Tuesday, April 24, 2007
Why Do I Need Insurance?
Health Insurance = Life Insurance ?
One of the most common misconceptions people have is to think that life insurance will cover hospital bills. Yes it is possible to use some of the money one receives from a life insurance claim to pay for your hospital bills but what happens if one should admit into the hospital and does not qualify for a life insurance claim?
This is a recent case I dealt with. Mr Q had always thought he had himself covered for hospital bills as he had clearly instructed his agent to prepare a policy to cover this aspect besides his normal life insurance. Mr Q deserves praise for taking active steps to ensure he is protected against hospitalisation risk.
However, it turns out Mr Q only had two life insurance policies in the end. One of the policies had a small sum of medical reimbursement of $5,000. In today's day and age, $5,000 can hardly be considered sufficient for a surgery.
This meant that unless Mr Q should pass on or be struck with total and permanent disability or one of the 30 critical illnesses, Mr Q would NOT be able to claim hospital expenses. The only exception was if he met with an accident which would pay $5,000 from the medical reimbursement aspect.
There are many types of insurance meant for different purposes. Health insurance is meant specifically to provide for medical bills while life insurance is meant to provide for sudden loss of income, legacy and other monetary requirements in event of unfortunate circumstances.
It is greatly advisable for one to ensure that one has not only sufficient, but also the RIGHT insurance to avoid any rude shocks when one should need protection the most.
Thursday, March 15, 2007
What are Riders?
Riders, also known as supplementary benefits, are special policy provisions that provide benefits not found in the main policy provision or make adjustments to it. These provisions are then attached to or "ride" a basic policy, thus giving its name.
Most riders have to be specifically requested to be included subject to the insurer's approval and cannot exist without a base policy. This means one cannot by riders without a main policy first. When a rider is added into the policy automatically or by request, it will be reflected into the policy schedule with an endorsement that outlines the details of the rider. The tenure of a rider cannot exceed that of the main policy as well.
Common riders one would find include:
- Waiver of Premium Rider
- Total and Permanent Disability Rider
- Criticall Illness Rider
- Accidental Death Rider
- Payor Benefit Rider
...and many more. It would be advisable to discuss which riders are suitable with your personal advisor.
For example, Mr X purchases a Whole Life policy which covers against Death and Total Permanent Disability. He requests to add on a Critical Illness Rider which allows him to claim in the event of a critical illness. Without the rider, he would not be able to exercise the claim. He would pay the premium for the main policy + the premium for the rider for this entire policy.
Thursday, February 22, 2007
What is Endowment Insurance?
Unlike a Whole Life policy, an endowment policy has a fixed maturity date where the policy will end. Endowment policies typically run for 10, 15, 20, 25 years or up to a certain age limit.
As it is a form of participating insurance, the policy does accumulate value. Thus, if no claim is exercised during the term of the policy, a lump sum known as the maturity value which includes the sum assured and bonuses will be paid out at the maturity date.
Features of Endowment Insurance:
- Specified duration of cover at the beginning/inception of the policy. The policy is said to mature at the end of the term.
- Cover would cease at the end of the term. If no claim is exercised during the duration of the policy, maturity value will be paid out.
- Typically acuumulates value at a faster rate or greater amount than other policies.
- Premiums are typically higher than Whole Life or Term policies.
- Policy may lapse if premiums are not paid in time and the policy has yet to accumulate bonus values, particularly in the first few years of the policy.
- Policy may have policy loan and non-forfeiture options.
Thursday, February 15, 2007
Terminology - Non-Forfeiture Options
These options are only granted with policies that accumulate cash value such as Whole Life Insurance and Endowment Insurance.
These are options which exist to prevent the lapsing or forfeiture of policies due to non-payment of premiums. Common non-forfeiture options include:
- Cash Value Option - Policy owner can receive the cash value accumulated under his/her policy if he/she chooses to surrender the policy (often subjected to a certain waiting period.)
- Reduced Paid Up Insurance - Policy owner can use cash values accumulated to purchase a single premium paid-up policy with a reduced sum assured at the rate attached to the age when this option is exercised. The paid up policy will also usually be non-participating in nature.
- Extended Term Insurance - Policy owner can use the cash value accumulated to purchase an extended term policy for a sum assured equal to that of the original policy. The length of the term is however, dependent on the cash value available as well as the owner's age as it will be based on the owner's current age. Thus, a policy with high cash value may end up with an extended coverage that would be in force for a longer period of time. This is useful for people who may be experiencing financial difficulties and have problems paying the premiums. Note that this option may not always be available to all policies.
Terminology - Policy Loan
This option may be available on policies that acquire cash value. This allows owners to use the policy as a collateral for a policy loan.
It is actually an advancement of the cash value under the policy owner's policy. Thus, it will reduce the amount payable in event of a claim or if the policy owner chooses to surrender the policy. As interest is payable on the loan, the amount payable will be reduced by the amount of the policy loan plus accrued interest.
An important note about policy loans is that if the policy owner fails to pay the interest due on policy anniversary, the outstanding interest will be added to the principal and later charged at the same rate as that of the principal. If this outstanding amount exceeds the cash value of the policy, the policy will be terminated and all premiums paid will not be refunded.
It is advisable to check for exact terms and conditions with your insurer before embarking on a policy loan.
What is Term Insurance?
- Covers life of the insured for a specified period of time.
- May include coverage for total and permanent disability and critical illnesses depending on the policy.
- Non- participating and thus has no cash or surrender value.
- Affordable premium amounts. Lowest premiums compared to other forms of life insurance.
- No non-forfeiture or policy loan options.