Insurance 101 - What is Insurance anyway?

Insurance is an arrangement whereby a company or government agency would provide a guarantee of compensation for specified loss, damage, illness, or death. In return, those that bought the insurance will make a payment to the company call premium periodically. 

For Malaysia, we also have Takaful, the shariah compliant version of insurance. The concept of Takaful insurance is based on the Shariah laws whereby a group of participants mutually agree among themselves to guarantee each other against a defined loss or damage that may inflict upon any of them. These participants will be contributing a tabarru’ or donation into the takaful funds. Takaful emphasizes unity and co-operation among the participants.

What insurance basically means is that you as the policy owner would pay the insurance company a sum of money (called the premium) periodically. In return, the insurance company would undertake to protect you, by compensating you for the damage or loss of what you have insured. The insured items can be your house, car or yourself, in case of illnesses or death. 

Insurance would help you manage your risk. That is the reason it is also called a risk management system, where the risk is transferred to another party.

The 3 most common types of Malaysian insurance are:

• Medical and Health
• General
• Life

1. Medical and Health Insurance

This is the most basic insurance that covers you in case of illness or injury due to an accident or illness. It covers all medical expenses and, if necessary, hospitalization cost which can be quite overwhelming if you don't have enough savings to pay for the bills. This insurance is the most critical insurance that everyone needs.

2. General Insurance

General insurance protects things that are valuable to us. Valuable things such as our homes, our cars, and other possessions are insured under this insurance. Most of us get general insurance for our car or motorcycle when we purchase them for it is mandatory in Malaysia to buy insurance for the vehicle that you own. Also, when we bought a house with a loan from the bank, the bank will require you to purchase a house owner or fire insurance.

3. Life Insurance

Life insurance is a policy that pays out a sum of money (sum insured) to the beneficiaries upon the death (or other circumstances such as critical illness or permanent disability) of the person insured. It would be a good idea for you to consider purchasing life insurance once you have covered the basics of health and motor insurance. Life insurance is highly recommended when you start earning more than what you spend and when you have responsibilities such as spouse or kids.

By knowing the basics of insurance, you will be able to understand your needs better. This will help you in your search for the right policy. If you need more help in buying insurance, contact an insurance agent.