Happy birthday, life insurance!
2nd May marks the anniversary of the date Life Insurance was launched in the US, way back in the 18th century, when the snappily-named Corporation for Relief of Poor and Distressed Widows and Children of Presbyterian Ministers was set up in 1759. Along with National Insurance Awareness Day on the 28th of June, National Life Insurance Day celebrates the importance and benefits of insurance. Family financial security can only be ensured by purchasing the right insurance plan.
Since that date, millions of families have experienced first-hand just what a godsend Life Insurance can be when tragedy strikes.
National Life Insurance Day is a great opportunity to highlight all the benefits that life insurance brings and why we at Infinity believe it is a non-negotiable part of a sound financial plan. Life insurance offers security and stability, regardless of the path life takes. Life insurance, home insurance, car insurance, family takaful and many more have saved countless families from financial disaster. Most people don’t realise how much they need the protection of permanent life insurance until tragedy strikes.
How Life Insurance works
A life insurance policyholder pays regular premiums to an insurance company, and in return, the company agrees to pay a death benefit to a named beneficiary if the policyholder dies. There are two main types of Life Insurance:
- Term Life Insurance – provides insurance coverage for a set period of time with nothing payable if the policyholder outlives the policy contract.
- Whole Life Insurance/Permanent Life Insurance – which covers the whole life of the policyholder and often builds a cash value over time as premiums are paid regularly.
Six Reasons Why Insurance Coverage is Essential
1. It can give families much-needed time to grieve
The sudden loss of a family member is always a tough time but certainly easier to bear if the financials are taken care of. Life Insurance payments can be released fast, without waiting for probate, and used to cover short-term expenditures, including funeral costs. That’s one less thing for grieving families to worry about.
2. It provides stop-gap finance during a time of loss
Losing a family breadwinner can have an immediate and devastating impact on finances if no insurance plan provision has been made. Some families might be lucky enough to have savings to dip into for general living and final expenses like funeral expenses (undesirable as that might be), but others might struggle to meet payments such as the monthly mortgage repayments in the aftermath of the death. Life insurance ensures that the regular bills can keep on being met until a new equilibrium is found.
3. It can be used to pay off debts and loans
Term Life Insurance is often taken out against loans such as a mortgage so that the debt is paid off if the borrower dies. The fact that this insurance is for a defined time period and provides only a death benefit means that it is more affordable with lower premiums than whole life insurance.
4. It can help families stay in their homes
The death of a parent is hugely upsetting for children, but Life Insurance does at least ensure that no lifestyle compromises need to be made: no need to move house, change schools or alter the working hours of the now-single parent. Providing this level of security through such a challenging time can help families as they come to terms with their new reality. Moreover, life insurance can greatly benefit a family who is likely to owe significant estate taxes in the future.
5. It can fund a child’s education
As mentioned above, whole life insurance frequently includes a cash element which means that for each premium payment, a percentage is saved. Over the term of the policy, the death benefit decreases while the cash value increases. Certain policies allow you to access these savings via a cash withdrawal or policy loan, and this can be used for any purpose, including funding the high costs of university education for a child. This method of saving towards a college fund won’t suit all households, so it is best to take professional advice from a financial adviser as part of a holistic financial plan.
6. It can ensure a family business stays afloat
Life insurance is a particularly important element of estate planning for those who run a family business. Funds might be needed to provide a lump sum for other shareholders to buy out shares owned by the deceased or to compensate for the loss of a key executive. The requirements of a life insurance policy to cover businesses need careful consideration, so, again, professional advice is essential to navigating the premiums and term policy that will benefit your business optimally.
The Types of Insurance Everyone Needs
Life Insurance Policies/Family Takaful
Life Insurance policies/family takaful will protect the children or other family members of the deceased or insured person financially in times of unexpected events and future risks. A family takaful is based on the principles of mutual cooperation and usually has a low entry age, ensuring a long-term safeguard for your family. The insurer will determine whether there is an insurable interest and if the proposed qualifies for coverage in the interest of the surviving spouse and loved ones.
Hospital bills are often the cause of a family’s downfall. Health insurance will prepare a family for substantial medical expenses. A family plan is advisable to provide the entire family with financial protection in the case of an illness, accident, and many other detrimental factors. The benefits, annual limit, and amount payable of the family plan will depend on the plan selected, but for serious and chronic illnesses like high blood pressure and diabetes, health insurance is a necessity.
Disability coverage prepares you for an unexpected and devastating event such as accidents where you may be unable to work and receive income for months or even ever again. Regardless of your age, it is good to begin thinking about disability coverage as soon as you reach entry age. This is especially crucial if you work in a high-risk environment. The liability assumed by your employer for accidents that occur during the course of your employment is preferred.
With the high prevalence of road accidents, car insurance is certainly worth it. Not only can you claim your coverage payout in the case of an accident, but the coverage also offers protection in the case of vandalism, theft, and natural disasters. An auto insurance company takes care of its customers by covering the vehicle and expenses and protecting against litigation that may result.
The best life insurance for expats in Asia
Whatever your situation, if you have debts or dependents, it is difficult to see how having life insurance won’t benefit your loved ones if your life is ended prematurely. And let’s face it, youthful and healthy as you may be, none of us can be sure that won’t happen to us. Preparing for the worst is wise and thoughtful and a way to show your family just how much you love them. It also gives you the peace of mind that you have done everything you can to secure your family’s financial future, whatever life has in store.
Policy Changes and Life Insurance Riders
Many life insurance companies offer their policyholders the opportunity to tailor their insurance policy to their needs. Life insurance riders are the best way to customise a term life insurance policy. Adding riders typically requires the policyholder to pay an additional fee for every rider. Some examples of life insurance riders include the accidental death benefit rider, which provides life insurance coverage on accidental death, the disability income rider, which provides an income in the event that a policy owner is unable to work, and a guaranteed insurability rider, which allows a policyholder can purchase additional insurance at any later date without having to undergo a medical review.
Retirement Funding: Policies that have an investment component or a cash value component can serve as a retirement income source. Although, this option may involve higher fees and a lessened death benefit. Therefore, it is a suitable option for those who have already maxed out all alternative tax-efficient options, such as an investment and savings account.
Money Borrowing: Most permanent life insurance policies accumulate a cash value that the policyholder can utilise to borrow money. You will essentially be boring money for the insurance company itself, with the cash value serving as collateral. Contrary to most other loans, credit score will not play a role. The interest on the loan is sent back to the cash value of the policyholder’s account, and the terms of repayment are flexible. The downside is that the loan can reduce the death benefit of the policy.
Expats in Asia can obtain life insurance quotes from our professional financial advisers. We work with all the best life insurance providers and can help you find the right cover at the right price.
Why not contact us and find out just how reasonable peace of mind can be!
A leading provider of expat financial services and wealth management services across Asia.