5 Fascinating Facts about Takaful/Insurance Industry (#1 is ❤️) [SPONSORED]

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Welcome back to another article on Takaful and insurance – one of the MOST requested topic from you, the Ringgit Oh Ringgit audience!

Today’s article is brought to you by Great Eastern Takaful. As we’ve done before, I asked whatever I was curious about the Takaful/ insurance industry to the Great Eastern Takaful team, and they answered. They’ve always been incredibly generous with their knowledge – before this, they’ve shared the process of Takaful product creation and I asked the CEO about challenges specific to the Takaful industry.

(The generosity seems to be a company culture – congratulations on winning the CSR Initiative of the Year – Malaysia at Insurance Awards 2020!)

Here is a compilation of the most noteworthy points from our discussion, for your reading and learning pleasure. I find them interesting and hope you do too!

#1 – More married people take up Takaful/insurance as compared to singles

According to data from Great Eastern Takaful, the Takaful take-up rate is 71% for Married people versus only 25% for Single.

71% vs 25%! That’s a big gap! My romantic side is happy – I think taking Takaful/ insurance is an AWESOME gesture, to show you care for the people you love 🙂

There is one big downside though – the median marriage age is 26-28 years old. The older you get Takaful/ insurance, the higher the contribution will be. Also, how sure are you that you won’t have medical issues by the time you’re married?

Remember, pre-existing medical conditions may NOT be covered by ANY provider. Takaful/Insurance agents are tired of repeating themselves, so let me do it: if you can afford it, get covered while you’re still healthy!

Knowing this, Great Eastern Takaful created i-Great EVO, which is specifically designed to grow with you. How it works is:

Get it when you’re young and have no dependents (Phase 1), it is advised to take a basic plan with accidental and medical rider which you can upgrade with a Critical Illness rider to support your shift to married life and/or children and/or career growth (Phase 2 and 3)
The coverage in the medical rider will automatically increase for Room & Board and Overall Annual Limit every 5 years to ensure that you will get sufficient coverage in the future.
The plan is flexible; you can get for your dependents and upgrade your plans at any time. For children, 11 Child Critical Illness coverage is provided on top of the 45 Critical Illness list.

The brochure below shows you how i-Great EVO works in action:

Important: as you move up a Phase, your coverage AND contribution will increase. If the monthly contribution in Phase 2 and 3 freaks you out, remember that you can always talk to your agent to reduce the coverage to a more affordable sum. Later when you earn more, you can increase it back.

Fun fact of the day: Aman RA the rapper made a song about i-Great EVO.

#2 – If you have a medical card, your contribution WILL increase

Double-digit annual growth is a great thing for investments, but not so much for medical claims. Because of this, Takaful/ insurance providers had no choice but to re-price some 4.5 million certificates/policies between 2016-2019 (Source: Bank Negara Malaysia’s Managing Medical Claims Inflation document). In 2019 alone, the medical inflation rate in Malaysia stood at 13.2% 13.2%!!!

According to Great Eastern Takaful, Medical claims make up almost three out of five claims they processed in 2019, with the average claim of RM3,919.85.

If you follow the rule of 72, the average medical claims with 13.2% annual inflation will double around 5 and a half years. That means the average claims will cost RM7,839.70 circa 2025, RM15,679.40 circa 2030 and a whopping RM31,358.80 circa 2035!

Note: The table above does not include the Covid-19 financial assistance, provided for free for Great Eastern Takaful customers and family members (spouse & children aged 18 and below) in the event of death & hospitalisation. This benefit went into effect in 2020 and paid out RM151,600 in hospitalisation claims. The benefits include:

RM200 daily hospitalisation benefit up to 60 days, upon diagnosis of COVID-19 and kept in quarantine at any of Ministry of Health Malaysia designated hospitals.
A lump sum of RM20,000 per Person Covered upon death due to COVID-19

It doesn’t matter if your medical plan is ILP (investment-linked product) or standalone (term Takaful, ie the ‘burn money every month’ type). The former will get repriced if medical inflation continues to grow at this rate, and the latter will increase in price when you get older anyway.

So what can one do?!

If money isn’t a problem (and I hope it won’t be for you), just close one eye and continue paying your monthly contributions despite the increase. Not using your medical card is the best-case scenario; that means you’re healthy.

(Note: shopping around for a new medical card is not a solution. For one, you’re older so your new quotations will price in your age and be more expensive. Secondly, this is a nationwide problem, not a specific hospital; ALL Takaful/ insurance providers are required to reprice their medical plans.)

