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Buying Guide

Life Insurance Buyer’s Guide

MetLife put together this guide to increase awareness as well as highlight and explain certain details about life insurance. This guide will assist you in buying the right life insurance policy.

Life insurance is a contract between the insurance company and the policyholder whereby an insured amount is paid out to the beneficiary upon death of the insured. The policyholder pays a regular amount, called premium, in order to receive the coverage. Physical disability and critical illnesses can also be covered under a life insurance policy.

A life insurance can help your family maintain their standard of living in case an unfortunate event happens to you, especially if your family depends solely on your income. Certain life insurance policies even offer a payout upon maturity or when surrendering. 

In general, they are divided into three broad categories:

1.      Term Life Insurance

2.      Permanent Life Insurance

3.      Endowment Life Insurance

Term life insurance: A term life insurance offers coverage for a chosen period. This type of life insurance only offers the insured payout to the beneficiary upon the death of the insured within the chosen period. The policy will lapse if the policyholder stops paying premiums. Term life insurance is comparatively more affordable, as it doesn’t offer any maturity payout.

A term life insurance is an ideal choice for those who need to protect their family from financial risks over a specific period of time, such as during loan repayment.

Permanent life insurance: This type of insurance offers coverage for the whole life of the insured. The policyholder has to pay premium either for a specific time period or throughout their lifetime. This insurance will provide payout to the beneficiary of the policyholder in case of insured’s death. This life insurance also offers a surrender value, if the policyholder chooses to lapse the policy before its maturity.

Some permanent life insurance policies also offer a regular pension payout after contributing for a certain period. Such pension payouts can be received monthly, quarterly, semi-annually or annually.

Endowment life insurance:  This insurance is a mix of term life and permanent life insurance. It provides coverage over a specific period, while offering surrender and maturity benefits. You will receive a lump sum payout at the end of a chosen period. Some policyholders have used this kind of policy to save a specific sum for their children’s higher education.

Investment-linked life insurance: This type of insurance offers both an investment opportunity and risk coverage. Policyholders with a higher risk appetite may find this investment-linked insurance policy ideal for maximising their returns.

Riders: These supplementary insurance policies can only be purchased with a basic life insurance policy. They offer a wide variety of risk coverage, such as accidental death, medical treatments, hospital expenses, funeral and burial expenses. Riders can be purchased throughout the policy’s term.  

Generally, life insurance premiums will be cheaper when purchased at a younger age, as your health risk is lower. Your health condition during the application process is a crucial aspect in determining the premium amount. The insurance company may reject your application depending on your health conditions.

Before buying a policy, you need to determine your insurance needs. Some of these needs are:

1.      Safeguarding the financial stability of your family in case of your death

2.      Saving for your children’s higher education

3.      Planning for a comfortable retirement

4.      Covering the financial risks of a long-term hospital stay due to sickness

5.      Covering for loss of income due to physical disability

When buying a life insurance policy you need to consider your needs and financial capabilities. A policy with a premium that is beyond your means may put you in financial difficulty in the future.

It is prudent to assess your financial capabilities and insurance needs regularly, as interest rates, future trends, and the inflation rate may affect the maturity value of your policy. Changes in your family and your lifestyle can also affect your financial needs that you had previously planned. Consult an insurance agent for a better and informed assessment of your needs and decisions.

Choose an insurance company that is financially stable. Assess the company’s financials through their annual reports and credit ratings. Most importantly, you should choose the insurance company that offers the products that matches your needs.

Carefully read all the questions in the insurance application form, as inaccurate information can create unwarranted issues in the claims process. Always ask for clarification if unsure. If in doubt, contact the agent or the company immediately.

Make sure that regular premium payments are made through the channels approved by your insurance company. Keep the company updated, in written notification, in case you change your contact details, a designated beneficiary or your marital status. Check-in with the company or the agent about the status of your policy regularly.

“I’ve heard about unpaid claims.”

Reasons for the non-payment of claims include:

1. Death due to undeclared medical conditions that predates the policy issue date (pre-existing condition)

To avoid refusal of insurance claims, answer the questions in the application form properly and accurately. Pre-existing medical conditions, such as heart disease or diabetes, need to be declared.

2. Lapse of policy due to non-payment of regular premium

It’s important to ensure that your premiums are paid regularly. In case you are unable to pay a due premium, your insurance company or agent may help with alternatives to prevent your policy from lapsing.

3. Exclusion clause in the policy

There are certain cases and scenarios in which insurance claims can be refused, such as suicide. Insurance policies that indemnify medical expenses and provide other financial securities may contain more exclusion. Carefully read the exclusion clause before signing the policy.

“Heard that premiums are not returned in case of surrendering a policy.”

For policies with a surrender value, such as permanent and endowment life insurances, the policy must be active for at least two years. Consult your agent for more details.

“Heard that there is less profit in insurance than bank.”

The main benefit of buying insurance is to protect your family from financial risks in unforeseen events. Although there are maturity benefits for permanent and endowment life insurances, they are not comparable with the financial services of a bank. Insurance is not right for you, if your goal is to only grow your savings.

However, life insurance can offer other benefits, such as tax savings and loan withdrawals from your surrender value, if included in your policy.

Disclaimer: This guide’s purpose is to provide general assistance and information for buying life insurance policies. Consult the insurance company or your agent for more detailed information regarding the policy’s specifics.