April 4, 2014

What Insurance Are You Paying For? – Basic Policies

By Aldric

Life insurance comes with two different types of policies:

  • Basic Policy
  • Rider Policy

Basic Policies

When you sign up for a plan, your life insurance must include a basic policy. Otherwise there is no insurance to begin with. You can’t buy a car without its body and straight away drive it on the road now, can you?

Basic policy cover three different areas. These areas, or events, may be packaged together or separately. They are:

  • Life Plan
  • Total Permanent Disability
  • 36 Critical Illnesses

Life Policy

Life policy, or term life, are policies you take out to protect yourself and your loved ones against premature death. Maturity would refer to the term of the policy that you took out. It ranges from 70 years old and may go as high as 80, 90 or even 100 years old. The cap depends largely on which company you choose.

There are policies which by-passes such maturity. That means that as long as you are covered by the policy – usually up to the age of 80 years old – your death will be covered.

In addition to that, there are two distinct money which will be paid. First is the sum assured. This depends on how much your policy has stated. The lower the policy, the lower the sum assured.

Life policies, especially with Prudential, comes with a debtors protection. As long as you have clearly stated a nominee in the policy, Prudential will pay out to the beneficiary according to the rate you determined. Without the nomination, your insurance will fall into intestate administration – thus defeating the purpose of having a nomination. To a degree, it also defeats the purpose of taking out a term life.

But what does debtors protection do? When Prudential distributes the sum assured, your heirs will receive it first before your debtors. They will decide how to allocate the money – maybe to first pay for your funeral and related ceremonies. From the balance, they will use it to pay off your commitments.

Some life policies come with a “savings” or “investment” plan. This are the money taken from the premium you paid. From the premium, Prudential divides it between insurance cost and a savings/investment plan. Over the years, the money grows through distribution (dividends) and capital appreciation. When the policy holder passes away, this money will be given to the designated beneficiaries.

Total Permanent Disability (TPD) Policy

Most adults with family commitments should take out a total permanent disability policy. Why? This basic policy creates a cash pool for the policy holder in the event that he becomes permanently and totally disabled.

TPD affects a person’s livelihood. The policyholder can no longer go out and work to earn an income for his or her household. More so when they have a family or made a major buying decision. Major buying decision includes getting a house, a car or other loans.

Money from TPD is meant to give the policyholder and his family a buffer before financial crisis sets in.

36 Critical Illness Coverage Policy

Just by living, we are exposed to all sorts of health complications – be it acute or chronic.

Acute illnesses and diseases happen within a short time frame. Flu, heart attacks and strokes are acute in nature. It strikes there and then. Fast and without warning.

Chronic illnesses and diseases are the silent killers. These are the cancers you find haunting the Malaysian population. You also have Parkinson’s disease in there. Chronic illnesses and diseases take time to develop. Lung cancer caused by exposure to silica dust, for instance, does not happen overnight. Continuous and prolonged exposure increases the likelihood of its development. After five to ten years – and even twenty years later – patients found out they have the cancer!

Coma, too, is listed in the 36 critical illnesses.

What this policy does for you is you will received a sum from your insurance company to cover the medical costs.

With that, you know know the three types of basic policies. Remember that an insurance policy must come with a basic policy first. Only then can the rider policies be bought. We will discover more about the rider policies in my next blog post.