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Adam is at the peak of his career, but his biggest worry is providing security to his family. His wife is a homemaker with irregular and minimal income from a home baking business.
He has a teenage daughter with a big dream, and a toddler son. Like most parents, he wants to provide the best for his children. He is also taking care of his retiree father, but fortunately, his father has a small pension to cover his own daily expenses for now.
Being the main breadwinner, Adam is stretched pretty thin financially, spending on his children’s education and also his household expenses. A single accident or illness could see his family living hand to mouth. Here are some of the financial concerns that Adam have:
Loss of job/income
Unable to achieve family’s financial goals
Illnesses that require high cost of treatment
Lack of retirement planning
Accidents causing Total & Permanent Disability (TPD)
Death
Having a takaful plan is just part of the equation. For a breadwinner, it’s crucial to ensure that you’re adequately protected.
For Adam, he can determine how much is enough to protect himself and his family from potential risks this way:
Annual basic expenses
Mortgage
Car
Children’s education (2)
Retirement
Investment
Child’s education plan
EPF Savings
*Terms and conditions apply.
Figures above are intended for illustration purposes only.
1http://www.theedgemarkets.com/article/hsbc-malaysian-parents-spend-rm109k-average-educate-one-child
2http://www.theactuary.com/features/2017/07/the-growing-asian-retirement-puzzle/
If a sole breadwinner of a family suddenly passed away with few assets and little savings, the family would be left with bills and financial commitments that they can’t manage.
However, this financial disaster can be avoided.
So, how can Adam ensure his family do not fall into this financial trap?
In the case of Adam, who works as a Marketing Manager, his income is crucial as his family depend on his consistent income for their day-to-day expenses and also to achieve their financial goals in the future.
A family takaful plan will be a Plan B for his family, in the unfortunate event that Adam is no longer able to contribute to the family financially due to death or disability. It can also be eligible for tax relief of up to RM6,000 a year (together with total Employees Provident Fund (EPF) contributions).
To plan for the financial support for his loved ones in his absence, Adam has to calculate the finances for his surviving dependents and liabilities he will leave behind.
Calculated using the Dependent Protection & Liability Financial Calculator by Great Eastern Takaful.
Terms & conditions apply.
| Item | Per month |
|---|---|
| Car instalment & other expenses | RM1,000 |
| Mortgage | RM2,100 |
| Others | RM1,000 |
| Total expenses | RM4,100 |
Here’s the estimated amount Adam needs to cover in the event of his death:
For adult dependents
For child dependents
*Factoring an annual inflation rate of 4%.
The above are just estimated scenarios based on Adam’s family. Each individual and family has different coverage needs.
In an ideal world, we all want to be able to afford adequate coverage from our takaful plan, with all the right riders. However, this is not always possible, especially if you are juggling high cost of living, a big household budget and other financial commitments.
Affordability was named the main reason for not subscribing a takaful protection or allowing one to lapse, especially among the Bottom 40.
According to a study by the Life Insurance Association of Malaysia and Universiti Kebangsaan Malaysia, the probability of under coverage is high at between 94% and 98%. Each family member is faced with the average protection gap of RM100,000 to RM150,000.
However, there are steps you, or your family members can take in your absence, to ensure your coverage is sustainable in the event of loss of income due to your death or disability.
A good asset allocation is key to the long term success of any investment portfolio. An older investor may have a lower allocation to more risky assets like shares, while a younger investor may prefer a higher allocation to such assets.
However, in the case of Maria, who may be tasked with the responsibilities of stretching the lump sum received, she has to ensure the money grows so she will be able to achieve her family’s financial goals despite the passing of Adam.
Here’s a suggested investment portfolio for someone in Maria’s situation with higher risk aversion.
Terms and conditions apply. Source: Money CNN4
Choosing the perfect protection plan depends largely on you and your family’s personal financial needs for today and tomorrow. It also depends on the life stage you are in, as your priorities change as you age and mature.
A family takaful plan is most suitable for someone like Adam, who has financial dependents. It helps make sure that the people you care about will be provided for financially, even if you are no longer around or lost the capacity to care for them.
Your family can afford to make the choice that best preserves their quality of life when they are adequately protected by a family takaful plan.
