My Own personal View
There are basically 5 main type of insurance out there
1.) Term Insurance
2.) Endowment
3.) Life Insurance
4.) Investment Linked Policy
5.) Annuity
Term
Insurance
Good for high Coverage with low premium. However, there is zero
residual Value. another downside is that the premium payable yearly
increases as you ages.
Recommended for Young Individual with little spare cash to insure
themselves
Endowment
A forced Saving plan with minimum coverage. Extremely high premium
payable. Many Insurers claims that the return is very high, but
after i did some simple interest calculation, it work out to be
roughly 2.5%, only slightly better that fixed deposit. another
downside is very long term, 20 to 25 years.
Recommended for individual who have difficulty saving on their own
and also need some minimum coverage.
Life
Insurance
A must for all poor folks out there, it is basically a high
coverage with medium rate of premium. It is also a long term
investment and the good thing is that unlike endowment which mature
on a specfied date, this insurance stay with you for life until you
choose to surrender it. A good method is to keep it until you are
around retirement age, then surrender it and get the surrender
value to reinvest in Bonds which will be able to give you some
monthly cashflow. Since when you retire, rightfully, you should
have build up a nest of money to fend off any potential mishaps
which might happen to you.
Recommended for everyone.
Investment Linked
Policy
This get a bit tricky here. Basically it is able to give you very
high coverage with reasonable premium, however you must be aware of
the underlying mortality charges associated with it. Meaning,
example when you are young and you monthly premium is $100, 80% of
it goes into investment for you while the remaining 20% goes into
the mortaility charges. So when you get older this percentage will
shift more toward mortaility charge which it mean will generate
lesser return for you. A rule of thumb is that you should hold you
Investment Linked Policy till you reach age 55 cause that is the
time when your mortaility charge get very high and if you carry on
holding on to it, it will eat into whatever cash value that you
have accumlated over the years.
My Personal example,
Policy Coverage $200,000
Monthly Premium $100
Current age 25
Target age till surrender the policy 55
When i reach 55, i will have invest a total of $36,000 and my cash
value then at 5% annual rate should be around the region of
$30,000. Meaning I make a loss of $6,000
U divide that by 30 Years, then 12 months then 31 day, it work out
to be $0.54 Cent a day.
This mean I am paying $0.54 Cent a day to get a coverage of
$200,000 which i think it worth it cause i wun know when mishaps
will happen to me.
Recommended only for Young Individual as the Mortality charge is
still low
Annuity
This is basically a gurantee from the insurer that at the age of
62, you will received a monthly payment depending on your invested
amount at age 55 for the rest of your life till you die. A rough
estimate of breakeven years is around 14 years. Meaning if you were
to live beyond the age of 76, every single cent you get then will
be pure profit and even if you were to die before that, whatever
leftover will still be paid out to your dependents if any.
Recommended for near retirees who think they will live a long
life.
Just my 2 cents worth thoughts