Many of us must have realized the importance of having life insurance. Especially after going through a pandemic for almost 2 years, you really realize how a person’s life can never be separated from the stakes of the risk of death. it doesn’t stop there, death can also pose another risk, namely disruption of the financial requirements of the family left behind.
Well, this last risk can be managed by having protection in the form of life insurance. however, the amount of life insurance offered sometimes makes us confused about choosing what product suits our needs. So, before buying life insurance, it’s good for us to know the various types of life insurance. let’s look at the following explanation.
Life Insurance without Cash Value
This product is called life insurance without cash value because it only provides life protection benefits for a certain period of time. Life insurance without a cash value is also the simplest form of life insurance. thus, this insurance is often claimed to be pure life insurance. Here are some types of non-cash value life insurance:
1. Term life insurance
Term life insurance or term life insurance is life insurance that provides coverage for a certain period of time, for example 5 years, 10 years, or even 20 years, according to the convention between the policyholder and the insurance company.
in general, this type of insurance insurance is paid in advance and carried out annually during the term. however, if the policy is lapse (inactive), the protection benefits will stop and the insurance value will be forfeited.
If the risk occurs when the insured is still in the coverage period or when the policy is still active, the beneficiary – usually the family left behind – will receive compensation or sum insured (UP). The definition of UP in life insurance is the money listed on the policy, which is the right of the beneficiary.
If the insured does not experience risk during the guarantee period, the policyholder must extend the policy so that the insured can receive protection and benefits from the UP. If the risk of death approaches.
Conversely, if the policyholder does not make insurance payments, the coverage period automatically ends and the policy lapses.
Insurance without cash value generally has a nominal value that is not large. The insurance value that is affordable for many people is comparable to the benefits offered, namely protection for a certain period of time.
2. Credit life insurance
The type of pure as well as term life insurance that we often encounter is life insurance that provides credit agreements such as mortgages and KKB.
Life insurance is also called credit life insurance or credit life insurance. Credit life insurance is commonly owned by people who access bank credit because generally it is a requirement from the bank for customers who apply for credit.
Credit life insurance is pure insurance because it only provides simple benefits, namely reimbursement of debt residues if the insured dies during the coverage period.
As a result, if the risk of death occurs and the debt has not been paid off, then the family left behind will not be charged with the installments of the debt, because the insurance company will pay off the remaining debt.
Credit life insurance is also claimed as term life insurance with a guarantee period that is directly proportional to the tenor of the debt.
3. Micro life insurance
Micro life insurance means life insurance that provides benefits in the form of death benefits, with a short period of protection, in a certain area or community. for example, micro life insurance for toll road users, public transportation users, community life insurance for drivers and motorcycle taxi software users, and so on.
Micro life insurance is like a joint venture that is participated in by union members. however, the management of micro life insurance is noticeably better because it is carried out by the insurance company.
Life insurance uses a cash value
As the name implies, this type of life insurance not only shows benefits in the form of a UP, but also cash value.
The definition of cash value in life insurance is an amount of money which is the redemption value of the policy at a certain time, becomes the right of the policyholder. Cash value can be disbursed while the insured is still alive. Insurance with cash value can be grouped into:
1. life insurance for life, or whole life insurance
As the name implies, this insurance provides protection until the insured reaches 99-100 years of age, or in other terms for life.
The advantage of this type of insurance that differentiates it from term life insurance is that, in addition to providing benefits in the form of life protection, it also provides cash value or development of the policyholder’s funds.
This cash value can function as savings that can be used to pay for insurance whose size is permanent for life, even when the policyholder has no income. thus, the policyholder may not pay for insurance in cash, but the policy remains active and is able to provide protection.
In a whole life life insurance product, if the policy is no longer active until the insured dies, the policyholder is still able to withdraw the remaining cash value after deducting the cost of closing the policy and outstanding insurance payments.
The cash value of the policies offered by most of this type of insurance are generally not too large, because this product is aimed at people who still prioritize protection.
Life insurance generally also provides various additional or rider benefits. In line with its more diverse functions, insurance subject to life insurance is also quite expensive when compared to using pure insurance.
2. Endowment insurance or endowment insurance
Endowment insurance or endowment insurance is life insurance that provides multiple benefits, both protection and savings. We often encounter this type of insurance product in education insurance.
The advantage of dual-purpose insurance is that insurance benefits are absolute and guaranteed, both when the insured is still alive before maturity or dies before maturity.
What distinguishes endowment life insurance from whole life insurance is that policies on endowment life insurance can generate cash values faster than whole life life insurance.
This is because the cash value of endowment life insurance will generally be the same as the UP at the maturity of the policy. thus, it is possible for policyholders to disburse cash value while still alive, generally following the child’s education level.
Endowment insurance policyholders also generally prioritize cash value over protection. This is what causes endowment insurance to be bigger than pure life insurance.
Endowment insurance customers can use the cash value benefits as long-term savings. For example, to pay for the needs of children entering junior high school, entering college, or to pay for daily expenses when they are full.
3. Variable life insurance or unitlink life insurance
Unitlink life insurance is an investment-linked insurance product (PAYDI). In addition to offering lifetime coverage benefits, unitlink life insurance also offers a cash value.
Different from the cash value in whole life and endowment, the cash value in unitlink is formed from what will occur in the development of funds through investment instruments in the capital market. That is why the cash value in variable life insurance moves in the direction of the rise or fall of the capital market.
In investing, customers also get flexibility. For example, customers can increase or decrease their investment funds and determine where their investment funds will be placed.
This freedom of placement of funds allows customers to adjust their portfolio using their risk profile. That is why, the risk of investing in unitlink life insurance is fully borne by the policyholder.
With the explanation above, I hope that now you have a better understanding of this type of life insurance, along with the benefits offered. So, it will be easier for you to choose life insurance according to your needs. Happy weighing.