Life Insurance

A life insurance plan covers you for accidental death or bodily injuries, and death from natural causes. Typically, the death or injuries have to be caused directly by the accident or disease, and not resulted from existing conditions or third parties. It provides a lump sum compensation for death and disability, as well as income replacement and critical illnesses benefits.

Many will assume that suicide is not covered under life insurance but that is not true. It does, after a deferred period, of usually one to two years, that is stated within the suicide clause. Take note that, if a new life insurance policy replaces the existing one, the clock will be reset. It is during this period in the suicide clause where disputes over claims can arise and result in lawsuits.

All in all, there is not much exclusion in a life insurance policy – though, that still depends on your insurer. There are, however, three kinds of exclusions you can usually find – alcohol and drug use, war and terrorism involvement, and illegal activities.

To decide the right life insurance policy for you, ask yourself the following:

• Do you want a pure protection policy or one that builds your income as well?

There are two durations to choose from – term life and whole life. A term life insurance plan protects you for a specified period – anywhere from five to 40 years, depending on the policy.

While a whole life plan’s premium is higher, it has an income building portion attached to it. Part of your premiums will go into helping you save through endowment or grow your wealth through investment. The assured sum will be given to the insured upon maturity for retirement planning or given to the insured’s beneficiaries in the event of death.

• Do you have someone else that you would like to protect as well?

Other than the traditional single life policy, some insurers offer a joint life policy that covers two people as well. As the coverage will be the same, the two parties should ideally be from the same age band and have similar insurance needs. If one party has pre-existing conditions or poor medical history, it may increase the monthly premiums. Therefore, this is usually opted by someone for their spouse or family member.

The key benefit of a joint life policy is that it is cheaper than purchasing two separate single life policies. The insured is typically able to decide at the point of signing whether they will like to end the policy and receive the assured sum when one party passes away, or only when both have done so. The decision relies heavily on who the targeted beneficiaries are.

• What is most suitable for your financial situation?

If you have high debts, you will need something that is enough to cover it for you or your dependants. If you are the sole breadwinner of your family and you have many dependents, you will need more as well.

However, at the same time, you need to consider your current financial commitments and burden. If you sign a policy that is more than you can take, it will be terminated when you are unable to pay the premiums. This will forfeit what you have paid till then and cause huge losses. Do not forget to take into account premium increases over time.

• What is the renewal and cancellation policy?

Think long term and prepare for your exit plan. A life insurance covers a long period – you never know what will happen. Check if you are able to renew your term life policy, if you wish to. Also, if you have to cancel your life insurance policy, how much of your premiums can be refunded.

• What is the portability?

There are two things you have to ask: First, does it provide international coverage when you move overseas or visit home? Second, if it is a life insurance offered by your company, what happens after the termination of your employment? In that case, you will usually be given the option to convert the group life policy to a personal term or whole life policy.