Has someone ever offered you an insurance product, life insurance? Probably you heard about health insurance more often than a life insurance.
But do you know that a life insurance can protect you, and your family from any financial losses?
In this article, Finansialku will discuss about what a life insurance is, the importance of having a life insurance, and how to avoid making mistake when choosing a life insurance product.
Life Insurance
According to AAJI (Association of Indonesia Life Insurance), life insurance is a protection program in a form of shifting economic risk of the death, or the life of a dependant.
Life insurance is a basic insurance one can have. It is basic because the goal is to minimize the financial risks that may come, and can’t be avoided.
Have you ever had any financial loss before? What did you do to cover the loss? With a life insurance you can have a financial coverage based on your need.
Why A Life Insurance?
A life insurance is a risk anticipation of financial loss because, the loss of income or a family member who have a dependant (parents for example).
Imagine if you had an accident or as a husband or a single parents you experience a loss of job, sudden loss of a family member who support you financially, the effect would be negative to those who depend on you or the reverse.
You may no longer support your wife, or children financially because of the risks. Especially when you no longer work to earn money.
A life insurance can protect you, and your family from these risks. Having a life insurance is in fact necessary for your children, or other family members whom you support.
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However still many doesn’t consider a life insurance important or necessary. Some know more of a health or unit link insurance than a life insurance.
Unfortunately in Indonesia, many people still don’t realize how important it is to have a life insurance. Despite of its population being the 4th largest in the world, only small part of its population who buy an insurance.
In finance, an insurance is the second foundation after emergency fund. It is a part of a financial security.
Having a life insurance means your finance are covered when financial losses happen. It is different from an investment where there is no coverage for your loss.
For Whom Is A Life Insurance?
People who basically want to give a security, and a guarantee financially for their family, need a life insurance.
The insurance is particularly for those who have a dependant, and those who work to support their family financially.
So if you work to raise your children, or support other family members, buying a life insurance is the right thing to do to protect them when you have any financial risks.
How Does A Life Insurance Work?
In a conventional life insurance, a client pays a premium for the protection that he buys from an insurance company. If a risk happens to the client, the life insurance company will give a number of insurance benefits.
It means that if in the period of coverage, people who buy the insurance (the insured) experience a risk, then the insurance company will pay the insurance money according to the coverage period.
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Life Insurance Premium
One of the most important thing to know in insurance product is a premium. The premium for each life insurance companies are different. Generally, it is determined by type of product, the amount of money coverage, age, gender, and risk or the lifestyle of the individual.
What Influence The Price Of Premium?
When buy a life insurance, your age, medical record, habits, and your lifestyle will influence the amount of premium.
How To Buy A Life Insurance
Today there are many life insurance companies provide their insurance products.
To buy a life insurance, you can enlist online, and the company insurance will contact you. Or you can contact directly the company insurance that you trust.
When To Buy A Life Insurance
You can buy a life insurance at any age. However, the older you are, the higher the premium that a life insurance company will charge on you. This is because the older you are, the higher the risk that the insurance company will cover.
A Life Insurance Policy
In general, an insurance policy include coverage sheet, general policy requirements, special provisions, copy of life insurance request letter.
Types Of Life Insurance
Now let’s see some types of a life insurance in the following.
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A Term Life Insurance
This is a life insurance that gives protection to the insured in certain period of time with affordable premium.
Whole Life Insurance
A life insurance that provides protection for your whole life, though some insurance company limit the coverage time until 100 years only.
Endowment Insurance
A life insurance that have two benefits, namely as a term life insurance as well as a saving.
Unit Link Life Insurance
A life insurance that combines the benefit of insurance with an investment.
Rider
Rider is an additional benefits that can be included in a basic insurance program. This benefit is designed to give additional financial protection with a cheaper price.
Should I Buy A Life Insurance If I Already Have A Long-Term Investment?
Investment is only an instrument to give you a chance to grow your money. When you pass away, there is no coverage because there is no protection element in the investment.
While a life insurance has a protection that gives you a full coverage whenever death occurs even when the contract just begins.
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How To Choose The Best And Credible Life Insurance
To know that a life insurance is the best product, and credible too there are 3 things that helps you choose.
#1 The Amount Of The Coverage
Basically, we buy an insurance product because there are benefits that we need, and that is a protection for our family. If someone who financially support his family members can’t work anymore or pass away, the family protected financially.
Have a financial coverage for family members will take a lot of money. Therefore, the main thing you should consider is the coverage before buying a life insurance. The greater the coverage the better is a life insurance.
You can choose the coverage according to the need of your family. Also focus on the protection purpose of the coverage that an insurance company provides.
