The Importance of Life Insurance and the Various Types of Life Insurance Available in Malaysia

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1. Introduction
Today, life insurance actually the one of everybody needs. As we know, it is a type of financial protection to anyone who bought it. Basically, life insurance is an agreement between insurance policy holder and insurer, where the insurer promises to pay an amount of sum assured to beneficiary upon the death of the life insured. In other words, an individual’s pure risk is shifted to insurer in the consideration of premium paid by the policyholders. The premium is either paid regularly or in a lump sum. The concept behind the life insurance is “repair the house before it rains”. It is common that we prepare an umbrella even it is a sunny day. By the same token, an individual will plan how to meet their financial obligation to their family in the case of premature death. Therefore, it comes out with life insurance which would provide financial security to the loved ones instead of letting them undergo into a financial hardship upon the death of that person. In Malaysia, life insurance businesses come under the jurisdiction and regulations of the Bank Negara Malaysia (BNM). All matters regarding insurance in Malaysia is governed under Insurance Act 1996 and Insurance (Amendment) Act 2005. While the life insurance agents are not directly supervised by BNM, but registered under the Life Insurance Association of Malaysia (LIAM) which is the national association representing life insurance and reinsurance carriers. It requires the agents to fulfill and follow certain requirements and regulations. Besides, in regard of tax treatment to life insurance, there are tax advantages given to life insurance policyholders by the virtue of Section 49, Income Tax Act 1967. Under this section, life insurance plus contribution to approved funds (e.g. EPF) is tax deductible up to RM6000 in a basis year for an individual; same up to RM5000 for married couples if the wife opts for separate assessment. Other than rules and regulations, the life insurance industry is actually still in a growing stage in Malaysia. According to research, the insured rate in Malaysia is only 38.7%, which means only 38.7% of the total population having life insurance policy. This rate is far lower than the insured rate in other countries such as 70% in Singapore and 600% in Japan. This shows that Malaysian is still not realize the importance of life insurance. This might due to the prohibition of conventional life insurance in religion of Islam, and Chinese’s negative perceptions against life insurance. However, the more educated generation in Malaysia started to realize the importance of life insurance. This indicates that the life insurance industry is potential in future growth. Furthermore, life insurance industry in Malaysia is an important contributor to the economy; it is a major employer and a significant source of overseas earnings. It helps individuals and businesses to manage their risks and recover from losses. Due to globalization and competitions, life insurance today has been developed into various types which satisfy and suit most individual needs. In Malaysia, rather than traditional term life and whole life, recently it has been developed into other forms such as investment-linked insurance (ILI), which is becoming more and more popular due to its investment characteristics. Other than these, life insurance has been also developed in endowment form which mixes the education or retirement plan with the life insurance. After getting these introductions of life insurance in Malaysia, with respect to the topic, we are going to discuss the importance of life insurance. More and more individuals are buying life insurance for their loved ones. We will study deeply in the reasons why the life insurance became the needs for all of us. Furthermore, we will also explain the various types of life insurance available in Malaysia in details. Each type of life insurance has own specific characteristics and functions. We will use the life insurance...
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