Can you have the benefits of investing by having an insurance plan? Investing in an insurance plan might sound odd as it commonly doesn’t generate your money. However, most insurance companies offer insurance plans linked to investment, allowing policyholders to receive a potentially bigger payout than the sum assured. An income replacement term insurance plan can be a viable option for those who wish to provide for their loved ones, even after passing away.
It’s more than just life insurance – which gives the policyholders, or their nominees, a lump sum payment. Instead, the insurance company will transfer the benefit payout monthly. Let’s look at the benefits of investing in an income replacement insurance plan.
Although it differs from basic life insurance, the income replacement term insurance plan won’t cost you higher. The premium charged for this insurance plan should be the same as any other life insurance plan. You need to discuss the percentage of the premium price increase and what might trigger it, either inflation or growth in benefit.
Then, plan out the payout scheme. Depending on the insurance company, you may have the option to split the lump sum and monthly payout by percentage, have all the payout be transferred monthly over a specific period, or have monthly payouts adjusted to the inflation rate for a particular number of years. It’s best to sit down with your financial planner or adviser and your beneficiaries.
Sufficient Funds to Get Back Up
In the event of your passing, the beneficiaries may be overwhelmed by grief which can cloud their minds and judgment. This will not be a good time for them to make a big financial decision. If you’re the breadwinner, it will be hard for your surviving family to fund their daily needs. This is where the benefits of investing in income replacement insurance come to play. Although the monthly payout won’t be too costly, it should be enough to cover basic expenses. This will allow the beneficiaries to get back on their feet again.
Adequate Life Cover
According to the Life Insurance Association of Malaysia (LIAM), in 2020 only 41% of Malaysians are insured. Shockingly, despite having an insurance policy, 90% of them don’t have enough coverage to protect themselves and their loved ones. One of the many benefits of investing in life insurance that offers an income replacement plan is that you can rest easy knowing that some, if not all, of your family’s expenses will be covered when you are gone. Income replacement term insurance plans offer coverage up to 20 times your annual income.
The good news is that the amount you paid for the insurance premium is eligible for tax relief. This also applies to medical and education insurance. To do this, you need to ask for an annual insurance statement from the insurance company which details the amount of premium paid for that year, type of coverage, and other vital information.
Quick Claim Settlement
Many people have a terrible experience when it comes to claiming their insurance benefits. But the time has changed for the better. Nowadays, insurance companies offer plans with relatively short claim settlement periods.
Do note that some insurance providers only offer income replacement as a ‘rider’ or ‘value-added product’ attached to the main policy. Some may have it as a standalone product. Speak to various licensed personal wealth consultants and insurance consultants before committing to a plan.
Think of your insurance as a safety net (or an inflatable lifeboat, if you will). Everyone must have it; it aids your family and loved ones in times of crisis. However, you need insurance and an investment portfolio to ensure your financial planning is secure. Supplementing taking out insurance policies, investing regularly, too, will help you achieve your personal financial goals, and when your time on earth is up, your loved ones can continue the investments or use them to support their lives.
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