Business Takaful

Source: The Star, Comment by V.K. Chin, 7th August 2007

From next year, the Employees Provident Fund will allow contributors to withdraw money to buy critical illness insurance.

It will ensure that they will receive some financial assistance should they suffer from a life-threatening disease in later life.

This is a far-sighted move even though it will be another drain on their retirement fund. However, the possibility of getting a serious sickness is greater, and it is good that the EPF is providing this financial cushion should this happen.

But those interested in such a scheme should also be informed that it is not another insurance policy, such as life or education. In an endowment policy, which can mature in 10 to 20 years or longer, the assured would be able to get the sum insured plus interest.

Life insurance therefore is a form of savings and financial protection for the family should its main breadwinner die of natural causes or in an accident. Since we do not know how long we will live, it is prudent that everyone should have one life policy for the worker.

But critical illness insurance is different from a life policy. Those interested would have to pay premiums like other insurance buyers. However, the insured will not get any refund at the end of the day.

The scheme is therefore similar to that of personal accident or general insurance, whereby the insured will not be paid any money when the policy expires. They will be paid only if there is a claim.

At present, many insurance companies are offering this product because more people are suffering from chronic illnesses; about 30 are on the list identified by the medical profession.

The amount to be insured can range from RM10,000 to millions. Should an insured be medically certified as suffering from the disease, the insurance would pay him the insured amount in one lump sum. The individual will then have to meet all the medical expenses for his illness.

If the money is sufficient to meet his treatment, then he is fortunate, or else he will have to pay for all future bills on his own. This is a one-off deal where the insurance company is concerned.

But those interested in such a policy need not keep on paying to keep it going. Usually, they have to pay premiums until 55 and will be covered until 70.

The premium will depend on the age of the insured and the payment period. Of course, it will be cheaper if purchasers should be in their 30s than in their 40s.

Therefore, those interested in this scheme should start as early as possible since they will be paying less in premiums than those in the older group.

Under the EPF scheme, members can only purchase critical illness insurance from insurers endorsed by it. Four schemes will be on offer: RM10,000, RM20,000, RM50,000 and RM100,000.

The first may be low for a critical illness but this will be dependent on the financial status of the contributor.

Naturally, the higher coverage the better, but it will mean a financial strain on them.

However, the best insurance is still one where people will take proper care of their health by adopting good eating habits, a good lifestyle and regular exercise. Prevention is always better than cure.