Case 2 - Nurul asks whether she is already over-insured
Nurul Aisyah, 41, is a senior laboratory manager earning RM11,400 gross (about RM9,300 net). She is divorced with custody of two children, aged 12 and 9. Her ex-husband is supposed to pay RM800 a month maintenance but has missed five of the last twelve payments.
Her employer provides group term life of two times salary and a group hospital plan capped at RM60,000 a year with 20% co-insurance. Both end on resignation.
Personally she holds an investment-linked plan with RM200,000 death/TPD and RM50,000 critical illness, premium RM4,800 a year (roughly RM1,300 buys protection, the balance buys units), and a 20-year endowment maturing in 2031 with RM60,000 sum assured, premium RM3,600.
Outstanding housing loan is RM390,000 at RM2,050 a month for 22 more years. Savings RM25,000; EPF RM310,000. Monthly surplus about RM1,200.
Her agent proposes surrendering the ILP and buying a RM1 million whole-life policy at RM14,000 annual premium. Nurul asks simply: 'Am I over-insured already?'
1. Estimate Nurul's protection need. State your assumptions and give a defensible range rather than a single number.
Read the worked answer
Work from need, not from product.
Capital needs at death
- Mortgage redemption: RM390,000 - the house is the children's home and must not depend on the ex-husband.
- Income replacement: assume the household needs RM5,500 a month net for 12 years until the younger child is 21 (mortgage counted separately). PV = 66,000 × 9.95 at a 3% real rate ≈ RM657,000.
- Education: RM90,000–120,000 per child for a local degree = RM180,000–240,000.
- Final expenses and administration: RM30,000.
Total need ≈ RM1.26m–1.32m.
Resources already available
- EPF RM310,000 (nomination must be checked), savings RM25,000, ILP death/TPD RM200,000, group term 2× salary ≈ RM22,800. The endowment's RM60,000 is assumed earmarked for education.
Total ≈ RM560,000–620,000, leaving a gap of roughly RM650,000–750,000.
Assumptions that must be stated: the RM800 maintenance is treated as zero because it is irregular; group cover vanishes on resignation; TPD is a separate risk from death and needs its own sum; the real discount rate already allows for inflation. Any answer between RM600,000 and RM800,000 of additional cover is defensible - a single unqualified figure is not.
2. Evaluate the agent's proposal to surrender the ILP and buy RM1 million of whole life at RM14,000 a year.
Read the worked answer
Affordability test first. Cash surplus is RM1,200 a month, or RM14,400 a year. Existing premiums are RM8,400 (4,800 + 3,600). The proposal costs RM14,000 - it can only be financed by surrendering the endowment and spending 100% of the surplus. That leaves no reserve, no education funding and no flexibility. It fails on affordability before product merits are even discussed.
Cost comparison. RM14,000 for RM1,000,000 is RM14 per RM1,000 of cover. A 20-year term policy for a 41-year-old female non-smoker is typically RM3–4 per RM1,000, i.e. RM3,000–4,000 a year for the same sum. Whole life buys permanence and cash value, but Nurul's need is time-bound: it ends when the children are independent and the mortgage is cleared.
Recommendation - do not surrender anything yet.
- Put a RM700,000–800,000, 18–20 year term policy in force first, while she is 41 and healthy; check family history before applying.
- Add disability income cover - the probability-weighted risk is illness, not death.
- Keep the ILP medical rider if competitive; restructure the investment portion only after protection is settled.
- Cancel the ILP only after the new policy clears the free-look period, and compare the surrender value against the ongoing cost of the units.
The endowment maturing in 2031 may be the cleanest source of the first year of university fees - destroying it to fund an oversized whole-life premium trades a certain goal for a contingent one.
3. The group hospital plan lapses the day she resigns. What should she do, and what traps should you warn her about?
Read the worked answer
Portability is the trap: group cover ends on the last day of employment, and at 41 a new insurer underwrites her from scratch. The individual card must therefore be issued and in force before any resignation, not after.
Practical steps and warnings:
- Apply now while she is asymptomatic, and disclose everything. Non-disclosure within the first two years allows the insurer to avoid the contract - a common and very expensive mistake.
- Expect the standard structure: a 30-day waiting period for illness (accidents covered immediately), 12 months for specified conditions, and a pre-existing condition clause. Read the 120-day post-hospital and 60-day pre-hospital limits, the co-insurance or deductible, and the panel-hospital rules.
- Compare the annual and lifetime limits against medical inflation. A RM60,000-a-year cap, which is what she has today through her employer, is not adequate.
- Confirm whether her ILP already carries a medical rider; buying a second card duplicates cost.
- Never let an agent replace the existing policy before the new one is in force - she would be uninsured in the gap.
- If a card is declined or heavily loaded, the fallback is a dedicated medical fund plus whatever group cover her next employer provides, and she should negotiate that benefit before accepting any offer.