits the fan, the insurer will have you covered.

By having a deductible in your plan, you can save on premiums. The higher the deductible, the more you save.

3. Reduce Your Sum Insured or Term

You can do this if you have an ILP. Given an ILP tends to have a life as well as a sum insured, you can reduce either to reduce your premium. You should consider this option if you think you are paying too much premium, but it hurts you to cancel. If you need cash urgently, you can also withdraw some cash from your policy if you have been paying it for some time.

Thank you for reading this post and I hope it has been helpful to you.

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