WHAT SHOULD I DO WHEN APPLYING FOR LIFE INSURANCE ?

1. The Application.
   
   When you have chosen the policy and amount of insurance you want, the agent or the company will request you to fill out a questionaire known as the application. This form asks for personal and medical information, the type of policy and amount of coverage you want.
   
   It is important that you answer the questions fully and truthfully to the best of your ability or it may affect your coverage. If someone has helped you to fill out the application, check it for accuracy before signing. A copy of the application form is attached to the policy when issued and becomes a permanent part of the policy. As the policy document is a legally binding document, it should be kept under safe custody until the policy moneys are received from the insurer.
   
   Before completing the application, there are certain things you should be aware of underwriting, premiums, settlement options, participating and non-participating policies and bonuses.
   
   
2. Underwriting - Are you a good risk?
   
   Your life insurance premium is based on the plan of the insurance and your mortality (risk of death) class. The plan of insurance is your choice. Your mortality or risk class, however, is determined by an underwriter using the underwriting process through which an insurance company would decide whether or not to accept a risk or if accepted, in what mortality class the risk should be placed. The risk of death is determined by such factors as age, sex, habits, build, personal and medical history, habits, residence and occupation. The company’s decision to insure your life is based on the application, the medical examination (if required), inspection reports and statements from your doctor. The premium is then fixed accordingly.
   
   
3. Premiums
   
   The premium is the money paid to the life insurance company to obtain the protection of a life insurance cover. When you buy a life insurance policy, you have a choice of how often to pay the premium ; annually, semi-annually, quarterly or monthly. The more frequently you pay the greater the cost. For example, a monthly premium is higher than 1/12th of an annual premium. In part, this additional cost is caused by the extra expenses for additional paperwork.
   
   You should ask your agent or company for the extra cost of making more frequent payments so that you may decide which payment plan is best for you.
   
   The Malaysian Government also allows a tax relief on the premiums paid to an insurance company. The maximum amount of premium entitled for relief is RM$5,000 less any contributions to an approved retirement benefit scheme such as E.P.F and widows and orphans pension schemes.
   
   
4. Settlement Options - How do you want your benefits to be paid?
   
   Benefits are paid:-
   I) to your beneficiary upon death
   ii) to you if your endowment policy matures; or
   iii) to you if you surrender a policy that has a cash value (a policy will have a cash value after 3 years)
   
   There are various settlement options which generally can be selected by you at the time your policy is issued, or after your policy is issued, or by your beneficiary when the policy becomes payable. The options may be:-
   i) to accept the maturity proceeds (sum assured and bonuses, if any) in cash,
   ii) convert the whole maturity proceeds into a life annuity,
   iii) leave the maturity proceeds with the life company for a guaranteed rate of interest and
   iv) receive the maturity cash value by instalments of a certain lump-sum over a number of years, and
   v) possibly to convert the maturity cash value into a paid-up whole life insurance policy.
   
   
5. Participating and Non-participating policies.
   
   A participating (or with profit) policy would enable the policyholder to share in the profits of the insurance company whilst a non-participating (or without profit) policy does not have this right.
   
   
6. Bonuses
   
   Bonuses are the part of the profits of the company allotted to the participating policyholders. There are various types of bonuses (depending on the method of payment). Details could be obtained from the life insurance company.
   
   
7. Supplementary Insurance Covers (Riders).
   
   The majority of companies make available to their life policyholders different kind of riders which may be added to the main policy. These include cover against accident, disability, hospitalisation and so on. With few exceptions, extra premiums are payable for the additional riders.

WHAT IS IN MY POLICY AND THE IMPORTANT POLICY PROVISIONS ?

1. Cash value:- If your policy has been in force for a number of years (minimum 3 years), it acquires a cash value. It is not advisable to surrender your policy for cash as there would be a loss of valuable insurance protection which you may not be able to get again. Alternatives should be considered when you need cash or if you find it difficult to continue payments - for example, a policy loan or one of the non-forfeiture options described below could be used.
   
   
2. Policy Loans - Borrowing on the Cash Value. With permanent life insurance you may borrow up to the cash value of the policy. A certain fixed amount of interest would be payable on the loan. You can repay the loan and interest however it suits you - as a lump sum, in installments or not at all. But if the unpaid interest added to the loan becomes larger than the cash value, the policy will be terminated without value. Any unpaid loan, including interest, at the time of death or maturity will be deducted from the proceeds.
   
   
3. What happens if you stop paying premiums?
   
   
1. Grace Period: If you do not pay premiums when due, a period of 15 to 30 days is provided during which the policy remains in force.
   
2. Cash Value: This option described above is always available to you if you decide to
   surrender your policy.
   
3. Non-forfeiture options: Instead of receiving cash, when you decide to discontinue your premiums you can obtain non-forfeiture benefits which can prevent a complete forfeiture or loss of your policy:-
   
   
1. Paid-up insurance for a smaller amount - this forfeiture value will provide you with a fully paid-up life insurance policy for a smaller amount (smaller sum assured) than the original policy. The longer your policy is in force the larger the amount of paid-up insurance it will provide.
2. Automatic Premium Loan - Some companies offer you the option of automatically paying any overdue premiums through an automatic premium loan. The same rules as stated in the section Policy Loans’ would apply.