When you are choosing a takaful plan, here are the important factors that you must consider:
Your financial goals will play a significant role in helping you choose the most suitable type of takaful plan. Here are some common financial goals:
An expensive takaful plan that you can barely afford will lead to a lapse certificate, or worse – a financial meltdown later on.
According to financial planners, your takaful contribution should comprise only 6%5 of your income
For example, if you are earning RM6,500, your monthly contribution should be at most RM390.
Determining how much coverage you need does not have to be complicated.
Use the Dependent Protection & Liability Financial Calculator by Great Eastern Takaful to determine adequate protection for you.
For Muslim families, there are some concerns that they may want to include in their takaful planning. Some of these include:
Badal Hajj, or Hajj by proxy
Badal Hajj is performing an obligatory Hajj on behalf of those who is unable to perform Hajj due to sickness, old age or death. Under a takaful plan, the Badal Hajj service is provided where someone will be appointed to perform Hajj on behalf of the deceased or the unfit person in the event of death or Total & Permanent Disability (TPD).
Waqaf
In the event of your passing, an amount as previously agreed by you from the Death Benefit will be channelled to a waqaf body appointed by us for this purpose. Typically, this is an optional service provided by the takaful operator, and you will need to inform the operator if you would like to opt in.
In a family takaful plan, any underwriting surplus from the Tabarru’ Fund after a suitable amount is held back for contingency purposes will be shared among the participants and the Takaful Operator in the ratio of 50:50.
Any Investment Profit derived from Participant’s Individual Account (PIA) and Tabarru’ Fund will be paid to the participants.
Any losses will be carried forward and accounted for before arriving at the underwriting surplus or deficit in the following year
These will be paid annually.
According to a survey conducted by iMoney and The Edge6 ,affordability was found to be the main reason for Malaysians to forego participating in a takaful plan or allow one to lapse
To address these issues, look for a takaful plan that offers the following facilities:
Due to increasing lifestyle diseases, such as diabetes and chronic heart disease, access to fast and quality treatment become a priority. With statistics like 100,000 Malaysians diagnosed with cancer each year7 , and 6,000 new kidney failure patients8 each year, the spotlight has shifted to medical plan in recent years.
For Adam, who is the sole breadwinner of his family, it is crucial for him to ensure he has medical coverage. A bout of dengue can set him back by at least RM3,6009. Without a sizeable emergency fund, Adam might have to resort to using his credit card to pay for the medical fees.
It’s not just about critical illnesses, but a treatment for common illnesses like dengue or even an appendectomy can burn a huge hole in Adam’s pocket.
As a 42-year-old male, he also faces increased medical risks such as:
Colorectal cancer (16.0%)
Nasopharyngeal cancer (13.7%)
Lung cancer (13.4%)
More than 1 in 5 patients who underwent coronary angioplasty were under the age of 50 years.11
3.5 million Malaysians aged 18 years and above have it.12
More than 6,000 new patients each year requiring regular dialysis.
61% of dialysis patients suffering from diabetes
18% dialysis patients suffering from hypertension
Sickness can affect more than your health. With medical inflation estimated at 11.5% in 2016, and projected to rise to 12.7% in 2017, sickness can have an impact on your finances, too.
Here are the estimated medical costs for the following common diseases for a male of Adam’s age.
Chemotherapy
Radiotherapy
Coronary Angioplasty
Coronary Artery Bypass Surgery
Blood test with device and test strips
Blood test at private hospitals
Doctor consultation fee
Medication (Insulin)
Haemodialysis
Kidney transplant
It’s not a secret that as we age, our health tends to deteriorate and our health cost increases. Although many of the non-communicable diseases are hereditary, we can still do our part to minimise the risk, or detect any illness early for a positive prognosis.
Here’s a path to healthier living that Adam can take:
i. https://www.nst.com.my/news/nation/2017/06/246538/malaysians-most-obese-region
ii. https://www.thestar.com.my/news/nation/2016/12/06/subra-obesity-a-big-health-problem-among-adults/
iii. https://www.cancer.org/cancer/colon-rectal-cancer/detection-diagnosis-staging/detection.html
iv. http://www.themalaymailonline.com/malaysia/article/survey-shows-nearly-half-malaysian-cancer-patients-broke-a-year-after-diagn
Medical and health takaful covers the cost of private medical treatment, such as hospitalisation, surgery and treatment, in the event that you are diagnosed with certain illnesses or are involved in an accident.
