Risk Management Through Insurance
By Ellen Tan
Risk management is the identification, analysis and economic control of
risks that threaten the assets or earning capacity of an enterprise or
individual. It is an important aspect of financial planning that can provide
relief and comfort in the event that something unfortunate happens to
you, for which you have carefully insured yourself against.
Some of the personal risks you may encounter include:






Premature death
Total & permanent disability
Contracting critical illness
Income needs in retirement
Children’s education funding
Parent’s long-term care
To put it briefly, you may die too young, live too long, succumb to illness
or disability.
Insurance is a risk transfer mechanism by which an individual or
organisation can exchange its uncertainty for certainty. The individual
agrees to pay a fixed premium and in return, the insurance company
agrees to meet any loss that falls within the terms of the policy.
Insurance planning should be based on the ‘Large Loss Principle’, which
means, insure low frequency but high severity risks. For example, insure
for critical illnesses such as cancer or heart attack, which occur probably
just once in a lifetime (low frequency) but when it occurs, the financial
loss is severe. It is worthwhile taking out insurance for such illnesses but
not for the common flu or for visiting the panel doctor that may costs
RM40. Risk is essentially a combination of likelihood of event and the
severity should the event occur.
What are the benefits of insurance?
Firstly, for peace of mind, knowing that insurance exists to meet the financial
consequences of certain risks.
There is also control of loss as insurers have an interest in reducing the frequency
and severity of losses. For example, if a person is suffering from high blood
pressure and wishes to take out an insurance policy to cover critical illness, the
insurance company would probably require him/her to take medication and to
prove that he/she has a lifestyle that keeps the illness under control. It is in the
insurance company’s interest to control the loss.
There are also social benefits because funds are available, allowing you to help
yourself so that you do not burden others.
What types of insurance are available?
Below are listed the general types of life insurance
1. Term
2. Whole Life
3. Endowment
4. Investment-linked
5. Child Education
Here are the more common riders attach to a life policy
1. Critical Illness
2. Disability Income
3. Personal Accident
4. Medical Reimbursement
5. Hospitalisation
6. Premium Waiver
Investment-linked Insurance
Investment-linked insurance is a regular premium whole life plan that combines
with unitised investment-linked funds. Its greatest benefit is the flexibility it
provides. You can adjust the protection and investment ratio to suit your needs.
You can vary the amount of insurance protection, top-up your investment, or
make withdrawals. Essentially, you can adjust the plan to suit the financial
changes during the various stages of your life.
Medical costs
The table below gives you an idea of how much medical costs can amount to.
Coronary heart bypass
RM20,000 – RM30,000 per surgery
Cancer
RM3,000 – RM140,000 for treatment
Chemotherapy
RM200-RM1,000 per therapy
Radiotherapy
RM200-RM1,000 per therapy
Open heart surgery
RM20,000- RM50,000 per surgery
Heart transplant
RM50,000-RM80,000 per surgery
Kidney failure
RM2,000 per month for dialysis for life.
What types of critical illness cover is there?
Most of the illnesses claimed fall within the first five examples given below.























Heart Attack
Coronary Artery Disease
Stroke
Cancer
Kidney Failure
Paralysis
Major Organ Transplantation
Multiple Sclerosis
Fulminant Viral Hepatitis
Primary Pulmonary Arterial Hypertension
Coma
Blindness
Heart Valve Replacement
Surgery To The Aorta
Alzheimer’s Disease
Deafness
Loss of Speech
Major Burns
Terminal Illness
AIDS Due To Blood Transfusion
Motor Neurone Disease
Parkinson’s Disease
Chronic Liver Disease










Chronic Lung Disease
Aplastic Aneamia
Muscular Dystrophy
Poliomyelitis
Bacteria Meningitis
Benign Brain Tumour
Encephalitis
Full Blown AIDS
Brain Surgery
Major Head Trauma
Female illnesses
Incidence rates of various types of cancer among women





Breast cancer – 31%
Ovarian cancer – 4%
Cancer of cervix uteri – 2%
Cancer of vagina – 1%
Carcinoma-in-situ – 8/100,000
(Source: American Cancer Society)
Insurance for ladies
There are special types of insurance available to women, for example, covering
the illnesses and special conditions below:








Female cancer – cancer of breast, cervix uteri, fallopian tube, ovary,
uterus, vagina
Carcinoma-in-situ
Systematic Lupus Erythematosus – SLE
Rheumatoid arthritis
Facial reconstructive surgery
Skin grafting
Pregnancy complications
Infant congenital illnesses
Also for life-stage benefits such as





Marriage benefits
Childbirth benefits
Retrenchment benefits
Divorce benefits
Benefit on spouse’s death
Long-term care
This type of insurance is for elderly and disabled people. The cost of long-term
care is high. They are unabled to perform routine daily activities which we often
take for granted, such as Transfer
– Getting in & out of a chair
Mobility
– The ability to move from room to room
Continence
– The ability to voluntarily control bowel and bladder
functions
Dressing
– Putting on and taking off all necessary items of
clothing
Bathing/Washing – The ability to wash in the bath or shower
Eating
– All tasks of getting food into the body
There are also insurance for parents above age 50, to cover:
Medical care
– reimburse actual hospital charges for surgical and nonsurgical stay.
Long- term
care
– monthly benefit for inability to perform daily activities
of normal living.
Death Benefit
The above benefits are subjected to a life-time limit.