Most will probably knows what it is, a life insurance insure against accidental death, total permanent disability and some common critical illnesses.

Although there are many types of life insurance, the protection part being offered by them is about the same, that is pay a sum of money or annuity upon accidental death, total permanent disability and some common critical illnesses. There may be slight differences such as definitions of permanent disability, numbers, types of critical illnesses covered and specific exclusions for life insurance policies offered by different insurance companies but there are more or less covered similar events.

Since life insurance is what most people need to buy, there is a need to know what types are available, what differentiates each from the rest. Knowing which type is suitable for your current life stage and income is the first step, the next is compare and contrast similar life insurance policies from different reputable insurance companies. For example, if endowment plan is deemed suitable for you after careful consideration, there is a need to select the most optimal in terms of premiums, coverage and end cash value from the different insurance companies in the market.

Of course, the insurance companies being shortlisted for purchasing life and medical insurance need to be of equal footing in terms of financial strength, reputation and probability to become bankrupt.

Take now that all the following six types of life insurance provide the same type of protection in general, just that got some differences. The difference between the first two and rest lies in the first two is purely protection and there is no cash value at the end of the policy term. Due to this, group term and term life insurance offers greater protection in terms of monetary benefits when the events insured occurs for the same amount of premiums, relative to the other four types that got cash value.

There are a number of parameters to consider when deciding to choose which type of life insurance cover. Some of the more important ones are age, life stage, number of dependents, dependability of dependents; amount of earned and passive income now, expected amount of earned and passive income in the foreseeable future, stability of earned and passive income now and in the foreseeable future, and last but not least, your own personalities – which is a main factor in deciding whether to subscribe to buy term and invest the difference train of thought.

1. Term life insurance

This is an insurance plan that offers pure protection and no cash value. As a result, relatively to the last four types of life insurance, the same premium can provide greater amount of coverage, or in other words, the same amount of coverage cost lesser in premium paid, that is in general.

Then there are two sub groups of term life insurance – one is level term insurance and another is decreasing term insurance.

There is a school of thought whereby it is better to buy term and invest the difference. However, whether this is good or not depends on the specific individual. In other words whether it is better is both yes and no at the same time. Not everyone is suitable to buy term and invest the difference, and for some people, it is better to buy term and invest the difference. This issue will be touched on and covered thoroughly in future.

The good thing about term life insurance is that it is a relatively simple financial product and comparing term life policies from among different insurance companies to find the lowest premiums for the same sum assured is a relatively simple affair.

2. Group term life insurance

This is basically similar to term life insurance, just that the premiums will be cheaper for the same sum assured, relative to a term life insurance.

However, whether you are eligible for some group term life insurance depends on whether you belong to any associations and how likely that you are going to be its member in the decades ahead.

3. Endowment plans

This is basically a life insurance with savings elements with higher interest rate than usual banks savings accounts. When buying endowment plans, need to take note of the guaranteed yields. Most endowment plans got a minimum guaranteed yield to maturity while some don’t have, this is the yield that you need to compare and contrast across all plans by different insurance companies, not the past returns and future projected returns as they may not materialized when the time comes. As a result, one can simply ignored the benefit illustrations for projected returns when doing comparisons on endowment plans across all plans that are available from different companies.

Strictly and theoretically speaking, you cannot expect the yields of endowment plan to be more than the return of stock and bond market as a whole. This is simply because, the insurance companies generate the returns for endowment policies from stock and bond markets, but in actual fact, it is mostly from the debt and bond market as their returns are more stable. On top of that, insurance companies need to cover administrative and marketing expenses, commissions to agents and brokers, and last but not least, profits for the shareholders of insurance companies.

Due to its cash value at maturity, one cannot expect the same premiums can provide the same sum assured relative to a term life insurance. In other words, one should view endowment plans as a form of savings rather than protection as for low income earners, the sum assured will not be enough or that one need to spend more on premiums for the required sum insured. That means if you want greater protection, it will be more cost effective to use a term life or group term life insurance rather than increase the coverage for endowment plans.