This can be a stand-alone plan or can be added to a basic family takaful plan as a rider.
Here are four types of health and medical coverage21 :
Medical and health takaful is offered through individual or group plans. However, an individual plan generally costs more than a group takaful plan. Therefore, you need to be very careful when choosing a cover that best suits your needs by understanding the product features, conditions, benefits, limitations and exclusions of the takaful plan. Don't be pressured into getting more than you need.
Some of the things you should look out for are the room and board limit, annual limit, and lifetime limit.
The Hospital Room and Board coverage refers to the maximum cost of your room and board that you can claim for in a day.
For example:
| Limit per day | Maximum days per certificate year |
|---|---|
| RM150 to RM300 | Up to 180 days |
On the other hand, the annual and lifetime limits dictate how much you can claim in a year and in a lifetime. There are also some takaful products that offer unlimited lifetime limit.
The general rule of thumb is to cover 70% of your income for one year, and also a rough estimate of treatment in the event of critical illness.
In the case of Adam, his monthly salary is RM6,500, hence he will need the following estimated coverage:
| 70% income replacement for one year | Annual treatment cost for critical illness in Malaysia |
|---|---|
| RM54,600 | RM400,000 |
Check your coverage using this Great Eastern Takaful Critical Illness calculator.
Most people make the mistake of signing up for a medical takaful plan solely based on the contribution. While the affordability is important, it should not dictate the type of plan we should get.
It is more important to get the coverage that you need within the contribution that you can afford.
So, what are the common factors that will affect your contribution?
A co-takaful is an agreement that is set between the takaful operator and you, where a certain percentage of the cost charged for any medical treatments will be shared between two parties.
Full coverage means the takaful operator will fully pay the medical bill on selected charges such as Room and Board, ICU, surgery as well as inpatient and outpatient treatments, within the annual and lifetime limit.
| Treatment | Estimated Cost | With co-takaful |
|---|---|---|
| Appendectomy | RM7,000 – RM10,00022 | You need to pay RM700 to RM1,000 (10% co-takaful) |
A plan with co-takaful is a good option to help you lower your takaful plan contribution, making it more affordable. However, if Adam wants total peace of mind, it’s good to look into a takaful plan that offers no co-takaful (full coverage) so he won’t be financially burdened when he falls sick.
It’s also important to consider coverage of outpatient treatments before and after hospitalisation, as these can come up to a significant amount.
Typically, a takaful plan covers up to 90 days after discharge for follow-up check-ups.
Some takaful coverage ends at the age of 65 or 70. This exposes the Person Covered to a myriad of risks in their most vulnerable stage of life.
This is why it is important to look for a takaful plan that gives you the longest coverage to at least 99 years of age.
An investment-linked plan with a unit deducting medical rider charges the same contribution every year, whereas a standalone medical plan or contribution paying rider increases its contribution rate as the Person Covered ages.
However, the investment-linked plan may require top up contribution in case of the participant’s account value is less than or equal to zero at any point of time.
The standalone takaful plan is more affordable in the early years but the cost can go up significantly as you age.
Most takaful plans come with a waiting period before you can make a claim.
Here are the types of waiting period and the typical duration from the date the medical plan is active:
| Type | From the effective date of the medical plan |
| General waiting period | 30 to 120 days |
| Normal illnesses | 30 days |
| Specified illnesses such as hypertension, diabetes mellitus and cardiovascular disease23. | 120 days |
| Certain illnesses such as cancer | 60 days |
Some of the general exclusions usually included in a family takaful and health protection plans are:
| Suicide | Self-inflicted injuries |
| Extreme activities such as skydiving or parachuting | Injuries sustained while committing a felony or assault |
| War | Pre-existing medical condition |
| Cosmetic surgery & circumcision | Pregnancy and child birth |
| Dental | Optical |
| AIDS, AIDS Related Complex & HIV related diseases | Congenital conditions & deformities |
Note: The list above is non-exhaustive and differs from plan to plan, and takaful operator to takaful operator.
