Each individual has different needs and financial obligations, so hunting for a "one size fits all" insurance product can be rather challenging. With different product types offering only certain benefits, it is more likely that one will have to rely on a few products to get coverage for various protection needs.
Getting a life insurance policy is a long-term commitment and it is advisable to plan ahead and be sure that premium payments required can be met for the policy to stay in force. It is also important to ensure that the sum assured is sufficient should an undesired incident occur (e.g. death or terminal illness).
While looking at the needs factor, start by listing down the financial protection that you need. If there are any existing policies that were bought some time back, see if they are still relevant or if the coverage is sufficient and relevant, despite the change in lifestyle, dependants or financial obligations. It is also good to check the benefits and coverage that your employer may have bought as group insurance for the company's employees.
Next, evaluate to see if there is any shortfall in the insurance coverage that is needed now as compared to previously. However, do note if there are any exclusions of benefits or loading of premiums due to medical conditions or any other factors before making a commitment.
With this knowledge at hand, start by shortlisting products which will meet your needs and whether these are long-term or short-term. Lastly, you can ask yourself whether you need the investment element to be included in the product.
Whole Life or Endowment products are known to be participating policies. The cash value will build up over time as part of the premiums paid are invested by the insurer to generate returns but are subjected to investment risk. It is also worth mentioning that given the investment mechanics, an early termination of the policy may result in the cash value received to be lesser than the premiums that have been paid to-date.
So, if you are looking for only protection coverage on death, total permanent disability or terminal illness, a non-participating product like Term insurance is befitting.
The premiums paid will be directed towards the protection element and they may cost lesser for the same amount of insurance coverage offered for its benefits as compared to participating product types. You can consider term insurance product if:
1) You need a sufficiently high sum assured because you need sufficient money for dependants, especially if you are the key bread-winner.
2) You want fairly affordable premiums or if the investment element to accumulate cash values in a policy is not a requirement to you.
3) Likewise, it can also be an option if you wish to keep insurance protection and investments separate in your overall financial planning strategy.
Paying premiums regularly eases the need for a huge capital outlay and this is beneficial to those who are looking for insurance coverage during their early working years. Most products offer premiums to be paid regularly; either monthly, quarterly, half-yearly or yearly, and with each premium frequency option, the premium amount to be paid is different. For example, the premium amount on a yearly basis will be lower than the premium amount to be paid for on a monthly basis. Simply put, the more regular the premium, the higher the premium amount will be. This is partly due to the administration and operations cost incurred by the insurance company. As mentioned earlier, a life insurance policy is a long-term commitment; therefore, do consider and choose the premium payment frequency that you are most comfortable with.
Age is another factor of concern. Generally, the premium is lower when the insured's entry age is younger for the same coverage term. Products with a 'level premium', meaning that the premium amount to be paid each time for the policy is the same throughout the premium term, will have a lower premium amount and this will help when financial commitments become more demanding later in life. Hence, it is good to start early.
So, before committing to an insurance policy, here are some points you may wish to consider:
- Assess your needs and the amount of protection required.
- Work out a budget to ensure that the premiums are affordable throughout the policy premium term.
- Review your existing policies as you move on to the different stages in life to ensure sufficient coverage.
- Look out for any exclusions or loadings offered by the insurer due to your health or other factors.
- Start early.
It is recommended to engage the services of a qualified financial adviser to assess and review your financial needs. Ask questions about the products that you have been recommended so as to know what you are actually paying for and if they are suitable to your needs.