Comparing Different Insurance Plans And When You Need To Buy Them
Most people understand that it is important to purchase an adequate amount of life insurance. After all, if an earning member of a family dies, the money received from the insurer can help to meet the financial obligations of the household.
That’s straightforward enough. But the problem arises when you need to choose between the large numbers of life insurance policies that are available. Each type of policy offers different benefits. Additionally, the amount that you have to pay towards insurance premium could vary widely. It can all get very confusing.
A financial adviser may be able to help. But it is essential that you have a basic understanding of the types of life insurance that are available so that you can make an informed choice.
Here’s a brief description of the main types of policies that you can buy:
As the name implies, this insurance is for a specific term, say, ten or 20 years. It provides a payout in the event of the death of the insured person.
It’s the most economical option. The insurance premium is low and remains consistent for the duration of the policy. So if you buy a 15-year term cover, you will pay the same premium for each of the 15 years.
While the comparatively large payout on the death of the insured is a positive feature of term insurance, there is a downside as well. If the insured person survives, there is no benefit for the policyholder at all.
If you want to secure your family’s finances to take care of a situation where you are no longer around, term insurance is a good low-priced option.
Whole life insurance
Unlike term insurance, which is valid only for a predefined period of time, whole life insurance provides lifelong cover. This type of policy is a good idea if you want your family to receive an assured benefit.
But you should be ready to pay more in the form of insurance premium. That’s because the insurer knows that sooner or later the sum assured will have to be paid.
A whole life policy is available in several different variations. A “par” policy will pay out bonus amounts. Conversely, a “non-par” policy does not provide this benefit.
You might even opt for a whole life policy that is investment-linked. Some portion of your insurance premium will be invested on your behalf. While this will result in a higher cash benefit, you can expect it to cost more as well. Beyond the costs involved, it would be wise to learn more about the problems with ILP.
A universal life policy is similar to a whole life policy, but it offers a greater degree of flexibility. The insurance premium that you pay under a universal life policy is broken down into two different parts.
The first is used to provide you with insurance cover. The second part is a saving component that is invested on your behalf. The unique feature of universal life cover is that it is possible to vary the amount of insurance premium that you pay.
The return that your savings earn can be used to pay for your insurance coverage. Depending upon the type of policy that you buy, it is possible to decrease the amount of protection.
Universal life cover is ideal if your prime consideration in choosing an insurance policy is flexibility.
If you are worried about how you will support yourself in your retirement years, an annuity plan offers a way out. An annuity is a type of insurance policy that guarantees you a fixed payment at regular intervals for a certain period.
Annuity plans that guarantee a regular payout for as long as you live are also available.
You can buy an annuity plan by paying a single lump sum as premium. The annuity payments will start from a certain pre-decided date that could be ten or 15 years or even more in the future.
This type of insurance is a good option if you are saving for a specific goal. You may want to accumulate a large amount to pay for your child’s university education. You could also be saving for your retirement.
An endowment insurance policy will help you to meet these financial targets. However, there is one point that you should remember. The sum that you get at the end of the insurance period may be less than the total premium that you have paid over the years.
That’s because part of your insurance premium is invested on your behalf while the other portion is used to provide insurance cover. Additionally, the amount invested on your behalf could be subject to market risks.
The prime purpose of a legacy insurance plan is to provide for your heirs. It is usually used by high net worth individuals. You could opt for a legacy plan if you want to ensure the equitable distribution of wealth among your heirs.
This form of insurance can be especially useful if you own high-value assets like a family business or a work of art. If these need to be disposed off quickly, it may result in a sale that fetches a low value. You may also be emotionally attached to these assets and be against their sale when you are no longer there.
Which one should you choose?
Still confused about which life insurance policy to buy? You can make a start by visiting the compareFIRST website.
This is a website that has been jointly promoted by the Consumers Association of Singapore (CASE), the Monetary Authority of Singapore (MAS), the Life Insurance Association of Singapore (LIA), and MoneySENSE.
compareFIRST will provide you with information about the life insurance products offered by different insurers in Singapore. After you enter some basic details about yourself and the type of coverage that you are looking for, the search engine will throw up various options for you to consider.