Chapter 5: Protecting Assets and Insuring Risks PDF

# Chapter 5: Protecting Assets and Insuring Risks ## Learning Objectives - Describe the concept of risk and insurance / takaful (LO2, C1) - Identify the importance of insurance / takaful (LO2, C2) - Evaluate types of insurance / takaful (LO2, C4) - Outline the process of insurance / takaful claims...

# Chapter 5: Protecting Assets and Insuring Risks ## Learning Objectives - Describe the concept of risk and insurance / takaful (LO2, C1) - Identify the importance of insurance / takaful (LO2, C2) - Evaluate types of insurance / takaful (LO2, C4) - Outline the process of insurance / takaful claims in Malaysia (LO2, C2) ## Basic of Risk Management | Risk Management Strategy | Description | |---|---| | Risk Avoidance | Avoid the act that creates the risk. For example, avoid driving if you do not want to hit another person. | | Loss Prevention and Control | Any activity that will reduce the probability of loss. For example, drive within the speed limit to reduce the possibility of an accident. | | Risk Assumption | You choose to accept and bear the risk of loss. It is effective when facing small exposures of loss. | ## Cost of Kidney Failure Treatment in Private Healthcare - 2013: RM150,000 - 2020: RM330,000 **Medical inflation is 12% per annum** **Statistics:** - 45% of cancer patients in Malaysia suffered from financial catastrophe one year after diagnosis. - 39% of breast cancer treatment could reach up to US$15,000 (RM65,000) per year - 35% of cancer patients could not pay for medication and 35% for medical consultation fees or tests. ## WHO Predicts Increased Healthcare Cost in Asia over the Next 10 Years ### Cancer Drugs Expenditure | Year | Predicted in Year | |---|---| | 2015 | USD 107 billion | | 2020 | USD 150 billion | ### Key Statistics - **Cancer + Diabetes + Cardiovascular + Chronic lung diseases:** 40 million (70%) of the 56 million total deaths globally in 2015. - **India:** Cancer is the leading cause of death with 2.5 million patients. - **China:** 4 million new cancer cases were reported in 2016 alone. - **A five-fold increase by 2025 is predicted.** - **The national heath bill is predicted to increase four-fold to USD1.84 trillion by 2025.** ## Importance of Insurance / Takaful - Provides financial security and peace of mind to individuals, businesses, and organizations. - Helps to cover medical expenses, property damage, liability claims, and other unforeseen events that can lead to significant financial losses. - Promotes economic stability by spreading the risk of loss across a large group of individuals or businesses. - Helps to mitigate financial risks and provides a safety net in times of crisis. ## Life Insurance - A contract between the policyholder and an insurance company. - Policyholder pays regular premiums in return, the insurance company provides a lump sum payment (death benefit) to the policyholder's beneficiaries upon their demise. ### Types of Life Insurance - **Term Life Insurance:** - Provides coverage for a specified period (typically 10, 20, or 30 years). - Pays out a death benefit if the insured passes away during that time. - Coverage ends when the term of the policy ends, and there is no cash value accumulation. - **Whole Life Insurance:** - A type of permanent life insurance that provides coverage for the entire lifetime of the insured. - Offers a death benefit as well as a savings component (cash value). - Premiums are typically higher than those for term life insurance, but they remain constant for the duration of the policy.. - Provides tax benefits and may be used for estate planning purposes. - **Investment-Linked Insurance:** - Combines life insurance coverage with investment opportunities. - A portion of the premium payments is invested in different types of funds, chosen by the policyholder based on their financial goals and risk appetite. - This investment component can potentially grow over time, providing an opportunity to accumulate wealth, while the policy also provides life insurance coverage that pays a death benefit to beneficiaries in the event of the policyholder's death. - **Endowment Insurance:** - Pays out a lump sum of money at a designated date in the future or to beneficiaries in the event of the policyholder's death. - Has both a savings and a death benefit component, making them popular for providing financial security and funding long-term goals. - Offers the added benefit of a guaranteed payout at a specified time. - **Mortgage Reducing Term Assurance (MRTA):** - A type of life insurance that covers the outstanding balance of a borrower's mortgage in the event of their death.. - The coverage amount decreases over time as the outstanding mortgage balance decreases. - Only covers death and not other types of disabilities or illnesses. ## Health Insurance - **Medical Insurance and Critical Illness Coverage:** - Covers the cost of an insured individual's medical and surgical expenses. - Critical illness coverage provides a lump-sum benefit if the insured is diagnosed with a specific illness listed in the policy. - **Hospitalization and Surgical Insurance:** - Covers expenses incurred from hospitalization and surgical procedures. - Includes room and board, tests, medication, and surgeon's fees. ## Property Insurance - **Homeowners Insurance:** - Provides coverage for property damage and theft. - Protects homeowners from the financial burden of repairing or replacing their home and belongings in the event of damage or theft. - **Renter's Insurance:** - Designed for people who rent their living space. - Provides coverage for a tenant's personal belongings in the event of damage or theft. - Can provide liability coverage if someone is injured on the premises. - **Fire Insurance:** - A specific type of property insurance that covers damage and losses caused by fire. - Typically covers the cost of repair or replacement of damaged property, as well as any injuries incurred as a result of a fire. ## Motor Insurance - **Comprehensive Coverage:** - Covers damage to your vehicle due to accidents, theft, and other risks, regardless of who is at fault. - **Third-Party Coverage:** - Only covers the damage you cause to other people's property or injuries you cause to other people. - **No-Claims Discount (NCD):** - A discount on your premium that you earn for each year you don't make a claim on your policy. - The more years you go without making a claim, the larger the discount. ## Travel Insurance - A policy designed to cover unexpected events during travel, including medical expenses, trip interruptions, lost or stolen baggage, and other travel-related expenses. - Provides peace of mind, especially for those traveling to unfamiliar destinations.