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Let me do an insurance thread for absolutely no reason at all. Types of life insurance contracts that serve different purposes according to a person’s needs.
1. Whole Life Assurance: pays out a cash sum on death of the policyholder, to a beneficiary chosen by the policyholder.
1. Whole Life Assurance: pays out a cash sum on death of the policyholder, to a beneficiary chosen by the policyholder.
WLA usually pays out something if you stop paying premiums along the way, as opposed to just being “lapsed” and you losing all the premiums that you’ve already paid. You’d want to get this policy to make sure your children continue being financially taken care of after you die.
2. Term Assurance: like a WLA, this pays out a cash sum if you die. The difference here is that the policy is only for a certain term, say 20 years. So it pays out if you die in the next 20 years, and if you survive the term you do not get anything back.
You can have a level term assurance, where the death benefit stays level for the full term, or a decreasing TA, where the death benefit decreases with the term. An example of a decreasing term assurance is the insurance you get to protect your mortgage on your house.
Because as the years go by, you owe the bank less and less as you make your mortgage payments, that means you need less and less insurance to pay off your house in case you die or become permanently unable to work. For this reason, a decreasing TA is cheaper than a level TA.
3. Critical Illness Assurance: pays out a cash sum in the case that you get diagnosed with a critical illness. Your policy will specify what is considered critical a illness, and which the policy covers. An example is Cancer. It may also pay out in the case of certain operations.
Income Protection: pays out an income regularly, say yearly, when you become incapacitated (so unable to perform your work), for as long you are declared as incapacitated. It stops paying once you recover. There may be complexities in determining what incapacitated means.
So make sure you truly and fully understand the small print on your contract. The income usually stops at retirement age, or whatever term your contract was for, say after 30 years, even if you do not recover from your illness or disability.
Long Term Care Insurance: pays out an income, usually in old age, to cover health care and nursing needs. This is a type of policy that usually pays for the costs of nursing homes or home-based nursing care for people in retirement.
Retirement Annuity: pays out an income once you reach retirement age. It’s usually paid for by a single premium - so you give the insurance company a huge sum of money when you retire, and in return, they give you a regular income, say monthly or yearly.
For employed people, the single premium or “huge sum” that is referred to above, is basically what the retirement contributions that go off your payslip every month have accumulated to. Your company helps you save while working, and on retirement, you buy a Retirement Annuity.
There are many variations of this so this is just one example that I thought would be the easiest to explain.
Endowment Assurance: this is a mix of normal insurance as explained, and savings.
You select a term, say 20 years. It pays out if you die during the 20 years, and if you survive the term, it pays out at the end of the 20 years. So it’s both an insurance and a savings vehicle.
You select a term, say 20 years. It pays out if you die during the 20 years, and if you survive the term, it pays out at the end of the 20 years. So it’s both an insurance and a savings vehicle.
There is a variation of this type.
Pure Endowment: Pays out if you survive to the end of the 20 years, but does not pay out of you die before the end of the 20 years.
Pure Endowment: Pays out if you survive to the end of the 20 years, but does not pay out of you die before the end of the 20 years.
