STARTER GUIDE TO FINANCIAL PLANNING
Ultimate Guide
To The Types Of Life Insurance
With so many insurance providers and the tons of products they offer, it is only normal that you will be confused with the different types of insurance products. Or maybe you do not know that some kind of insurance exists.
People do get confused with a critical illness plan and a hospital plan. One will give you monetary payout and the other is just a mere reimbursement of bills.
It is quite a worry if you do not understand the difference between on policy to the other. One major problem is that you are assuming you are insured for a certain thing but when you want to make a claim, it is not claimable. Some might assume they have a certain policy but as a matter of fact, it is not what they thought they have.
Therefore, this article will give you an Ultimate Guide to the types of life insurance. In total there will be 7 that will be shared in this article. The 7 are:
- Whole Life
- Term Life
- Investment-Linked Policy
- Health
- Retirement
- Endowment
- Personal Accident
Each different type has their own use and limitations. There is no one-policy-feeds-all-needs kind of policy. Examples will be given for each type to give you a rough idea of what is best to fit your situation and need.
1. Whole Life
Like from the name itself, you would have guessed that this policy would cover you throughout your lifetime and it is even possible to say it covers you forever. Mainly it will give your beneficiary a payout upon your demise. Some policies do have benefits that will give you a payout upon other unfortunate events such as a Total Permanent Disability (TPD) or diagnosis of critical illness. This will depend on the riders added and the difference in how the insurer will design the policy.
At certain years of the policy, if you were to surrender the policy, you will receive a surrender value. That means that you will still get back some money after surrendering the policy.
It is also dubbed to be more expensive than a Term life policy due to the investment portion of the policy. Some part of the premiums is used to participate in the insurers’ investment portfolio. Therefore it can insure you and also let you join in their investment as well.
Currently, Whole Life policies enable you to pay for a limited amount of time instead of paying premium your whole life. Which definitely is a good thing, as you do not have to pay premiums during your golden retirement years.
This policy will suit me if:
- I am safe minded and wants to be insured for a long time.
- I want to salvage some value if I surrender the policy.
2. Term Life
This is similar to a Whole Life policy except that it will insure you only for a limited amount of time. You normally have to pay premiums for the same duration as the period of coverage.
It is a popular type of policy as it is a cheaper alternative compared to a Whole life policy. The price difference is due to the fact that a Term life policy does not have an investment portion. Which also translate to the fact that if you were to surrender your policy, you will get nothing in return. If no part of the premiums is used to be invested therefore it is not possible for the insurer to earn a profit and return back money to you.
Apart from that, there are no other differences when comparing to a Whole life policy. It is mainly to insure you and give your or your beneficiary a payout once an unfortunate event occurs.
This policy will suit me if:
- I am tight on budget but you still need insurance coverage.
- I want to use part of your excess money to invest in other financial instruments.
3. Investment-linked policy (ILP)
An Investment-linked policy works the same as a Whole life policy with a few differences. One big difference is the way your premiums are invested. In a Whole life policy, you participate in the insurers’ investment portfolio or in other words, you do not have to select where you invest in.
But for an ILP, you have the choice of where you want to invest your premiums in. Whether that is a good option, it really depends on you. Other than that, it functions the same way as a Whole Life policy.
This policy will suit me if:
- I want to be insured and invest your own way.
- I am willing to take the risk when investing.
- I love 2 in 1 products.
4. Health
Before we begin, the Health insurance that will be explained here is also known as Private Medical insurance, Hospital & Surgical plan or even Integrated Shield plans.
Health insurance is a type of coverage that will pay for your allowable hospital bills or reimburse the money that you have paid first during your visit to the hospital or any authorized medical institutions.
Medical expenses at a local clinic or polyclinic do not fall under the list of benefits. Well, unless the hospital that you are seeking treatment from has specifically authorized you to go for further examinations or check-ups at elsewhere.
You do not gain a lump sum payout when you get hospitalized neither will you get a monetary benefit upon an accident that you were injured in. Ultimately, Health insurance is used to pay for your hospital bills.
This policy will suit me if:
- I want to have an enhanced coverage when you are hospitalized
- I fear the inability to pay off large hospital bills
5. Retirement
Retirement plan aka an annuity. The function of this policy is to give you regular payouts during your retirement years. The regular payout may be paid monthly or yearly depending on the policy itself.
Perhaps this is not a plan that will entice the younger group of people, as it does not seem like an urgent need. Nevertheless, it does not mean that you should not start early just because you are in your 20s. The earlier you start, the lesser amount of money you have to set aside for your retirement plans.
Its either you suffer now or you suffer later. You suffer now and reduce your spending habits just so you can retire comfortably. You suffer later when you are older, it will be tougher as you may have your parents and children to take care of and at the same time, you have to start with your retirement planning. The choice is yours.
This policy will suit me if:
- I want to get started on my retirement planning
- I am worried about my long-term income.
6. Endowment
This is quite a popular plan amongst Singaporeans. It is one of the safer ways for you to grow your money. Although the returns are not that high but it is still a trusted and reliable product.
At times they are also marketed as a Savings Plan. There many types of endowment plans in the market. The common plans are cashback endowment or non-cashback endowment plans.
Cashback endowment plans enable you to receive annual cash payouts at certain periods of the policy. While a non-cashback endowment plan is less flexible. You have to wait for the policy to mature in order for you to get back your money.
This policy will suit me if:
- I want to grow my money at a safer rate.
- I do not want to take a lot of risk in order to grow my money.
7. Personal Accident
Personal Accident, well that was a giveaway. Yes, this plan will give you payout if anything that is under the table of benefit happens due to an accident.
Temporary disability, permanent disability, death, daily hospitalization benefits are amongst the amount of coverage that insurance companies are offering.
Different companies have different scopes of benefit and each one always have a competitive edge over the other. Nevertheless, it serves all the same; the purpose is to give financial assistance when you are a victim of an accident.
This policy will suit me if:
- I am worried that I will be involved in an accident.
- I use a personal vehicle such as a car or motorcycle.
Do I need all of them?
There you go, the ultimate guide to the types of life insurance. This is just a brief explanation of each type that is available. There are differences in specific details when it comes to each type and it differs with each company.
When it comes to financial planning, it is not only a matter of owning all of the types but is a matter of answering your needs. Look at your current insurance portfolio, analyze your shortfalls, and fulfill your needs.
Hope that this article was useful. Do share it with your family and friends. Till next time.
Disclaimer:
I am a financial adviser but I am not your financial adviser. Therefore, what is posted on this website, are my opinions and NOT to be taken as financial advice. Information provided might be relevant at this period of time but may be irrelevant due to alterations to rules, regulations or policies. The information provided is true to the best of my knowledge, but there maybe omissions, errors or mistakes.
