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Insurance as part of your asset allocation

This article is reproduced with permission from
Normandy Advisory Services Sdn. Bhd (Licensed Investment Advisor)
15th Floor Menara Multi-Purpose, No 8 Jalan Munshi Abdullah, 50100 Kuala Lumpur
Tel : 03 - 469 5560 Fax : 03 - 294 5561

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All investments can be characterized in term of risks and returns trade-offs. An ideal investment portfolio should consist of different types of investments in order to effectively diversify the risks.

While your diversified investments in a myriad of asset classes such as stocks, unit trusts, bonds, and properties may provide you with all the returns that you want, insurance could be included as an additional form of protection and diversification.

If you intend to invest to grow your wealth, it makes sense that you protect the most important investment - you. No one can foresee what lies ahead. Whether you are aggressive or conservative, you should invest in some form of insurance as it protects you against potential severe catastrophic losses such as death, permanent disability and major property losses which can affect your life greatly.

If you have a family and you are the sole income provider, insurance may be even more critical. Insurance could be in a variety of areas such as life, disability income or automobile depending on individual needs.

Remember that your savings, the benefits from the EPF and other investments may not be able to provide you adequate or immediate financing, especially if you have only just joined the workforce.
Escalating medical costs and living expenses these days are some of the reasons why people purchase insurance. In fact, rising medical cost has far outstripped the normal cost of living. A lengthy stay at a private medical centre could cripple your finances in a relatively short period.

It is obvious that everyone needs some form of protection. Insurance should be part of any diversified asset allocation. Diversify your money according to your individual risk profile.

There is a wide range of policies available from insurance companies. If you intend to include insurance in your asset allocation, make sure your policies carry appropriate coverage for your situation.

Many insurance companies offer various friendly investment products to cater to the needs of the people. Malaysians as a whole are under-insured when compared with other developing nations

Although the cost of insurance may be frightening for certain people, think of what will happen to you or your dependents if you were disabled from an unexpected automobile accident and your income source stops all of a sudden. You will also need life insurance if you have dependent children - to make sure that they do not suffer financially if you die.

It is important that you do not pay extra for duplicate coverage. Be aware of what you already have.
Do not pay unnecessarily for something that you do not need. Without proper financial planning, you may go broke paying the premiums even before reaping the benefits.

In other words, do not over-insure yourself. Insurance provides you financial support in times of emergency but should not view them as an investment vehicle to make profits (out of a disaster).
For example, good medical insurance does not come cheap. You get what you pay for. Thus, identify your personal and family needs first. Study the policy options offered.