Depending on specific individuals, this type of life insurance can form a part of your portfolio for the risk free return portions. Lastly, endowment plans should be viewed more as a savings plan with higher interest rate than that given by banks rather than use it as protection only.

4. Whole life insurance

The name already suggests to you that this type is specially for covered the whole of your life, term life insurance only provides cover up till a certain age while whole life provides coverage until 99 years old. There are similarities between whole life and endowment policies, in the sense that, endowment gives you the sum assured, together with some accumulated bonus if there is after the policy matures, hence the money for life insurance protection after a certain age, though the endowment policies is terminated while whole life provides the cover as long as you paid the premiums even after some age.

There are benefits and disadvantages as well in buying whole life insurance, the benefits are the premiums that goes in building up the cash value of whole life will one day be able to pay off all the premiums for the remaining years. In addition, the premiums will also remain constant during the time when you are covered, unlike term life insurance which can increase if there is an increase in overall claims.

The disadvantages are of course that insurance is not free, one need to pay premiums on time. If retrenchments set in before remaining premiums of a whole life policy are paid off and result in early terminations, then one no longer is covered for the whole of his or her life. As such, one is better off paying off in a single large premium for a whole life policy to prevent terminations due to not enough money from unforeseen circumstances in life such as living in a country with no universal health care and a single large medical bill decimate almost all the savings, together with loss of employment.

Whole life insurance got cash value that is equal to the death benefits that is payable upon the maturity of the contract at around age 95 to 100 if nothing happens to the insured from inception until the whole life policy matures.

5. Universal and variable universal whole life insurance

Universal whole life is similar to whole life but with some flexibility and is more complex than whole life. There will be slight differences between policies offered by different companies in different countries.

In my opinion, I felt that one is better off not considering this universal whole life. It is far better to use a combination of term life, endowment, together with pure investments for the financial protection in the senior years, and maybe with a whole life policy for most people. Universal whole life may be suitable for certain people only.

6. Investment-linked life insurance

Investment-linked life insurance is combining life insurance protection with investments elements. Of all the types of life insurance that is listed here, I strongly discourage people from buying investment-linked life insurance. It is the most complicated among all the life insurance discussed here and is definitely not cost effective if you want protection or greater protection only.

As for investment part – investing through investment-linked life insurance policies is also not cost effective based on a few sound reasons. One is that not all, if not most of the premiums are not used for investments. In the first few years at least, the insurance company needs to keep the premiums for payouts in case somebody dies and in addition to the usual administrative, operating and marketing expenses. As a result, after accounting for all these, the actual percentage of premiums paid being spent on investments are not much.

In addition, there is the problem of another layer of cost like the POSB MyHome Fund if you choose to invest through investment-linked polices. First is that there are only two types of pooled investments – one is actively managed by first class honors fund managers and another is passively managed in the sense that the fund just simply buy and hold the stocks that made up an index. Secondly, actively managed funds have already being proven to do worse than passively managed index fund/ETFs, but with the exception of small caps and at least 1.5% per year in management fees to pay the fund managers. Thirdly, no matter which type of fund the investment-linked policy invest in, you will still need to pay either the 1.5% or more in management fees or less than 0.5% for index fund/ETFs in addition to some profits for the insurance company involved. Lastly, there is also lack of transparency in the fund holdings that your premiums are invested in which is not good.

Hence, it is far better to separate investment from insurance.

Related posts:

1. All insurance types that everyone needs
2. Life Insurance for cockroach?
3. 5 key figures of every life insurance that you must know

Each insurance type provides protection for different unfortunate events. The first thing is to learn what are all the unfortunate events that can befall on most average people so as to determine type of insurance to buy for an average person.

Before insurance companies introduce a product that provides cover for some unfortunate events and respective amount of coverage/premiums for that, their actuaries have calculate premiums that will be profitable for the products that they sell.

In the same way, insurance purchases for yourself are also determined by thinking like an actuary.

The de facto rule in deciding insurance purchases is when the risk of unfortunate event is too costly to self-insure.

For example, there is no need for both Bill Gates and Warren Buffett to buy any insurance for any unfortunate events. I supposed up till now, there is not any critical illness that can bankrupt or make a large dent on their net worth.

