Life Insurance What is Life Insurance?

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Why do you need life insurance?  Unexpected events can often lead to risks and sometimes they come with a hefty price tag. Put simply, life insurance helps you provide financial security, ensuring you’re better prepared for uncertainties.

Why Do You Need a Life Insurance?

Before considering why you might need life insurance, try asking yourself questions like:

  • What are your biggest concerns?
  • Is there any particular circumstance for which you want protection?
  • How many loved ones do you have to support in case of an accident or even death?
  • How much money would you need to maintain your family’s lifestyle if you were suddenly unable to work?
  • What is prompting you to buy life insurance now?

Life insurance is not a one-size-fits-all product. The better you understand what your needs are, the easier it is to find the life insurance that works best for you. 

Depending on your protection needs and budget, you can start by comparing similar products offered by different insurance companies. When comparing policies, you may want to look at features, such as the premium amount to be paid, the payment method, coverage duration, and the coverage offered. It's essential to think about how much premium you would realistically pay over the entire payment term. 

Things to Consider

Even after determining what you need, how much you can pay and what coverage you want, the decision-making process can still be overwhelming. Products offered by different insurance companies often look similar, but there are a few key things you should focus on to make an informed decision:

1. Reputation of The Life Insurance Company

First and foremost, the insurance provider should have an excellent reputation, not just in terms of financial stability, but also the service they offer. Consider how easy they make it for you to file a claim submission or even how often claims are paid out without lengthy settlement processes.  You may find this out by visiting their website, researching on social media or reading recent news articles. 

2. Premium Rate

The premium is the amount of money you pay for the policy. Usually, low-priced premiums provide less coverage, but that does not mean high premiums can guarantee more coverage.

Below are some of the factors that insurance companies look at to determine the premium they charge you:

  • Age – Generally, the older you are, the more you have to pay for the same amount of coverage.
  • Medical history – your medical history and that of your parents is required to calculate the amount of risk the insurer takes on and that influences the premium.
  • Lifestyle – Your profession and hobbies will also be factored in. Avid skydivers may be charged a higher premium, and a chain smoker may have to pay far more than a non-smoker.

3. Types of Insurance

Finally, it is important to familiarize yourself with the details of the different types of life insurance. An experienced insurance agent will help you compare your options and present the best ones for your needs. Types of life insurance include Term Life Insurance, Whole Life Insurance, Endowment Insurance to Unit Link Insurance.

Types of Life Insurance

Different types of life insurance offer different benefits. Here are the key features and benefits of the four main types of life insurance: 

1. Term Life Insurance

Term life insurance provides protection in the form of financial assistance for a specified time period, which decide when you buy the insurance. This is the most affordable insurance because the premiums are usually cheaper for a relatively high coverage amount, because the insurance policy is designed to provide protection only for a specific length of time.

The disadvantage is that the premium paid will be forfeited if there is no claim is submitted during the term. Once the term expires, you will not receive any protection unless you decide to extend the policy. There is also no investment component for this type of insurance, which is why the premiums are more affordable.

2. Whole Life Insurance

Whole life insurance is usually more expensive because it provides protection for a lifetime.  You also have to continue to pay premiums for longer, however one advantage is that the sum assured can be as high as Rp1 billion to Rp2 billion. Also, once the premium payment period is over, the insured can still be protected for the protection period stated in the insurance policy.

3. Dwiguna Life Insurance (Endowment Insurance)

This dual-purpose life insurance is a combination of term life insurance and savings. You can decide how much you’d want to save, and when you want the policy to mature. Based on your premium payment amount, you will receive a guaranteed lump sum payment at the end of the policy. This type of insurance helps you secure funds for post-retirement or to meet various financial needs such as funding for children's education and/or marriage or buying a house. 

4. Unit-Linked Life Insurance

Unit-linked life insurance is life insurance that is incorporated with an investment component. The difference between unit-linked and endowment is that the payment cannot be guaranteed as it’s depending on the market performance of the fund. While the risk is higher, you do have the flexibility to change the funds you’re investing in. The trade-off is that the premium will be more expensive than endowment insurance. 

Our professional agents are trained to help individuals to make the right insurance purchase choices for their specific needs. Leave your contact details and let us help address any of your queries.

These tips were provided by Aulia Akbar CFP®, a financial educator and researcher at Lifepal, as part of a collaboration with the insurance marketplace

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