NEW Tax relief 2019 you can reap

In year 2019, there will be a new tax relief structure for EPF and life insurance. Where it was previously combined with a total relief of up to RM 6,000 a year, the new structure will split it into RM 4,000 for EPF, and RM 3,000 for life insurance.

This translated to individuals earning more than a gross income of RM 3,030 monthly and don't currently have life insurance coverage, will see their EPF tax relief reduced😱😱

Credit: StepUpMoney

So if you are earning more than RM 3,000 a month and are not currently covered any by life insurance policies, please get one.

RM 3,000 a year means our Government is subsidizing an individual’s life insurance policy with a RM 250 premium per month – that amount can easily provide a six-seven figure coverage when life takes a turn for the worst.

Credit: StepUpMoney

If you would rather not buy life insurance (since it would cost money) but would still want to recover the RM2,000 loss in EPF tax relief, depositing RM8,000 on SSPN would be an alternative!

Take advantage of the increased tax relief for SSPN for year 2019, which not only offer high dividend rates (in 2017 the dividend yield was 4%), but there are also additional benefits such as income tax relief, PTPTN loan eligibility and Syariah-compliant savings that are guaranteed by the Government.

From 2019, the Government is increasing the tax relief amount for SSPN deposits by parents from RM6,000 to RM8,000 a year👉additional RM2,000 that you can get back from the Government to offset your annual income tax from previous years, making it an extremely lucrative savings plan (provided your annual income tax is high enough to claim the full amount!)

One of the reader ask me, if you can still open SSPN if you do not have children? YES, you can still open for your nephew or niece, at the end of day you still have control over the money as you can withdraw anytime.

Case Study1: Children Insurance

Scenario: Family annual income RM50,000, currently both husband and wife already have ILP Life/TPD + 36CI + Medical card. Their aim is to protect their 3 year old son and hope he can prepare education fund of RM50k in next 20 years. Insurance Budget: not more than 2000/year 
Proposal for Son, 3 year old, no health issue

How to buy insurance for Children?

Although we all love our children greatly and want to buy everything for my children, we all have limited resources. Many people bought the wrong one and spent a lot of money, but the child's protection is still not complete.

Common mistakes in buying insurance for children:

1.  Follow Trend: What others need is not necessarily what you need;

2. Repeated purchases: A large number of overlaps between the previously purchased product coverage and the new product coverage;

3. Irrational purchases: purchases of some non-essential, occupy a large amount of economic funds, and the protection that children need most is not purchased.

Before you buy insurance, you must understand the insurance allocation principle and then study the product before you buy the wrong one. There are three main principles for buying insurance for children: 

Principle 1: First insured the adult (esp. the breadwinner), then only children. 

Remember the parents are the biggest guarantee for the children. Only the parents can comfort themselves. Therefore, when choosing insurance, it is necessary to give priority to the elderly and then protect the children. 

Principle 2: Health Protection is important

Medical insurance is a state-provided welfare guarantee. It is essential to buy for children as have lower immune system at younger age and are more prone to have accident.

Principle 3: First Protect, then only think of wealth management

Insurance is used to transfer risks and should start with basic guarantees: death, TPD, Critical Illness, Hospital & Surgery, Medical Reimbursement,... 

The major risks faced by children in the process of growth are mainly major disease risks, accident risks and educational risks. Multi-party data show that the incidence of severe illness in children has increased in recent years, taking malignant tumors as an example: 

1 According to MOH, most common cancer in Childhood is Leukemia (Source:  Malaysian Study on Cancer Survival(MyScan 2007-2011))

2 Hospital Kuala Lumpur oncology unit sees about 200 new childhood cancer cases yearly (source: Dr. Mohamed Najib-paediatrician currently undergoing fellowship training in Paediatric Haematology, Oncology & Bone Marrow Transplant in Hospital Kuala Lumpur.)

Tip1: It is recommended to choose a regular critical illness insurance when the child is still young, and take into account the inflation factor. It is recommended that the insurance amount be as much as RM50,000~RM300,000 (the treatment cost for general serious illness).

Tip2: Critical illness insurance and millions of medical insurance are a perfect match. The critical illness insurance is responsible for the diagnosis and payment. It is used to pay the sickness treatment in time, which can be used as the child's rehabilitation and treatment costs. Millions of medical insurance can be used for reimbursement of illness.

Caution: Because the child's physical function is still in the developmental stage, the resistance is weak, and it is prone to headache, brain heat, cold, pneumonia, enteritis and other diseases. Most of the time, only outpatient treatment is needed, and a slight severity can lead to hospitalization, but in general, daily illness does not impose a serious burden on the family economy. However, this part can also be transferred through insurance, and children's outpatient and child hospitalization insurance is used to protect such risks.