In other words, there is no need to buy any insurance if the benefits of it are too small to have any significant impact on your life. This is well illustrated in a personal computer purchase. Take the example of a laptop purchase, if carry in warranty costs much less than on site warranty, then there is no need for you to subscribe to on site warranty as it is relatively easy and convenient to bring the faulty laptop to a repair centre. As for the case of a desktop, it depends on whether have own transport and where is the repair centre. Nevertheless, a three years warranty on parts and labor is more than enough for the case of personal computer. First is that after the three years warranty, parts that fail like mouse, keyboard, monitor and memory can be easily replaced with a new one on your own and prices for them fall by the day. Second is that personal computers are some relatively inexpensive items nowadays such that longer than three years warranty are not economically justified.

Clearly enough, for people living in Singapore and United States, adequate health insurance coverage for common critical illnesses is a must as the medical costs can bankrupt an otherwise middle class and below individuals and families.

Related posts:

1. Buying Insurance 101
2. All insurance types that everyone needs
3. Basics of Insurance Planning

As with other types of insurance, there are so many terminologies and things to take note that it can even confuses a first class honors.

Below is a summary of all specific items to take note of for disability insurance.

Image Credits: Public Domain

1. Waiting/elimination period

You don’t get the monetary benefits the next day after becoming disabled, The waiting period can be between 30 days to 180 days, depending on specific polices chosen.

In general, the longer the waiting period, the lesser the premiums will be, all else being equal.

2. Amount of monetary benefits

This basically means how much you get in a periodic term like per week/month/year. This is needed to compare and contrast premiums paid and total financial compensation received for similar disability insurance from different insurance companies.

Simply because your AIG insurance agent is not going to tell you that there is a better option from Prudential.

3. Duration of monetary benefits

Don’t assume that one is going to receive a fixed income – payouts from polices all the way until stepping into coffin.

The duration of payouts may be from as short as a few years to until stop breathing, even though one is disabled until in heaven/hell/next incarnation.

4. Definition of disabilities

There are many definitions for a term. Some people can even called a spoon a fork because he says that is what his mother taught him.

Similarly, many insurance companies and polices define disabilities differently, do not just listen to what your financial adviser says about what disabilities means, instead look at the definitions, terms and conditions inside the insurance policies in black and white yourself.

For instance, a dentist who accidentally injures his hand and cannot do what a dentist usually does but can still use his hand and be a toilet cleaner do not fall under the definition of permanent disabled under quite some disability insurance policies.

These four are the more crucial items to take note, all others are listed here.

http://www.iii.org/individuals/disability/types/

Coming up soon . . . . . .

Do you really need disability insurance?

Related posts:

1. Buying Insurance 101
2. Basics of Insurance Planning
3. All insurance types that everyone needs

A comprehensive health insurance plan is one in which most of the hospitalization expenses are paid off by the insurer.

1. Still young and healthy without major illness

This basically means that you are still insurable. Do not ever have the idea that you can buy the day before going for a surgery to remove some brain tumor.
This is not like investing in stocks when you can buy at any point in time. In fact, by the time you reached middle age, more likely to get cancer, heart diseases, high blood pressure, diabetes and a host of other shit. Your applications for medical insurance may be rejected. There are a host of health conditions in which a person is defined as uninsurable.

2. Company got insurance for me, so I don’t need any more

Most if not all company paid group health insurance only cover you while on the job. The problem is if a person is diagnosed with kidney failure, need to go for kidney dialysis and cannot work, forced to quit his job, then he is no longer covered by it. This is in addition to lost income.

By the time that he get whatever chronic illness, which insurance company will ever pays for all his medical expenses after paying his first premium?

In addition, most group health insurance cease coverage after the employee retire or above certain age.

3. Not covered by enough medical insurance

When a person is injured due to accident or down by a major illness like cancer. There are a few events that are bound to happen and with hefty expenses.

a. Hospitalized due to accident or major illness – Hospitalization and surgical policy

b. Cannot work to earn income as a result of event a for some period of time or even worse, whole life – Disability policy

c. Die as a result of accident or major illness, and left behind wife and schooling kids. The person die is the breadwinner – Life and/or term insurance policy

There are different insurance plans, known by different names as indicated, that cover expenses for each of the 3 events, as a result, are you sure you are adequately covered?

