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Life Insurance Explained

February 22, 2016 Insurance
Life Insurance Explained | blog.pfaasia.com

How your earning capacity is covered ?

From a risk planning perspective, a sound and solid financial plan starts by planning for the unforeseen yet uncontrollable events in the following areas :

  • Sudden death
  • Temporary or permanent disablement
  • Suffer from serious illness
  • Medical/surgical treatment in the healthcare/hospital
  • Meeting with an accident

The type of insurance contracts which provide coverage for the above events are :

  1. Life insurance : pays a lump sum in the event of death.
  2. Disability income :pays a lump sum in the event of disability, or being so disabled as to be unable to ever perform either your own or similar occupation ; and subsequently a specific amount on yearly basis if continued remain disable until age 65.This benefit can only be added to a life insurance cover.
  3. Critical illness : pays a lump sum in the event of suffering from one of a specified list of medical conditions, the major ones being heart attack, coronary artery surgery,angioplasty,stroke and cancer. For female, the added complexity of female regenerative organs
    present additional risk in the form of breast cancer, female organ like ovary cancer, fibroid etc. This is a special class of female illness coverage.
  4. Medical insurance : provide benefits to cover for the medical cost while a person is admitted for treatment into hospital.
  5. Personal accident : pay a lump sum benefit in the event a person is met with an accident, or resulting to irrecoverable loss of human body parts like eye, hand, leg, fingers etc.

Types of Insurance Contracts

Insurance policies are in general being classified into 3 major types.

Type Features Usage
Term Polices
  • Provide life insurance cover for a limited period only eg 5 year, 10 year or for periods up to age 55,60 or 65.
  • Typically covers only death or total Permanently disablement(TPD) condition only.
  • Allows conversion priviledge to permanent wholelife policies.
  • No cash values at the end of the period.
  • Premium paid is the cheapest, the Effective premium cost (EPC) remain same and does not reduce over time.
  • For business who requires cover for a temporary period like covering for potential risk losing the investment if the key person suffers premature death.
  • To protect insured estate from Business loans or mortgage liabilities in the event the borrower/guarantor of the loan suffers death prematurely
Whole Life Policies
  • Provide life insurance cover for a lifetime.
  • Typically covers for death, TPD and some riders allow additional benefits like 36 types critical illnessses, disability income.
  • Act as low risk savings vehicles, there are guaranteed portion and non-guaranteed portion of cash values accumulated as the policy goes by.
  • Premium paid varying according to age. For insured from age 1 – 35, the premium paid is relatively low compared to insured from age 36 onwards as the health risk increases. Effective premium cost(EPC) will reduce over time.
  • A permanent life insurance cover that offers comprehensive cover for young families with low premium outlay.
  • Another form of savings for old age as policyholders can surrender their policies when they have no need for coverage and convert the accumulated cash values into annuities to fund their retirement needs.
Investment Linked Policies
  • Provide life insurance cover for a lifetime.
  • Typically covers for death, TPD and some riders allow additional cover like 36 types critical illnesses, disability income rider.
  • Policyholders are given the freedom to select the managed investment account that match the personal attitude towards risk and objectives.
  • Premium paid, beside covering for the cost of Insurance(COI) is being converted into Investment units, and invested in common type of funds, ie equity fund,fixed income fund, balanced fund
  • The returns are non-guaranteed and depend on the market conditions.
  • Premium paid is relatively lower compared to Wholelife policies and the effective premium cost(EPC) will reduce over time.
  • A permanent life insurance cover that offers the following flexibilities :
    → varying coverage: it can increase or reduce depending on the life stage
    → top up : the policyholder can top up a lump sum money into the investment account.
    → systematic withdrawal : the money from the investment account can be withdrawn when need arises.
    → deferred benefits : the money accumulated in the investment account is tax free in the hands of the policyholders.

STILL CONFUSE ? READ ON AND LET US HELP YOU !

MUST READ : IF YOU OWN LIFE INSURANCE POLICY

You may have bought insurance but may not understand them.
Each of your Life insurance policy comprises of two accounts : –

  1. The saving account
  2. The protection account
How much do you understand the protection account of your policy?
  1. How many type of protection you have in the protection account?
  2. How much of the premium you pay each year go to the protection account?
  3. The premium that go to the protection account is an expenses and has no saving.
  4. How many items in the protection account are overlapped if you have more than 1 life policy?
  5. Are you aware the protection benefits need to be upgraded or changed every 4 to 5 years in order to have the latest benefits.
The answer to the complexity of the protection account of your Life Insurance Auditing Services

What is Life Insurance Auditing Services?

We will help you to study all the Life Insurance policies you own irrespective of which company you buy them from and give you a Life Insurance Summary Report to educate you about the riders in your protection account.

Community Services

This is a community services offered to assist you either to:

  • increase coverage
  • increase benefits
  • shorten payment years
  • reduce payment if possible by reorganising the benefits in your protection account.

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