We all know someone who is suffering from cancer or heart disease, or has passed on due to these non-communicable diseases (NCDs). However, we tend to think that this is something that will only befall someone else, not us or someone close to us.
This is far from truth. According to the data from the National Health and Morbidity Survey (NHMS), 73% of the total deaths in Malaysia were due to NCDs, and half of those were caused by cardiovascular diseases23.
Here’s why you need both medical plan and a critical illness plan:
If Adam suffered from a stroke and was hospitalised, he would use his medical takaful plan to cover his hospitalisation and treatments. This plan covers treatment and room & board of hospitalisation as set out in the certificate.
After spending a few weeks at the hospital, Adam was discharged but he was not fit to return to work and even need the following to help him recover:
Monthly consultation and check-up
Physiotherapy
Long-term medication
There are also other hidden costs:
Hidden costs to hire a caregiver/Loss of productivity for the caregiver
Alternative treatments that are not covered by the plan
Income replacement if the Person Covered is unable to return to work
The lump sum provided by the plan will be able to cover the costs that are not covered by the medical takaful plan.
* Based on exchange rate of US$1 = RM3.95854 as at January 15, 2018.
Post-stroke outpatient care costs are significantly influenced by stroke severity. The cost of attendant care was the main cost incurred during the first three months after hospital discharge, while travelling expenses was the main cost incurred when attending outpatient stroke rehabilitation therapy.
| Alzheimer’s Disease/Severe Dementia | Bacterial Meningitis | Blindness | Brain Surgery |
| Cancer | Chronic Aplastic Anemia | Coma | 8 Coronary Artery By-Pass Surgery |
| Deafness/Loss of Hearing | Encephalitis | End-Stage Kidney Failure | End-Stage Liver Disease |
| End-Stage Lung Disease | Heart Attack | Heart Valve Surgery | Major Burns |
| Major Head Trauma | Other Serious Coronary Artery Disease | Paralysis/ Paraplegia | Parkinson’s Disease |
| Primary Pulmonary Arterial Hypertension | Surgery to Aorta | Full-Blown AIDS | Fulminant Viral Hepatitis |
| Loss of Independent Existence | Loss of Speech | Major Organ Transplant | Multiple Sclerosis |
| Severe Cardiomyopathy | Stroke | Systemic Lupus Erythematosus with Lupus Nephritis | Benign Brain Tumour – of specified severity |
| HIV Infection Due To Blood Transfusion | Motor Neurone Disease – permanent neurological deficit with persisting clinical symptoms | Muscular Dystrophy | Angioplasty and Other Invasive Treatments for Coronary Artery Disease |
Covered events do not just include critical illnesses but also accidents that result in coma, head trauma, loss of hearing and major burns, to name a few.
These diseases can happen to anyone, and the best preventive care we can take to minimise the financial risk are:
Staying healthy to take advantage of No Claim Bonus
Participate in healthy activities organised by takaful operators
Get adequate critical illness coverage
Participate in a takaful plan that allows different coverage for different stages or severity of the illness
3http://www.theedgemarkets.com/article/cover-story-closing-insurance-family-takaful-protection-gap
4http://money.cnn.com/tools/assetallocwizard/assetallocwizard.html
5https://www.miller-miller.com/content/life/coverage-amount
6http://www.theedgemarkets.com/article/closing-insurance-family-takaful-protection-gap
7https://www.thestar.com.my/news/nation/2016/04/03/about-100000-malaysians-suffer-from-cancer-each-year/
8http://www.freemalaysiatoday.com/category/nation/2016/08/16/kidney-diseases-show-upward-trend/
9https://www.star2.com/living/viewpoints/2016/03/06/contradictheory-dengue-and-the-cost-of-saving-lives/
10http://www.crc.gov.my/wp-content/uploads/documents/report/MNCRRrepor2007-2011.pdf
11http://www.crc.gov.my/wp-content/uploads/documents/report/report_NCVD_Acute_Coronary_Syndrome_Registry_10_12.pdf
12https://www.thestar.com.my/news/nation/2016/04/08/hilmi-alarming-increase-in-diabetes-among-malaysians/
13http://www.federalgazette.agc.gov.my/outputp/pua_20131216_P.U.%20%28A%29%20358%20-%20PERINTAH%20KEMUDAHAN%20DAN%20JAGAAN%20KESIHATAN%20%28PINDAAN%20JADUAL%20KETIGA%20BELAS%29%20%202013%20%28disahkan%20oleh%20kementerian%29.pdf
14https://www.mahkotamedical.com/cost/coronary-artery-bypass-surgerycabg/?pn=2&lang=&discipline=0
