Tuesday, September 11, 2012

The Power of Takaful Large Sum Assured (TLSA)

Definition Large Sum Assured : compensation money of huge value up Rm1 mil or more. The money can only be liquidated when you incur total permanent disability or die.

But, Why TLSA is really important to one's life?

is RM1 mil really important after I die?

Yes it is very important. Here we go…..

Takaful Large Sum Assured serve 3 main Applications:

1)      Asset protection via MLTA
2)      Passive form of financial protection/lifestyle sustainability
3)      Hedging mechanism for active saving ie ASB, Unit Trust etc


1)    Asset protection (the most relevant objective)

As life goes on, family grow bigger..you must have something sure in mind, to acquire bigger, more convenient house..
It wont be now..but sometime in future, probably 5 or 10 years down the road.

In any attempts to acquire house/assets, some cost involve:
-          10% downpayment
-          Legal Fees
-          Memorandum of Transfer
-          MRTA

One of the ‘unforseen cost’ is MRTA, where normally it is included in the loan package. MRTA is an option, not compulsory, thus Takaful Large Sum Assured compensate on this aspect.


Mortgage Reduced Term Assurance from bank (MRTA)

-          Sum assured against asset purchased, MRTA offered by bank.
-          Normally, if purchased price say at RM1,000,000, MRTA imposed full term (say 30 years) most likely hovering at 35-40k
-          Irretrievable cost – If we include MRTA cost in the loan, the total cost incurred including interest over years probably can escalate up to 70-80k. This $$$ is gone even though nothing happen to you after that 30 years
-          MRTA Function is to eliminate the loan liability If you die or incurring TPD. So the idea is waris yang tinggal will acquire the house without having to pay anything. But since this is reducing coverage, say if that ‘anything happen’ is really happen at 28th years of loan services (where the outstanding loan amount  at that time probably at RM60-80k), this serve real disadvantage because the paid MRTA was originally for RM1,000,000 loan value, but the elimination covered only remaining balance of RM60 or RM80k.
-          One property, one MRTA. MRTA is non transferrable. Meaning to say, if you have to acquires 5-6 properties over years, you have also to adopt 5-6 respective MRTA. MRTA cost is getting higher, when you are getting older.
-          No cash value over years.

Mortgage Level term Assurance (MLTA, offered thru Takaful Large Sum Assured)

-          Independence sum assured against asset, future debt/liability cancellation or passive form of family financial protection.
-          Retrievable cost – every monthly RM  which has to be forked out, will satisfy 2 functions:
1)      Sum protection against property value, ie RM1,000,000
2)      Developing cash value – at current projection (non guaranteed), estimate retrievable amount would be at 70-85% (of total contribution) after 20yrs. Along the way, you can draw the money ie tahun ke 10 ke, tahun ke 15 ke for any purposes. The cash withdrawal wont jeopardize function number 1.
-          MLTA is transferrable. It can be transferred from one property to another, regardless at which year, as long as the accumulative purchased properties are within MLTA value.
-          MLTA will not automatically eliminate outstanding balance owed to the bank. Meaning to say, if anything ever happen at 28th years of loan services,  the remaining balance of Rm60-80k wont be automatically eliminated. Anyhow, waris yang tinggal will be receiving solid RM1,000,000. So, depend pada waris whether to execute full settlement to the bank or to continue paying monthly installment. (I assume definitely waris akan buat full settlement, rumah dapat…cash RM1,000,000-outstanding pun dapat)
-          And what if after completing loan service, hutang dah habis..you are still in good health. So what happen to the money?…that coverage RM1,000,000 remain intact, and  you can acquire any other asset by utilizing the same MLTA certificate.

Now we go to the second application, pretty sentimental yet it serves your family financial purpose very well.

2)    Passive form of financial protection/lifestyle sustainability

By having Takaful Large Sum assured, it serve the objective of releasing spouse/family members from unsettle liability/debt. Liability/Debt could be in many forms, like car loan, credit cards, personal debts etc. On top of that, it can maintain the family lifestyle as the household income wont really distract too much when the breadwinner is not earning for the family anymore. Imagine the family members consist of:
-          Husband – working with salary income RM100k/annum
-          Wife – housewife
-          Kid 1 – primary school
-          Kid 2- kindergarten
-          Kid 3 – toddler
Having the fact that life is well uncertain, when the husband died, or no longer able to work due to permanent disability (which many cases like this happen everyday), the family income will be affected at RM100k/annum, or RM8k/month. Sudden shortage of income will definitely putting family members in difficulties, not to mention the wife is a housewife. Therefore, the allocation of income, which previously well distributed into various channel of living like buying good food, good dress, good family vacation, good cars, good education, good saving….are now will be not so good anymore.
This is where Takaful Large Sum Assured play a very important role, securing your family financial, sustaining their lifestyle and affordability.