#2 Affordable Insurance Premium
Some found that an insurance premium is expensive that they don’t want to buy. But don’t worry, because you still can find a monthly premium with affordable price. You only need to choose the right insurance product.
A term life insurance is a life insurance product with affordable premium. Sometimes it is called a traditional life insurance. The minimum premium is Rp 500.000 per month.
The price is cheap because the premium are used to pay insurance, and not for investment.
#3 A Package For A Family Health Insurance
Innovation in insurance product offered by an insurance company today is to provide a product of a life insurance in a package. The purpose is to give premium fee that is affordable but with more comprehensive benefits.
For example the insurance product that includes a family health insurance. The benefit you can have is not only protection coverage, but also a coverage when a family member is hospitalized.
Though not all insurance company offer this package, some provide this product that includes a life insurance, and a family health insurance package.
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7 Mistakes When Buying A Life Insurance
After knowing 3 things to consider when choosing a life insurance, here are 7 mistakes people often do when buying a life insurance.
Read this part so you can avoid them, and make a better decision.
#1 Buy Because Of Investment Promotion
People do this mistake because of the investment promotion. This actually isn’t a wrong choice if you need an investment.
For a life insurance with an investment, the benefit is when you don’t pay the premium anymore, you still get the protection until the age that have been agreed on before.
The point to consider if you focus on its investment is to know the risk of investment. Be careful if a product offers you a fix result of an investment. Since an investment always has a risk of loss.
So, be sure you know your purpose of investment, the risk profile, and the investment target the product offers.
#2 Don’t Know The Coverage Price
People often make this mistake. Do you know the amount of coverage of a life insurance you buy? Or probably you don’t know at all about what coverage is?
Check carefully first the amount of money for coverage in the insurance policy.
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Most of us sometime just choose insurance with a very low price without knowing the amount of money for coverage. Because of this, usually the money we get doesn’t meet our needs.
Some buy insurance with premium price that’s too expensive. As the result, the coverage they receive is too much.
So how do we know that the coverage of an insurance meet our need? It is very easy.
You can use ‘Konsultasi Keuangan’ feature in Finansialku application that can be downloaded in Google Play Store, and Apple Apps Store! In this feature you can consult directly with one of our financial planner team.
#3 Don’t Know The Coverage Period
When buying an insurance, we sometimes don’t know until what age the insurance gives the coverage. Not only the coverage period, but also to know whether you can make a claim when the insurance period is over, is important.
Unfortunately, these things are rarely asked by those who buy an insurance.
#4 Don’t Read The Whole Insurance Policy
When reading an insurance policy, many people skip most part of it. They find too many terms that they don’t understand. So they don’t read the whole part.
In fact, there are many important things explained in the insurance policy book. So you need to read it to understand clearly the product, its benefit, and your duty as an insured.
Don’t feel shy or doubt to ask the agent of the things related to the insurance product such as how to claim, claim process, what can be claimed, and other things that need detail explanation.
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#5 Misunderstanding Of The Premium Payment Period With The Coverage Period
Many people confuse the premium payment period with the coverage period. They think if they pay for certain years, they will have a coverage period until 99 years.
Make sure you check with the insurance policy how long you have to pay the premium to have the coverage until 99 years. Ask also whether the insurance product have the coverage until 99 years.
#6 Stop Paying The Premium Before The Insurance Period Is Over
Because people don’t obtain the benefits directly, often than not, they only pay half the way. When you should pay for 10 years but only pay until 5 years, this can cause a policy lapse.
A policy lapse is a condition where you insurance policy isn’t active anymore, or is cancelled. It is because you just pay until 5 years.
When a customer stop paying premium before the insurance period is over, his insurance policy becomes inactive.
#7 Thinking That All Insurance Can Cover For Health
Many people also confuse a life insurance with a health insurance. They think that both are the same. The fact is they are different.
To avoid buy a wrong product, check the product again in the insurance policy, and what things you can claim in the insurance. Ask also for detail explanation from the agent.
Conclusion
A life insurance is an insurance that aims to give a financial protection from any financial loss or risks to its customer. When buying a life insurance be sure you clearly understand the coverage, premium, and additional product included in the insurance. It is important also to avoid mistake people often make when buying an insurance.
Now you’ve known about a life insurance, its importance, and how to buy it. But if you still confused on choosing the right life insurance, learn from the tips of the video, and podcast on life insurance from Finansialku or directly consult your insurance need with one of our financial planners.
Hopefully you can buy the right life insurance after reading this article. Don’t forget to share it also with those who look forward to buy a life insurance in the near future.
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