4. Already adequately covered by government healthcare plan

This is one of the greatest myths unless you live in Scandinavian countries.

Just because the U.S. government bail out AIG does not mean that every taxplayer automatically can claim payouts for healthcare.

Image Credit: NotionsCapital

Related posts:

1. All insurance types that everyone needs
2. Buying Insurance 101
3. 5 key figures of every life insurance that you must know

The type of insurance policy means that what unfortunate events are covered by that policy. Unfortunate events that happen to you or your dependents that will result in financial compensations from the insurer.

As a result, the following insurance types and the corresponding unfortunate events that they covered are summarized below so that as you begin your adult life or has already been an adult for decades, can use the list as a guidelines in deciding what insurance types to purchase first.

How to decide on the amount of coverage and shopping for the best premiums will be discussed in future articles.

They are classified according to events covered and their main purposes, so as to avoid duplicating protection when doing insurance planning.

1. Life Insurance

Someone said that life is priceless though it is not so in reality. The main objective in spending money to purchase a life insurance is to ensure that your dependents will not suffer from financial hardships should you accidentally die in one way or another.

Under endowment policy, the money is paid to policyholder if the person is still alive on some future date. One thing to know is that not everyone in your family or even you yourself needs life insurance.

2. Health Insurance

For each one of us, with or without dependents, there is a need for some forms of health insurance. This is especially so given the high medical costs now and the rate of medical inflation which is the highest among all, it inflates faster than cost of Ferrari.

The main objective of health insurance is to reduce financial burdens that come from high medical bills in which individuals incur from injury or illness.

Deciding on health insurance purchase is the most complicated of all and one need to be aware of many fine details and conditions.

3. Disability Insurance

This may be needed in addition to health insurance simply because if one become paralyzed from waist down after an accident, health insurance only pays for medical expenses during his stay in hospital and none when he is discharged but still paralyzed and cannot work.

The main objective of disability income insurance is to provide regular income should you lost your job as a result of accident, illness, pregnancy or become disabled and cannot work in previous jobs as a result of physically impaired. Many fine conditions to take note of for this type of insurance, will be discussed later.

4. Home Insurance

For an average person, a house that is used as primary residence is usually his or her single largest investment during his lifetime. As a result, if some hurricanes and arson destroyed everything and nothing is left, then this is not a happy scenario.

This is in addition to the fact that people may downgrade to smaller house after retirement or that after kids have grown up, can rent out a room for rental income. In other words, the lost income potential and no money to buy another house to live should your house is destroyed for no good reasons.

The main objective of home insurance is to provide financial protection should anything unfortunate happens to house owned by you.

5. Automobile Insurance

This is mainly only applicable for people who own cars.

The main objective of having an automobile insurance is to provide all the necessary expenses when you get into accidents when driving own car.

These include bodily injuries to yourself and others, property damaged by you, towing service because car is damaged until cannot drive already and car rental when own car is undergoing repairs.

Related posts:

1. Top 4 reasons why you need to buy medical insurance now
2. All the different types of life insurance
3. Learning to decide Insurance purchases for yourself

An individual’s present life stage and needs will determine whether the policies are providing benefits or unnecessary costs.

For example, if you are single and have no dependents, why would you want to purchase a life insurance that payouts $1 million to some ghosts? This is an obvious example of what I mean by unnecessary costs.

First and foremost, do you treat an insurance policy mainly as a form of savings because you felt that you need this type of forced savings due to lack of will or as a protection against any unforeseen situations that are likely to happening like unluckily getting cancer.

When you need each type of insurance will be discussed separately in a series of articles to follow, do subscribe to my RSS feeds for updates.

After deciding on what types of insurance that you really need, the scope of coverage is another important issue.

Do you realize that some polices only cover critical illness and not total disability?

Do you realize that some polices only cover up till a certain age and not until you lie in a coffin?