15https://iprice.my/accu-chek
16https://www.pantai.com.my/kuala-lumpur/facilities-services/diagnostic-services/health-screening
17http://says.com/my/news/malaysia-hospital-medical-bill-price-increase-in-march-2014
18https://www.thestar.com.my/lifestyle/health/2012/11/18/insulin-in-diabetes/
19https://www.thestar.com.my/news/nation/2016/04/08/hilmi-alarming-increase-in-diabetes-among-malaysians/
20https://www.ncbi.nlm.nih.gov/pmc/articles/PMC4946449/
21http://www.insuranceinfo.com.my/choose_your_takaful/cover_your_health/medical_health_takaful.php?intPrefLangID=1&
22https://www.mahkotamedical.com/cost/appendectomy/?pn=0&lang=&discipline=0
23https://www.themalaysianinsight.com/s/20706/
24https://www.ncbi.nlm.nih.gov/pmc/articles/PMC4350462/table/T2/
If a breadwinner is unable to work for a year due to illness, or worse, unable to work due to Total & Permanent Disability (TPD), who or what would pay the mortgage, the car finance and all the bills?
That is Adam’s biggest concern.
Here are some ways he can ensure his family and loved ones are protected in the event that he is no longer able to generate an income through his job or business:
The general rule of thumb of emergency fund is to save at least three months of your gross monthly salary.
In Adam’s case it would be at least RM19,500. The best places to keep an emergency fund is an account that will earn you some returns to offset inflation, and yet still liquid so you can cash out quickly when there’s an emergency. An example of such as account would be an Islamic fixed deposit account which offers 3% per annum on average.
Having another source of income protects you from the vulnerability of having only one source of income, such as retrenchment and salary loss.
Some common ways to earn extra income are:
1) Driving part time for a ride-hailing service.
2) Investing in dividend Shariah-compliant securities and unit trust funds.
3) Conducting small business, such as a part-time takaful advisor or setting up an online shop.
4) Creating an intellectual property, such as publishing a book or selling an app online.
Investment is the most common way of earning a passive income. However, not all investment products can be a good source of passive income.
Here are some common investments that can potentially be a channel of passive income:
1. Shariah-compliant securities and unit trust investments can provide passive yields in the form of dividends. Dividends are basically a share of profits given to you as being a partial owner of the company.
2. Investing in a rental property is one way to produce a regular source of income. However, this will require some management by the landlord (owner of the property) and also a higher capital (down payment and other costs involved in buying a property).
This rider that can be attached to your investment-linked or standalone plan, provides a percentage of the sum covered on an annual basis until the maturity of the takaful plan.
This sum will help the person covered and his/her family manage their financial commitments in the event of Total & Permanent Disability (TPD) for the person covered.
A rider is an add-on provision to a basic takaful plan that provides additional benefits to the person covered at an additional cost. Some of the common riders include critical illness rider and income protection rider.
A typical income protection rider provides 10% of the rider sum covered to the person covered in the event of total and permanent disability.
It will be paid annually up to the maturity of the certificate, typically at age of 70 years old.
If you have a standalone takaful plan which gives a lump sum in the event of death or Total & Permanent Disability (TPD), here’s how you, or your family members can do to boost that amount.
Products you can leverage on if you receive RM200,000 lump sum from your death or Total & Permanent Disability (TPD) takaful plan:
| Product | Pros | Cons | Potential Returns |
|---|---|---|---|
| Islamic Fixed Deposit Account |
|
|
Profit: 3.80% p.a. Period: 60 months Balance: RM224,110.05 Returns: RM24,110.05 |
| Unit Trust Funds |
|
|
Moderate Risk Fund* Purchase NAV price: RM0.3918 Total units: 510,464 NAV price 3 years later: RM0.4165 Profit: RM12,609 |
| Blue Chip Stocks |
|
|
Purchase price: RM5.65 (Jan, 16, 2015)** Total units: 35,398 Price 3 years later: RM20.64 Profit: RM530,615 |
Terms and conditions apply.
