When Insurance Is an Asset and Not a Liability
Are you one of those Malaysians who views insurance as an expense rather than an asset? Here are three reasons why this is not so.
For the man (or woman on the street), whether insurance is an asset and not a liability can be a hard question to answer. Here are three instances when insurance can become an asset:
1. When your insurance plan matures
All insurance policies become an asset once the plan matures — that is, you have paid for it and are credited with a lump sum.
What happens if you surrender, that is, give up your policy before its due date? As long as the surrender value of your insurance policy is less than the paid-up premiums, your policy cannot be considered an asset. In other words, terminating or surrendering a policy before its maturity may result in you making a net loss as you may not get back the money you have paid. On top of this, if you surrender the policy before it matures, all benefits will be forfeited.
Once you sign up for insurance, including endowment policies, ensure you see it to its maturity in order to reap the full benefits and allow it to potentially become an asset.
2. When the risks become a reality
However, there are instances when the policy becomes an asset even before maturity. When does this happen? The answer is when a risk such as an unforeseen illness resulting in critical illness, disability or death becomes a reality. Insurance becomes an asset when you experience a risk covered in your insurance plan, which activates your coverage, allowing you to make a claim and receive a successful payout.
You may wonder if making claims will cause you to lose out on future earnings. In a word: yes, but the insurance payout you receive will help cover your expenses when addressing that risk.
3. When your dependents benefit
Life insurance that becomes payable after your death can provide a surviving spouse, children and other loved ones with the necessary funds to help maintain their standard of living. It will also help repay any debts they may have incurred, for example your treatment fees, and help pay for your children’s future education costs, if any. For many families, a combination of whole life and term insurance may provide for both current and future needs.
Speak with your wealth planner to help you assess your requirements and determine the type and amount of life insurance that is right for you and your loved ones.
Now that you have determined that insurance is an asset, learn how to grow your wealth to better secure your future and ensure your dependents’ needs are met too.