When it comes to insurance planning, many Malaysians struggle with one key question: How much coverage is enough? The answer isn’t one-size-fits-all, as it depends on factors such as medical costs, income level, financial responsibilities, and long-term goals.

To ensure financial security while keeping premiums manageable, here’s a structured approach to determining the right sum assured for medical insurance, critical illness coverage, and life insurance.

1. Medical Insurance: How Much Should You Spend?

Medical insurance is essential to cover hospitalization and treatment costs, ensuring that you receive proper healthcare without financial strain. However, many people either overpay for unnecessary coverage or underinsure themselves, leaving them vulnerable to high medical expenses.

Allocate 2-5% of Annual Income for Medical Insurance

A practical way to budget for medical insurance is to allocate 2-5% of your annual income for premiums. This range ensures affordability while securing maximum hospitalisation coverage.

However, it’s important to note that age is a key factor affecting premiums.

• Younger individuals may enjoy lower premiums and can allocate closer to 2-3% of income.

• Older individuals (above 40-50 years old) may need to allocate closer to 4-5% due to higher premiums.

Plan Selection: With or Without Employer Benefits?

• With Employer Benefits – Consider a deductible or co-insurance plan. These plans require you to pay part of the bill first (usually covered by your employer’s policy), while your personal insurance covers the excess.

• Without Employer Benefits – Opt for comprehensive hospitalisation coverage with a high annual limit to ensure full protection against major medical expenses.

Example Calculation:

If your monthly salary is RM5,000 (RM60,000 annually):

• 2% allocation: RM1,200 per year (~RM100 per month)

• 5% allocation (for older individuals or comprehensive plans): RM3,000 per year (~RM250 per month)

This budget should provide an adequate medical plan, balancing affordability and protection.

2. Critical Illness Coverage: Income Replacement During Major Illness

A major illness, such as cancer or stroke, can result in months or even years away from work. Unlike medical insurance, which covers hospital bills, critical illness insurance provides a lump sum payout to replace lost income.

Cover at Least 3 Years of Annual Income

To ensure financial security, it’s best to have coverage equivalent to three years of annual income. This amount allows time for treatment and recovery without financial stress, even if one is on unpaid medical leave.

Example Calculation:

If the annual income is RM60,000:

• Coverage needed for 3 years: RM180,000

This ensures that essential expenses—such as mortgage payments, daily living costs, and children’s education—are covered while focusing on recovery.

3. Life Insurance: Protecting Loved Ones

Life insurance is critical for those with financial dependents, ensuring that their loved ones are financially secure in case of an untimely passing. The sum assured should be based on:

1. Outstanding Liabilities – Such as home loans, car loans, or business debts.

2. Family Responsibilities – Ensuring dependents (spouse, children, or elderly parents) are financially supported until they reach adulthood or complete tertiary education.

How to Calculate the Right Sum Assured?

Total Life Insurance Coverage = Outstanding Liabilities + (Annual Family Expenses × Years Until Dependents Become Independent)

Example Calculation:

• Home Loan: RM300,000

• Car Loan: RM50,000

• Annual Family Expenses: RM40,000

• Years Until Child Completes Education (age 21): 15 years

Total Sum Assured = RM300,000 + RM50,000 + (RM40,000 × 15) = RM950,000

This ensures that the family can maintain their current lifestyle, cover education costs, and settle outstanding loans without financial hardship.

4. Choosing the Right Type of Insurance Plan

The right insurance plan depends on individual financial planning goals:

• Pure Protection Plan – Provides only death or illness coverage at lower premiums.

• Investment-Linked Plan – Offers protection plus investment returns, which can help fund retirement or emergency savings in later years.

For those looking to combine long-term savings and insurance, an investment-linked plan can serve dual purposes—providing life coverage while accumulating wealth for future needs.

Conclusion: Striking the Right Balance

The right sum assured depends on financial responsibilities, future needs, and affordability. A simple rule of thumb:

✅ Medical Insurance – Allocate 2-5% of annual income, keeping in mind that premiums increase with age.
✅ Critical Illness Coverage – Cover at least 3 years’ worth of income for financial security.
✅ Life Insurance – Ensure dependents have financial support by covering total liabilities + future family expenses.

By following a structured and practical approach, Malaysians can make smart, informed decisions about their insurance needs—ensuring sufficient coverage without overpaying.

Let me know if you have a difference opinion. Feel free to reach out!