Tip3: Children are naturally active and curious about the world, but their judgement ability is very weak and their ability to resist risks is very weak. They are prone to common risks such as falling, bumping, scalding, drowning, and car accidents. Therefore you may want to consider PA insurance too, GE GreatShield Active provide worldwide coverage at as low as RM0.45 per day!!

Great Shield Active PA Insurance At Glance

Coverage age: 30 days old till 70
Renewable up to age 100
Just pay 45 cents per day for RM80,000 coverage!!!

1. Worldwide Protection against  Death/Permanent Disability due to Accident including terrorism*(exclude Nuclear, chemical or biological)
2. 2x indemnity for Accidental Death on Public Conveyance or at Public Sports Event 
3. 3x indemnity for Total Permanent Disability on Public Conveyance or at Public Sports Event 
4. 5% renewal bonus per year up to 100% of Capital Sum Insured 
5. Medical expenses include Dengue Fever, Malaria, Zika Virus, Japanese Encephalitis, Yellow Fever, Scarlet Fever or Coxsackie
6. Other benefits: Hospitalization income, Theft reimbursement, Post-hospitalized Cost,..

Do I need Personal Accident Insurance?

We all agrees that accidents are unexpected, unpredictable, and often can be financially draining. The consequences of an unfortunate accident can be dramatically life changing, not just for you but also for your family.

You should buy a personal accident policy because it plugs an important hole in your insurance portfolio. Firstly, it will provide financial support to the policyholder if he is disabled after an accident. Secondly, the magnitude of the mishap doesn’t matter; even minor ones like falling off a bicycle and breaking an arm, or fracturing a leg while playing football are covered by the policy. If you thought term insurance policies were cheap, wait till you find out about the premium rates of a personal accident insurance.

Notes

1. Premium is based on occupation and not age or health status
2. If you have more than one PA policy, you or your beneficiary will be compensated upon your death or disablement. However, certain claims like medical expenses can only be made from one PA policy. If the medical expenses is more than the sum assured, you may claim the difference from the second PA policy
3. Personal accident cover isn’t a substitute for life insurance, but it can provide a financial safety net for you and your family if you are met with an unfortunate accident that results in your injury, disability or death. It should definitely be used in conjunction with life insurance to be completely secured.

What is the value of sum assured RM 1mil after 30 years?

No one can avoid INFLATION which mean our money value will decline overtime. 20 years ago, a roti canai only costs 50 cents. Today, you need to spend RM1.30 for a roti canai.

The biggest impact of inflation is the shrinking of family wealth.

If you have cash in your hands, but no real estates, collectibles, and equity funds that can be appreciated over time, then your money in hand will shrink in the future. This is the power of inflation.

There are 3 ways to avoid inflation affecting family wealth:

1. Borrowing (interest is low, preferably no interest);

2. Consumption (to spend all the money, no inflation can surpass that);

3. Invest in commodities that value-added speed outperforms the inflation rate (such as buying stock funds, etc.);

It is unrealistic to borrow money. For those who naturally love to save money, it is not feasible to consume all the money. The only thing that is feasible is investment.

FACT 1: Insurance can't resist inflation
In the long-term, insurance adopts the equilibrium rate. In this case, inflation is considered. That is, the premiums you pay each year are the same, and will not rise year by year like the price. Otherwise, the money you pay in the 20th year will not be the same as the first payment 20 years ago.

Moreover, even if the insurance company collects the money, due to inflation, "money collected is not worth the money also." Therefore, in actual fact you only move the "same" money to insurance company. If you put it in the bank or at home, it will depreciate.

What's more, the core of insurance is the protection of people. If something goes wrong during the insurance period, you can apply for a claim. If you know what will happen in the future, you don't have to buy insurance at all.


FACT 2: Dividend/Endowment insurance can't actually resist inflation


FACT 3: We can increase the insured amount in the form of “insurance combination” or “multiple insurance” to effectively hedge inflation
The insurance is "GUARANTEED", the ultimate essence lies in the protection, not the financial investment. In insurance, best way to hedge inflation is thru consumption, that is to use minimum amount of money to buy insurance and yet can achieve the maximum protection (insurance) in return.

♥we can increase the amount of insurance through the insurance portfolio, such as medical insurance, critical illness insurance, life insurance and so forth to more comprehensively deal with various risks in the future, can effectively hedge inflation.

♥at the same time, you can consider investment linked insurance which allow you to re-insurance and allow adjustment of sum assured within the guarantee period, multiple allocations to increase the amount of insurance. If you concern on the budget, don't buy any insurance such as dividends and returns. The core of buying insurance is to protect people, not to obtain higher interest rates through insurance companies.