Friday, August 24, 2012

Should I cancel my policy and get a new one?

Question: At times, our friend/relative may become an insurance agent and ask you to cancel your existing insurance policy in order to "support" them.


My medical coverage seems too little as compared to the current plans being offered from other insurer. I would like to cancel my existing plan from Insurer A and get a new one from Insurer B.

Is this a good thing for the client or the agent?


Irrespective of whether the first policy is from Prudential or not, an agent who come to you with the intention to get you to cancel the policy (so that you'll have enough funds) to join under the new agent is an act of an IRRESPONSIBLE SELFISH agent who is only out for his personal gain.

When a client cancels a policy, here is a list of benefits that the client stands to lose:-

1. Medical plans are subjected to waiting period. For common ailment that needs hospitalization, there is a 30 days waiting period. There is also a 120 days waiting period for Specified Illnesses. For a lists of exclusions and/or waiting periods, please click Waiting Period & Specified Illness

When a client cancels the policy and start a new, the waiting period starts all over.

What if after 2 months of cancellation the client is diagnosed with a tumor?

2. Most health insurance plans has a "Incontestability" Clause. This means that if the policy has been in force for at least two (2) years (except for fraud or exclusions), most insurer shall honor the claim.
3Do you know that there are certain terms and conditions in the old policy contract that is considered 'superior' terms as compared to the new policy contract?

For example, older policies medical card does cover the following of which are not covered under the new contract:-
a. Implants (Implanted pace maker costs RM 43K at a private hospital in Penang and that does not include the surgery).

For Cancer Treatment & Kidney Dialysis (do refer to the policy document if you are uncertain), older medical cards do cover the following.
a. Take home drugs
b. Long term medication
c. Consultation charges

4. Investment Linked Policies (ILP) or some traditional policies do accumulate cash values over time - based on the premium allocation tables. The first year allocation is 40%, and up until the the policy is on the 7th year onward, an 100% allocation. 

This means if the premium of RM 200/mth, for the 1st year, RM 80/mth is used to purchase units for the client in order to generate the cash values.

If the policy is into the 5th/6th year and the client cancels and start a new policy, the premium allocation starts back from 40%! Whenever a person starts a new policy, the agent gets the commission but in this case, the wrong way.

5. If you start a new policy and had claimed before from the old policy, (unless it is a simple case like fever) do expect the condition to be mentioned into the new policy and it'll fall under 'pre-existing illness'.

In the above example the client should consult the first agent to inquire on whether he is able to UPGRADE on his EXISTING policy and not cancel and get a new one.

Do note that some unscrupulous agents are also out for personal gain when it comes to 'upgrading'. Whenever you do upgrade, always make sure that the upgrade is done on the existing policy and not getting a new policy document.

For example, currently you are paying RM 150/mth for RM 100K life and would like to increase the life cover to RM 150K and the new premium would be RM 200/mth.

If you were to 'upgrade' it to the existing policy the agent only earns RM 50 in terms of commission %, but it does justice to the client.

Should you were to cancel and get a new policy the agent earns RM 200 in terms of commission %, while the client lose out on some of the benefits mentioned above.

However, do note that there are times when getting a new policy as oppose to upgrade is better, especially if we develop certain ailments and would like to increase the cover.

If the ailment creeps up after the policy had been in-force for awhile, it is advisable to get another policy so as not to have the 'pre-existing' illness clause added to the old policy which  originally does not have the 'pre-existing' clause.

In the event of claims, if the claim is related to the 'pre-existing' illness, claim it from the 1st medical card that does not have 'pre-existing clause' and claim from the second medical card on illnesses that are not related to the 'pre-existing' illness.

6. Insurance charges will go up by age, which is more evident, especially at older age > 65. One will never be able to buy the same benefit he had 10 years ago with the same premium for the same amount of coverage.

For example, when we're age 20, the premium of RM 100/mth is able to get us a life coverage of RM 100K, but when we are age 30, the premium of RM 100/mth is only able to get us life coverage of RM 80K.

Note: The above figures are for illustration purpose and may differ from the actual plans being offered.