After the first two components of any insurance, then is amount of coverage.

For this case, you really need to shop around yourself for all the reputable companies selling insurances with roughly the same type and scope of coverage.

Why not ask your financial adviser from Prudential?

Simply because he or she is not going to tell you that there is a better option from Great Eastern for the type and scope of coverage that you need.

He or she is only going to tell you what insurance policies that suit your needs in terms of types and coverage that Prudential have.

Related posts:

1. All things you need to take note for Disability Insurance
2. Buying Insurance 101
3. All the different types of life insurance

Because no one really cares about you other than you yourself.

Despite weighting off the plus and minus of whole life and term insurance, consumers find it difficult to buy term insurance even though it is more suitable for some, especially if you are the sort of disciplined person to invest the cost savings left over from buying term instead of life.

There are many types of insurances available, covering protection from a person’s backside to every single physical object that he owns.

Regardless of other objectives that buying and holding an insurance policy you have, the most crucial objective in having insurance is for protection.

Deciding on the types and scopes of insurance coverage for each individual is beyond the scope of this blog post but not this blog.

For now, we need to familiarize ourselves with the terminologies used in insurance industry and what every one of us must know. There are many insurance terminologies but as I guess that most of us are busy professionals and don’t have time to read and remember all the terminologies found at this website.

Policyholders and/or dependents

In any types of coverage, there is a person owning the policy and usually, but not always paying for the premiums.

Policyholders will get the monetary benefits for coverage purchased by him while dependents named will get the stated benefits should policyholder die in the event of accident or medical illness. (as in the case of life insurance)

Types and scope of coverage

In other words, what are the events when happened, will result in payouts and the conditions that must be fulfilled before claiming the payouts should the insured events happened.

Take note that there are fine conditions in claiming payouts like if the policyholders commit suicide, and then cannot claim payouts from a life insurance that he owns.

A clear definition of insured events is very important simply because that is what we are paying premiums for.

For example, the conditions behind an insurance policy that covers theft of personal items as discussed previously.

Some examples of types of coverage are,

1. Provide income for policyholders if anything happen to him, resulting in loss of income.
2. Give a sum of money to dependents named by policyholders if policyholders die within the conditions specified.

Premiums

There is no free lunch. You want monetary benefits in the event of both foreseeable and unforeseen circumstances, then you have to pay some money to the insurance company involved in providing you the coverage.

Payments for premiums are usually either in 1 lump sum or some periodic installments like monthly, quarterly or annually.

Take note of the period that you need to pay the premiums for periodic installments as most can only pay by installments, and period of coverage.

Policy Term

This is basically the period of time that the policy is in force.

Only events insured that happened during this period of time which is known as policy term will result in financial compensations.

As a result, the dates are especially important for those who buy term insurance and also travel insurance.

Benefits received

This is basically the monetary benefits received by the policyholders or dependents resulting from insured events happening to policyholders.

Deductible and coinsurance

Many insurance types required policyholders to pay a certain amount out of the pocket first before they can claim reimbursement.

Take note of this figure or how it is calculated, like in the case of medical insurance that covers medical expenses, usually have to cork up own money to pay for what is called deductible and coinsurance.

Thoughts of the day . . .

What happens if you have a medical insurance and have pay for the premiums previously up till the time that you become sick for the illness covered but don’t have money to pay for the deductible and coinsurance?

Related posts:

1. All insurance types that everyone needs
2. All things you need to take note for Disability Insurance
3. Top 4 reasons why you need to buy medical insurance now

Now insurance agents and financial planners are trying to preach us that life starts at 60 years old.

Their arguments are that save now, buy insurance, and invest in unit trusts. In other words, make your money work harder so that you can still enjoy present lifestyle after being forced to retire by your employers.

People are being instilled in their minds from as early as childhood, the need to plan for retirement.

As a result, we are lead into believing that based on current inflation rates; we actually need more than $1 million dollars to retire comfortably when the masses even have problems accumulating $1 million of wealth 40 years later.

Given that the average American earns about $32 000 per year, I wonder how he is going to have $1 million for retirement unless he is able to pick stocks like Warren Buffet.