Having said that, if the large sum assured subscribed at RM1 million level, the family members will be left with Rm1 mil compensation. This equivalent to 10 years income earned by the husband.

Now, Don’t you think the wife (housewife) can continue living in good financial environment with her kids?

And the last one…Takaful Large Sum Assured can serve the objective to hedge active saving ie ASB, Unit Trust etc.

3)    Hedging mechanism for active saving ie ASB, Unit Trust etc

Saving must come with objective. A father saving for family, so that in future he can buy good car and convenient house. A father saving for his kids, so that in future he can use the money for the best of his kids education. To turn such dreams into reality, we do saving. But saving comes with 2 disadvantages:
-          Must be active, when you stop saving, the money in the fund would also stop.
-          The value of saving is the value when you stop doing so.
Next question, why stop saving? Now we take similar scenario as I explained in the function number 2.
If the father has 3 kids, still schooling, he must be expecting to have some handsome fund when their kids ready to further study at university/college level.
If..the father save RM200/kid. He save RM600/month.We take the maturity fund when the kids reach 18yrs old.  Let’s do some math:

1st kid 8 years old – RM200 x 12 months x 10yrs = RM24,000 (cost alone, if plus dividend probably go double up to RM50,000)
2nd kid 5 years old – RM200 x 12 months x 13 yrs = RM31,000 (plus dividend can up to RM60,000)
3rd kid 2 years old – RM200 x 12 months x 16 yrs = RM38,000 (plus dividend can up to RM75,000)

To continue saving until each kids reach 18yrs old, consist a lot of uncertainties. Again, taking function number 2, the dream of achieving sufficient fund at certain age, would be so fragile.
But..if now, you have the Takaful large Sum Assured say Rm1 mill insured, there will be no worries at all if Allah calls you up while your kids still small – in term of financial lah, not in term of your Ibadah



Q)     I want to buy a house, but not now…maybe 5 years down the road. When shall I take up this TLSA (Takaful Large Sum Assured)?
A)     You should take this now. Because in 5 years time, the cost will be expensive due to incremental of age, and furthermore..your health state would not be as healthy as now. The TLSA is really depending on your health condition. Take it when you are up to it.

Q)   Let say, I just pay for about 5 or 6 months, than doctor diagnose me to have critical illness, I will not be having job at that time. What happen to my TLSA?
A) The moment your been diagnosed, the payment for TLSA would stop, and to be continued by Takaful. You don’t have to pay anything, in the same time all benefits (1mil policy + saving) is remain guaranteed as per contract.

Q)  Paying RM450 or RM500 a month, seems itching..putting this amount in active saving would generate much cash value over time, and fast cash out when emergencies.
A) I have explained on TLSA perspective in the article, you may consider your position whether to gauge life in short span or long enough to see your family secured in term of financial when you are no longer living. In other words, 450 or so may be painful in the first year..but after salary increment or better job opportunity comes, you won’t really feel this as a burden. Trust me

Q)  No detail spells out in cash value aspect in your TLSA article. Can you explain?
A) Every RM your fork out for TLSA, they will be channeled into investment fund. Over time, depending on investment performance, the return will be accumulated into your cash account. Based on current estimation, over 10, 15 or 20yrs..the cash value expected to develop at 70-85% level of total contribution you have made since the very first day. This figure derived from investment expectation, it is not guaranteed, but to be on safer side..bottom line it serve cash value as per stated % estimation.
Therefore having back your 70-85% money (estimation), while sustaining RM1mil policy, does it feel good?

Q) You only pay RM450 a month, TLSA give you RM1mil protection or so, giving you cash value, pay for you if your got total permanent disability or having critical illness. Too good to be true, is it?
A) Yes. Sounds too good to be true. But again, it is true

Q) I am 30 years old. How much shall i pay monthly to adopt RM 1 mil policy? 
A) On average, age between 25 – 35 years old, the cost falls between RM450 to RM500/month. Assuming the person is fully health

        Q) Can I have less than 1 million TLSA?
      A) Yes you can. You can have as low as RM10,000, and as high as RM10,000,000

      Q) Why should i take up this TLSA anyway?
      A) Life is uncertain. God ask us to be prepared at all time. Put effort, after that
          Tawakkal. The efforts, that matters. TLSA could be one of the  effort you should


Post a Comment