* Based on Kenanga Islamic Balanced Fund, as of January 16, 2018. Calculated using this calculator.
** Based on Ajinomoto Malaysia Berhad, as of January 17, 2018.
The above are just examples of how Adam, or his family can stretch the lump sum received from his takaful plan, in the absence of an income protection rider.
With the increasing cost of living and the inevitable lifestyle inflation, it is important for Adam to focus on financial planning for the future of his family.
However, one common mistake that most people make when it comes to financial planning is, to only focus on the ‘wealth creation’ aspect, while neglecting the ‘protection’ element. A protection plan is an important element of a person or a family’s financial plan.
Typically, there are four aspects to financial planning:
It’s never too early to start saving during your working years and build a sizeable funds to provide you and your family with a financially comfortable future. Even if you have a savings arrangement such as the EPF, it is still beneficial to have additional savings to complement.
So, why do you need to plan for your future?
To have sufficient income to maintain living standards in the future i.e. retirement
To pay off remaining financings and protect your spouse from more financial responsibilities
To provide liquidity to family for final expenses such as funeral and medical costs
To put your wealth in a more conservative asset allocation mix
To make donation to the charity of your choice
Most Malaysians depend on their EPF savings for their retirement. However, this may not be sufficient.
| Retirement age | Average life expectancy | Estimated no. of years in retirement | EPF’s minimum savings threshold |
|---|---|---|---|
| 60 years old | 75 years old | 15 years | RM228,00025 |
Terms & conditions apply.
According to the standard set by the Organisation for Economic Co-operation and Development (OECD)26 for retirement income replacement in Asia, Adam needs about RM702,000 in his retirement fund (about 60% of the last drawn salary, assuming his last drawn salary is RM6,500).
By just depending on his EPF, he runs the risk of not being able to replace his income sufficiently to support himself and his wife in their golden years.
To achieve that 60% to 70% of his income in his retirement, Adam needs save 33% of his income as early as possible:
To save the additional 10% to boost one’s retirement income, other than investment products such as securities, unit trusts and Private Retirement Schemes, takaful products can also be used to complement and balance the risk of an investment portfolio.
While the main objective of having a family takaful plan is to protect oneself from unforeseen circumstances, it can also help in wealth accumulation, preservation, and give access to liquidity at the right time.
These savings plans come with short- to long-term savings. Some plans require the certificate owner to contribute for a short-term such as 10 years. This will require a higher rate of contribution. Longer-term plans will likely have lower contribution rate.
* Investment returns are not guaranteed, and will depend on the performance of the underlying assets.
The type of annuity you choose and its benefits will determine the amount of income you will receive during retirement. You can choose to have your income paid every month, every three months, every six months or once a year.
You can also use the following products to save for your financial goals:
| Product | Potential Returns |
| Unit Trust Funds |
Moderate Risk Fund* Purchase NAV price: RM0.3918 Total units: 510,464 NAV price 3 years later: RM0.4165 Profit: RM12,609 |
| Blue Chip Stocks** |
Purchase price: RM5.65 (Jan, 16, 2015) Total units: 35,398 Price 3 years later: RM20.64 Profit: RM530,615 |
| Real estate |
Purchase price: RM500,000 Financing amount: RM450,000 Other costs (legal fees, stamp duties, renovation: RM25,000 Selling price: RM650,000 Real capital appreciation = RM175,000 Percentage of capital appreciation: RM175,000 / RM500,000 x 100% = 35% |
Terms and conditions apply.
* Based on Kenanga Islamic Balanced Fund, as of January 16, 2018. Calculated using this calculator.
** Based on Ajinomoto Malaysia Berhad, as of January 17, 2018.
25http://www.kwsp.gov.my/portal/en/member-investment-withdrawal-eligibility
26http://www.theactuary.com/features/2017/07/the-growing-asian-retirement-puzzle/