If money *is* a problem, then talk to your agent and see how you can temporarily reduce your coverage until you can increase it again. It is almost never a good idea to eliminate a medical plan; ironically, the more you can’t afford medical fees, the more you need to keep it.

#3 – The 7 most fumbled/ misused/ misunderstood term in the industry

Takaful/ Insurance industry is a specialised field. Word accuracy matters; you don’t play around when billions of ringgit is involved.

The jargon is a good thing for legal reasons, but unfortunately this caused a lot of confusion with everyday consumers, who just want the protection. I don’t know about you, but the jargon intimidated me so much that I procrastinated on getting myself covered as soon as I could!

I asked Great Eastern Takaful about the most fumbled/ misused/ misunderstood terms that people should know. Here they are:

Free-Look period: 15 days from the date of acknowledgement receipt when you receive your Certificate for you to review the suitability of the plan. If the Certificate is cancelled through written notice during this period, the Takaful Operator shall refund an amount equal to the amount of contributions paid minus expenses (if any).
Waiting period: typically between 30 to 120 days depending on type of cover from the date your Takaful plan is active before you can make a claim.
Nomination: refers to the authorisation made by the participant by naming a person as beneficiary or executor to receive the Takaful benefits upon death.
Hibah: a gift in the form of your Takaful benefit to anyone (person or organisation) directly without interference from any distribution laws
Deductible: an expense payable by you before the Takaful Operator pay the balance of the eligible medical expenses.
Rider: Optional coverage that can be attached to the basic Takaful plan with additional contribution.
Survival Period: Claims will only be payable if Person Covered survive after he/she has been diagnosed with a covered illness.

Get your agent to explain all these terms to you in detail, and make sure you completely understand them so you know exactly what you’re buying – that’s what they’re trained for!

Click here to make a commitment-free appointment with a Great Eastern Takaful agent.

#4 – 50% of Participants (Certificate Owners) didn’t do nomination (?!)

(Note: this % from Great Eastern Takaful is considered high. I’m told that the nomination rate for overall Takaful/ insurance industry is lower)

Participants who don’t do nomination – why don’t you??? Please do so ASAP, if not your next-of-kin must undergo the loooong process to obtain letter of administration from the Malaysian High Court OR distribution order from the Land Office. That could take years to sort out!

If you’re a Great Eastern Takaful Participant, you can do your nomination online through the customer portal, i-Get in touch. Participants from other providers, please contact your agents – you might have to print some documents and submit in person. It’s mafan but you need to do it!

#5 – Using Takaful / Insurance as Retirement and Legacy Planning

Alright, want to hear a secret? The T20 (T5? Idk) have been using Takaful/ insurance as retirement planning and legacy planning tool.

For them, Takaful/ insurance isn’t just for medical or life expenses if something bad happens. For them, Takaful/ insurance is also a tool to ensure generational wealth.

This is how the strategies work, simplified:

They take a plan with a really high sum covered. We’re talking six, seven-figures. Most people don’t take that high – the average sum covered for Great Eastern Takaful plan is RM 96,000; the highest among all providers
They continue paying monthly contribution until plan matures, they die or TPD-ed, whichever comes first. I’ve heard of children paying their parents’ contributions, as they know they are nominated
Next-of-kin gets the money to ensure continuity of family prosperity

Great Eastern Takaful offers retirement planning and legacy planning products too. It’s called i-Great NEO. Here’s how it works:

On a related note, Great Eastern Takaful told me that legally speaking, under the Islamic Financial Services Act 2013 (“IFSA”), you have the freedom to nominate anyone who is 16 years and above to receive your Takaful benefits without any dispute.

Ask your financial planner to compare the advantages of nomination under IFSA as opposed to nomination made under conventional plans governed by Financial Services Act 2013 to know which is better for loved ones who are not related by blood (like adopted children, for example).

This is also a good time to confirm that yes, non-Muslims can totally get Takaful products. Quite a few people asked me if it is possible. Yes can can.

Find out more about i-Great EVO and i-Great NEO

Is i-Great EVO for you? Is i-Great NEO for you? The only way to find out is to make an appointment with an Advisor. Give yourself a budget (10% of your take-home salary is a good starting point) and go from there – ask them what you can get for that amount. They are trained to prod out your life priorities, so the plan is tailored for you.

As a final note, I want to say thank you Great Eastern Takaful for the opportunity to work together again. The rest of the team were shy, but here’s a screenshot of myself with the CEO himself, Shahrul Azlan Shahriman 🙂