How to Prepare Yourself if the Unfortunate Happen?
What is risk protection, and what is its role in financial planning?
Without proper risk protection, we may be forced to use the investment money saved for retirement and other dreams to cover unexpected expenses. Proper risk protection helps us return to our original position before any unforeseen events occur, not to make us richer than before.
To learn more about risk protection, let's read the following explanation:
QUESTION 1
Unlike investment, risk protection is not a term commonly used among the general public. But if we mention Insurance or Takaful, you may have heard of it. Especially for those who own cars, you must renew your insurance annually to update your road tax. What is the actual function of this risk protection?
ANSWER
The main function of protection is to safeguard an individual's financial position from bearing a significant loss in the event of unexpected occurrences. It aims to reduce the financial burden on the policyholder or family members when faced with death, accidents, illness, disability, and property damage.
We need to take out Insurance or Takaful products to activate risk protection.
Conventional insurance and Shariah-compliant takaful are the two main types of risk protection, divided further into life and general.
Life insurance/takaful protects the policyholder and nominees in case something undesirable happens to the policyholder. Products include family protection, education, medical, and health.
General insurance/takaful protects the policyholder from any loss or damage. Some offered products include protection for vehicles, property, homes, valuable items, and others not covered by life insurance.
For example, home insurance protects the policyholder from loss or damage due to fire or flooding.
Taking insurance/takaful is generally optional, but some are mandatory, like MRTA, which is required when taking out a home loan, and car insurance.
Medical insurance/takaful cards are optional and offer comprehensive protection, including cashless medical treatment, medical costs for 36 chronic diseases, compensation if the policyholder becomes disabled, or payment to heirs if the policyholder dies.
When buying Insurance or Takaful, the plan will protect you as a policyholder, dependents, and assets.
Insurance and Takaful are the same and offer the same protection, so to facilitate our knowledge sharing in this article, the term Takaful is used to refer to risk protection.
QUESTION 2
How do you choose a suitable risk protection product according to individual needs without burdening yourself?
ANSWER
First, you need to analyze your and your family's needs and understand what types of Takaful can protect those needs.
You only need one policy for assets like homes and cars because you can only make one claim even if you buy multiple types of Takaful for the same asset.
Therefore, don't buy two Takaful policies for cars or homes, as it will only waste your money.
For life insurance, you can have more than one policy, but the protection should be reasonable because the more significant the desired coverage, the higher the monthly premium.
Besides regular life Takaful, investment-linked Takaful products combine investment and protection components in one policy.
Don't hesitate to ask any questions you feel are essential to a Takaful agent so you fully understand what is covered and the compensation that can be claimed if anything stated in the policy occurs.
Undeniably, many hidden terms and conditions sometimes trap policyholders, so deal with transparent agents willing to provide the explanations you want.
What's most important is to make sure you take out a policy based on your capability because insurance premiums are a long-term monthly commitment. The policy's protection may expire if you fail to pay the premium for a certain period.
If affordable, don't delay taking out Takaful/Insurance, as the earlier you start, the smaller the monthly premium you'll need to pay.
QUESTION 3
What are the features of risk protection that we need to know before making a decision?
ANSWER
Premium payments must be made every month. If you forget or cannot pay the premium for a specific period, the relevant insurance will be canceled. You may not receive anything from all the premiums you have paid before.
Insurance claims are only for policyholders. If you need immediate funds for your child, spouse, or parents, you cannot make a claim, so you must find another financial source unless you also buy insurance for them.
Returns from investments in investment-linked plans are not guaranteed as they depend on the mutual fund chosen by the policyholder or insurance company.
