Misconception of Insurance
Many people, especially the older generation, subconsciously co-relate ‘Insurance’ to ‘Savings’. One reason for such misconception may be due to the way the tied agents solicit their business; agents sell whole life plan as a savings plan. This is not an argument that whole life plan cannot be used as a savings program but more of how this action embed the misconception of ‘Insurance’ with ‘Savings’. Another contributing factor could be the poor marketing and unavailability of pure insurance plan in the earlier days.
No doubt traditional product are more sales-oriented, it is giving way to new business models which focus on the customer, and aimed at providing total risk solutions and financial planning services.
Competition drives the insurers to innovate and create more solutions to enhance their existing suite of products. And one of it is Term plan.
Protection Solution – Term Plan
Term insurance is a very simple financial protection instrument. Consumer decides on the benefit amount they wished to be insured and the duration of protection. In return, consumer will pay a premium to the insurer who honour that agreement.
Besides life protection, consumer may choose to include critical illness, disability and personal accident benefit into the plan. Consumer will receive the payout if any of the events happened during the period of cover. The coverage is guaranteed as long as the policy is in-force, i.e. insurer receives the premium within the grace period.
The nature of Term insurance is only for pure protection purposes, thus it does not accumulate any cash value. Nevertheless, some insurer offers to return all premiums paid at the end of the cover at a higher premium.
At the end of the term, some companies offer the renewable option, which allows the policy owner to continue the coverage but at a higher premium. This new premium will be based on the age of renewal.
Term Insurance is a cost effective tool to hike your coverage as you only pay for the coverage you need. Example, if a 30 year old male requires a $500,000 coverage for 25 years, his premium will be calculated based on the average insurance rate from age 30 to age 55 instead of till age 99, which is how the whole life plan works.
Evolution of Term Insurance
The area of protection that a Term plan can covers is widening. Not only includes critical illness and disability, it is now extended to protect against the early stages of a critical illness and also multiple claims on the major critical illnesses. With some marketing packaging of early stages critical illness plan, you can also find female related critical illness plan in the market. All this can be a standalone term plan, or as a rider to another term and whole life plans.
Another interesting feature of a term plan is the mortgage insurance. This type of term plan decreases in the benefit amount, which is based on the mortgage interest, over the period of mortgage loan. At the last few years, the benefit amount is so low that many insurers actually waive off the premiums.
Who Is Suitable
Term insurance is suitable for individuals who wants to have some temporary high protection cover with the minimum premium.
i.e. In the event of pre-matured death, the breadwinner leaves a lump sum to pay off the mortgage and also provide a monthly allowance for the family so the partner can stay home and look after their children.