Choosing the right insurance policy

JAKARTA (JP): Taking out a life insurance policy is another way to provide financial security to our spouse and family after our death but determining the best policy is not a mean task, given the extensive choices of products.

The life insurance products basically comprise three main types -- Whole Life Insurance, Term Life Insurance and Universal Life Insurance.

Whole Life Insurance, which is also known as the traditional or permanent life insurance policy, offers death benefits with the premiums fixed from the start of the coverage.

In addition to the death benefits, this type of life insurance also provides cash value, which is generated by investing a portion of the premium.

The investment returns vary from one policy to another and from one company to another as this is not an aggressive investment. But the cash value generated from it, is structured in such a way that the investment returns received by the policyholder will equal the death benefits.

If the insured cancels the policy, he or she will receive the cash value that has been accumulated until the point of withdrawal. The insured can also take a loan from the cash value or leave it to grow until the maturity date.

This kind of life insurance is generally used for long-term needs, such as supplementing our finances during retirement and providing a consistent income for the surviving spouse. Educational insurance schemes are often linked with this insurance product.

Unlike, Whole Life Insurance, Term Life Insurance provides protection only for a limited period of time (five to 30 years in most cases). The insurance scheme is commonly used in some accidental death policies, or to pay off debts or other financial obligations.

This type of life insurance also gives you a peace of mind as should you die, the insurance company will take responsibility for your debt obligations. It is also considered the most affordable in terms of premium costs versus death benefits. The policy is payable only upon the death of the insured within the terms stated in the contract.

Compared to the Whole and Term life Insurance policies, the Universal Life Insurance offers flexibility, such as allowing the insured to structure the premium payments according to his financial capability. The premium paid goes to the policy, with an investment attached, usually with short-term money instruments with a modest yield.

The premium is often lower than that of a Whole Life policy but there is more uncertainty about the accumulation of its cash value. The insured is, however, guaranteed a minimum yield over the duration of the policy.

Although the Universal Life policy is much more flexible, whole and term life policies are the most popular types of life insurance products.

Universal and other forms of policies are mostly variations of Whole life Insurance policies.

Hundreds of life insurance policies have been generated from each type of insurance products, which offer customers not only different levels of protection but also varying pricing structures.

With such an extensive choice, it will not only be time- consuming but also one that requires expert help to determine the type of life insurance policy that will suit our needs.

The best way to pick the best product is to seek the help of professionals.

But before you look for an advisor, it might be worth reading the tips below:

* Before committing to a life insurance policy, find out about the financial strength of the insurance company. If possible, find out about the management and shareholders of the insurance company too.

* Before you commit to the insurance contract, compare the policy of your choice with similar products from at least two other insurance companies. With the help of a professional, you will be able to determine which one is the most suitable for you.

* Keep in mind that you have to read, word by word, the contract before you sign it. It is important to ensure that the promises made by the insurance agent are prescribed in the contract.

* If you are still unsure about the company, contact the Indonesian Insurance Council or Dewan Asuransi Indonesia (DAI) Phone: (021) 381 3264 or contact the Ministry of Finance.

After signing an insurance contract, you have to commit to paying premiums for years, sometime more than 20 years.

So be careful. If you make the wrong choice, millions of rupiah you spent for the premium payments can go up in the air. (hen)