What is The Types of Life Insurance

What is The Types of Life Insurance

This time we will specifically discuss life insurance. Do you know what life insurance is? Life insurance is a contract agreement between you as a policy holder or the insured with an insurance company as an insurer in which the insurance company will pay a nominal amount of money if there is a risk of death to the insurance policy holder.
You as the insured must pay a premium which will later be useful to provide reimbursement for the risk of your death. In other words, life insurance is a type of insurance that aims to cover people against unexpected financial losses, which are caused by the death of the insured.

What Is The Life Insurance

This life insurance can be purchased for self-interest and on behalf of the insured only or purchased for the benefit of a third person. For example, a husband can buy life insurance with his wife as the insured, or parents can also buy life insurance with their child as the insured. There are several types of life insurance, but before discussing these types of life insurance, it's a good idea to first know some of the reasons that make life insurance so important for you.

Why Need to Buy Life Insurance ?

1. As Protection Against Loss of Income for Families

No one knows what will happen tomorrow, including you. To anticipate the possibility of you being hit by an accident and leaving the family you support for good, you need to buy a life insurance policy so that your family can get the sum assured to live after you leave.

2. As protection against the risk of death due to diseases that are the main causes of death

Based on a survey conducted by the World Health Organization (WHO) in 2002, the 10 main causes of death are coronary heart disease, tuberculosis, blood vessel disorders, respiratory disease, newborn disease, lung disease, traffic accidents, diabetes, blood high, and diarrhea. These diseases are quite common, so it is important for you to have protection against the risk of contracting these diseases and dying.

3. One way to save or prepare for retirement

Saving in life insurance is the best alternative choice for your long-term needs because of the nature of regular, mandatory premium payments, and not easy to take at any time.

Types of Life Insurance

There are several types of life insurance products, each of which has different benefits. These types of life insurance aim to serve various needs, abilities, and people's purchasing power. Please take a look at the following types of life insurance:

1. Term Life Insurance

Term life insurance or term life insurance functions to provide protection to the insured within a certain period of time. This life insurance usually offers contracts for 5, 10, or 20 years, with fixed premiums and relatively cheap.

It is recommended that you choose this type of life insurance if you prioritize your family's future, especially children's education. Suitable for those of you who have a need for large insurance costs but have limited financial capabilities.

If you choose this life insurance, some of the advantages are :

  • You as a policy holder get the freedom to determine the amount of premium according to your ability.
  • The sum assured that you can get as a policyholder can reach billions of rupiah. This means that if the insured dies while the contract period is still active, the insured's family will receive a large sum insured.

Meanwhile, the disadvantages of this type of life insurance are :

The insured may lose the premium that has been paid or the premium will be forfeited once the contract is completed if there is no health problem or death until the end of the contract period.

2. Whole Life Insurance

This type of life insurance or whole life insurance provides lifelong protection, although insurance companies usually limit the protection benefits to only 100 years.

This life insurance is recommended for those of you who have no dependents and want benefits that are more than just death benefits, or you are interested in the idea of ​​long-term savings. So, if you want life protection as well as savings for emergency needs such as paying hospital bills, you can consider buying this type of life insurance policy.

The advantages of this type of life insurance are :

  1. Policyholders are allowed to get cash value from premiums already paid.
  2. If you as the insured do not
  3. If you can pay premium installments regularly, you can use the cash value of the premium you have paid to pay the next premium.
  4. The insurance premium that you have paid will not be forfeited if there is no claim.
  5. At the end of the contract, the sum assured will be given in full.

Meanwhile, the drawbacks are :

The premiums are greater than term life insurance premiums, and can even reach more than twice as much. The reason for this high premium is because the life expectancy of the Indonesian people is only 65 years for men and 70 years for women, so the possibility of insurance claims before the protection period ends is higher.

The cash value of the total premium paid is not too large because the interest for this insurance is usually only 4% per year, and this figure is not tax deductible.

3. Endowment Insurance

This type of endowment insurance, as the name implies, is an insurance that has two benefits, namely as term life insurance as well as savings. This means that you as a policy holder can get the cash value of the insurance premium that you have paid in the form of sum assured if the insured dies within a certain period in accordance with the policy of the insurance policy concerned and can also withdraw the insurance policy within a certain time before the contract period ends.

This type of life insurance is recommended for those of you who prefer to ensure the availability of education funds for children, want to have funds for unexpected needs in the future, and want to have a larger pension fund.

The advantages of this type of life insurance are :

  • As explained above, you can claim this life insurance policy before the contract period ends, for example to fund your child's education. However, the withdrawal of these funds can only be done once in a period of several years in accordance with the agreement that has been made.
  • If, for example, you as the insured are still alive at the end of the term, you will get the entire sum insured.

Meanwhile, the drawbacks are :

Because this type of life insurance has two benefits, which are combining the benefits of term life insurance with whole life insurance, the premiums are quite large, reaching millions of rupiah per month.

4. Unit Link Life Insurance

This type of unit-linked life insurance combines the benefits of insurance with an investment, and is most often offered by insurance agents. If you are interested in investing but don't understand investing and want to ensure that your life still gets the benefits of protection from death, you can choose this type of life insurance.

The advantages of this type of life insurance are :

You as a policy holder not only get guaranteed protection but also return on investment with a fairly high interest every year.

While the disadvantages are :

  • The return on investment is less significant when compared to pure investments such as stocks, money markets, or mutual funds. If you are looking for a large return on investment, you should not rely on unit link life insurance.
  • The sum insured that will be obtained is relatively low, especially if the investment fails or only produces a small profit.

Research Before Buying

You need to remember that before you buy a life insurance policy, you are advised to seek as much information as possible and compare offers from several insurance companies, for example with regard to the protection offered and the amount of premium you have to pay, and adjust it according to your ability.

Also consider the number of your dependents and what funding needs will arise in the future in choosing this type of life insurance. The point is that you need to do careful planning according to your needs before choosing the life insurance product that you will buy, so that the protection benefits you get from the insurance product are optimal. 

Remember, the principle of being careful before buying also applies to life insurance products so you don't feel bad.

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