This is considering the investment vehicles available to masses like mutual funds, fixed deposits etc, it is not feasible to have $1 million without saving and scrimping too much.

The mentality of save and invest until got million dollar nest egg leads a group of cautious people who plan more than 30 years ahead when still in their 20s, making themselves suffer with strict budgets, save every single cent whenever possible and buy things only when there are discounts.

But there is something wrong with the arguments that one needs to maintain his or her current lifestyle due to the following points.

Both needs and wants are totally different as you grow older.

Think about it. When you are 10 years old, all you need to feel happy and contented are the latest Teenage Mutant Ninja Turtles and Transformers toys.

Then when you are 20 years old, you want hot chicks and fast cars. Both of which require substantial financial expenditure.

Or if you are a woman, branded handbags and designer clothing.

Fine dining and holidays in exotic locations are common dreams to us all.

Finally when you are 70 years old, there is nothing much you can do other than wait to eat, wait to sleep and wait to die.

So what if you have $10 millions when you are 60 years old already? There is a good chance that you may already suffer from erectile dysfunctions, no use having millions and hot chicks.

For women, would you still want branded handbags and designer clothing if the whole body is already wrinkled?

Image at the end of everything, unlucky (highly possible considering the statistics now) get some heart disease, high cholesterol resulting in strokes, cancer and kidney failure that requires expensive medical care, some more long term also. All the money painstakingly saved and invest at the end of the day give back to doctors.

How much one need to retire depends very much on what you want after retirement age and your income level throughout your life.

One can try calculating the medical costs for chronic medical treatment for those common old age ailments as of now; compound it with inflation rate which is higher for medical costs than for other things, assume figures for income and savings rate in the years ahead.

If at the end of the day, all the nest egg barely covers medical costs decades later, may as well forget it. Enjoy life now and call it a day if the situation calls for it as in become chronically ill and requires expensive medical treatment forever until you steps into coffin.

Since you will just be saving and investing your hard earn savings only to give doctors later.

I think one will be better off enjoy branded handbags, designer clothing, fine dining and holidays in exotic locations now or within the forseeable future if it is not possible to have $1 million 40 years later.

Related posts:

1. All the different types of life insurance
2. Top 4 reasons why you need to buy medical insurance now
3. Life Insurance for cockroach?

Their insurance policy stated clearly that theft of insured item must occur while the item is being worn.

I don’t know how your watch will get stolen if you are wearing it and it doesn’t take a person with an IQ of 60 and below to see the event that your watch will get stolen when you are wearing it is next to zero.

This type of insurance cover does lives up to its name of all risk, i.e. people taking up this type of policy cover stands all risk of giving their money to the insurance company concerned simply because there is no chance of that event occurring. It is like insuring yourself from dying from accidents when you are already dead.

In addition, the same policy does not cover theft in the house, even if the item was locked.

Don’t think that being robbed will result in compensation from this policy because this type of event does not fall under the definition of theft.

Why pay premiums for a policy cover when the probability of “accidents covered” is zero?

Related posts:

1. Buying Insurance 101
2. 5 key figures of every life insurance that you must know
3. Top 4 reasons why you need to buy medical insurance now

Few ever knows that billions of dollars worth of life insurance policies is on single and available people with no spouse, no kids and even no parents to look after.

Who would get the death benefits?

The cockroach or hamster?

The main purpose of life insurance lies in averting a financial hardship should something unfortunate happens to you. If you are single and parents already in some lala land, may as well use the premiums for monthly car installments and enjoyed life to the max.

Do children really need life insurance cover?

For most people, their children aren’t some Harry Potter stars or earn 5 figure income in television commercials. Would it be better to insure income producing adults, i.e. parents, especially for low income families?

Close relatives of multi-millionaires who included inside the will to inherit part of their vast fortune usually got much more than what is covered by any major life insurance plans. As a result, it is unwise to spend money on premiums.

Related posts:

1. Learning to decide Insurance purchases for yourself
2. All the different types of life insurance
3. 5 key figures of every life insurance that you must know