Life insurance policies tend to fall into two major categories:
Term Life Insurance
The main purpose of this insurance is to protect or substitute the income of the main breadwinner.
In this type of life insurance policy the insurance company pays a specific agreed lump sum of money (the benefit) to a designated beneficiary in case of the death of the insured person during the selected period of insurance (the term). The cause of death can be both natural and accidental (death from any cause). Some exclusions apply such as death due to AIDS and suicide (suicide is excluded mostly during the first 2 years of insurance only).
You can chose from the following options:
Renewable level term:
A 1-year term or 5-year terms are possible and the premium does not change during the agreed term. At the end of each term you can renew the contract for the same length of term, without any medical requirements (due to the guaranteed renewability from day one). The premium for the next term will of course increase, as you will have aged.
Non-renewable level term:
It is possible to take terms longer than 5 years in order to secure the same premium rate during the term. At the end of the term however you will have to meet some medical requirements in order to qualify for new insurance. In general, we advise this option for 15 years term and above.
The insured amount will decrease yearly with the same amount and become nil at the end of the term. This option is the most suitable in case of mortgage loans and car loans.
Saving Plan / Investment Plan
The main purpose of this type of life insurance plan is to save/invest money for the long term (at least 15 years). The accumulated cash values can be used later, for example for (additional) retirement income or to finance the education of your children.
The paid premium will cover the following costs:
- Expenses of the insurance company (policy cost, administration cost, commission broker)
- Cost of insurance (protection insurance such as death and disability insurance)
- The rest will be saved in a saving account with guaranteed fixed interest rate (saving plan) or invested in one or a combination of mutual funds (investment plans). The return on investment will depend on the type of the mutual fund (bonds, stocks or mix of both).
The following covers (riders) can be added to the both types of Life Insurance (on top of the basic cover, death from any cause):
- Passive War Risk
- Waiver of Premium in case of Total and Permanent Disability (TPD)
- Personal accident (death and disability/dismemberment due to accident)
- Total and Permanent Disability due to Accident and Sickness
- Critical Illness
- Terminal Illness