Currently, there are many life insurance policies and each type provides different coverage and benefits to the insured as follows
1. Term insurance
This insurance provides time limited protection and the insurance company will pay a benefit to the insured in case of death within a specified time period like 1, 5, 10 or 20 years. If the period of cover is over and the insured is still alive, the contract will end and the insured will not receive any compensation.
This insurance contract only covers death and no endowment benefits are included. The premium is lower than other insurance, so it is ideal for households that have debts, need a high insurance capital and pay low premiums.
However, term insurance is not popular in Thailand as it is considered a waived premium as policyholders will not receive any refund after the insurance contract is terminated. However, a disadvantage is that the protection coverage is quite high compared to other insurances.
2. Whole life insurance
This insurance requires paying a premium over a period of time such as 5, 10, 15 or 20 years but provides lifetime coverage (at age 90-99 depending on the type of insurance). If the insured remains alive until the end of the contract, he will receive an insurance capital. If the insured dies during the period of cover, the insurance capital will belong to his heirs.
The premium for this insurance is more expensive than for term insurance because part of the money is made up of savings that generate cash value depending on the policy. We can get a loan from an insurance policy or an expropriation policy if we need money before the end of the contract. However, if we haven’t paid the premium long enough, there will be little or no cash value (see insurance policy table). Whole life insurance is suitable for households or individuals with debt who need long-term coverage, and the insurance can be used as primary insurance to purchase additional contracts later.
3. Endowment Insurance
It is life insurance that the insurance company will pay benefits to the insured who lives until the end of the contract (including the reimbursement of installments and dividends as indicated in the policy) or will pay the capital insurance to beneficiaries once the insured dies while the period of insurance is in effect.
Capital insurance is a combination of life protection and savings. Savings is a refund that the insured receives at the end of the contract and is considered a very effective tool for long-term savings that offers a higher advantage compared to a regular savings bank account.
This insurance is suitable for those who want to keep their money for the long term, including protection coverage, consistent returns to spend during the retirement period.
However, with equal premium charges, endowment insurance offers less insurance capital than term and whole life insurance, so it is not suitable for those who need high capital.
4. Insurance of annuities
It is life insurance that the insurance company will pay an equal and constant sum of money to the insured each month or each year, beginning when the insured retires or reaches the age aged 55 or 60 and over. The timing of the commencement of pension payments and its payment period will depend on the terms of the policy. Therefore, we should select a pension aligned with our spending plan in the future.
This insurance is suitable for those who need a constant income, such as their retirement pension. As this insurance emphasizes savings, it offers less coverage compared to other insurances.
5. Insurance linked to the unit
This insurance is also known as “Unit Linked”. It is an exciting new policy and alternative that offers the insured a chance to manage risk and invest at the same time, with the objective of exploring higher returns from an investment in a mutual fund. investment managed by experts.
The Unit Linked mechanism can meet the needs of wealth accumulation through investment in mutual funds to find additional returns at an acceptable level of risk. In addition, it provides protection of personal life under our supervision through compensation received in the event of death. It is also flexible and the insured can adjust the policy, for example by increasing or decreasing the insurance capital according to his needs.
However, this insurance policy does not provide guarantee for the value of the policy (no guaranteed return) because the value of the policy depends on the value of the investment unit which may be higher or lower due to the performance of the mutual fund.
This insurance is suitable for those who are familiar with an investment and need to build up assets while wanting to build up capital for a person responsible in the event of simultaneous death.
Importantly, each type of insurance has different advantages and disadvantages, and each individual has different status and financial needs, so the need for insurance varies. Thus, we should consider purchasing insurance that matches our needs, risks and ability to pay insurance premiums.
Nipaphan Poonsathiensap CFP®, ACC
Freelance financial planner, writer and speaker