In terms of Financial Planning, the most important part for your Personal Finance is about Protection. Protection is very crucial. This is to protect your most valued asset that you have, which is yourself. The purpose of protection is to protect yourself against any associated risk throughout your life. While at the same time is to protect any financial loss which may happen once any risk occurred to you.
Type of Risk
Among typical risk which we may expect throughout our life is Personal Risk:
- Risk of premature death
- Risk of insufficient income during retirement
- Risk of poor health
- Risk of unemployment
- Risk of disability
Protection State As of Today
As you may see from below statistics, insurance and takaful penetration rate is very low in Malaysia. Unlike in developed nation, for instance Singapore. As of 2018, insurance penetration rate in Singapore is 250% [1]. This is 4.5 times better than Malaysia in 2018.
What is Penetration Rate?
Is a measure of insurance or takaful policies in force to the total of population. Insurance and takaful penetration rate for 2021 is 40.9% and 18.6% respectively. Takaful penetration rate is very much lower. 2.2 times lower to insurance. We are very far away to government target of 75% insurance and takaful penetration rate [2]. In 2020, we only achieved 56% penetration rate.
High Income Nation
In order for Malaysia to move into High Income Nation, each of its citizen need to become more financially savvy, develop good savings and investment habits, manage their debts and actively plan for their retirement needs while protecting themselves and their families from unforeseen risks.
As of 2021, with GDP value of RM 1.59 trillion [3], Malaysia’s insurance (RM 46.8 billion) [4] and takaful (RM 7.4 billion) [5] penetration rate stands at 3.4% to GDP. Therefore, as of 2021, our target to achieve penetration rate of 4% to GDP is a failure objective. Meanwhile in terms of population, we are failed to achieve it too, at only 59.5%. As opposed to 75% population.
Moving forward, takaful penetration rate has been increased to 4.8% to 5.0% [6]. This is a must as Malaysia inspire to become high income nation very soon. Perhaps by 2026.
Insurance & Takaful as Financial Safety Net
In order for Malaysia to achieve high income nation by 2026, all of its citizen need to have at least 1 insurance or takaful policy as a protection. This is acting as a Financial Safety Net to them. If any risk occurred or happened to them, at least there is some compensation for the citizen to rely on.
Source
- Singapore Business Review
- Economic Transformation Plan
- Life Insurance Association Malaysia
- Malaysia Takaful Association
- BNM, Financial Sector Blueprint 2022-2026