A life insurance policy is a contract with an insurance company. In exchange for premiums (payments), the insurance company provides a lump-sum payment, known as a death benefit, to beneficiaries in the event of the insured’s death.
There are many varieties of life insurance. Some of the more common types are discussed below.
Term life insurance
Term life insurance is designed to provide financial protection for a specific period of time, such as 10 or 20 years
Universal life insurance
Universal life insurance is another type of permanent life insurance designed to provide lifetime coverage.
Whole life insurance
Whole life insurance is a type of permanent life insurance designed to provide lifetime coverage.
Following some research and in-depth reading and applying sound logic, we have discovered that Papua New Guineans have really only have two reasons to buy insurance. Other commentators may have their own views which we welcome.
Here are our two reasons;
2. Family responsibility
We respectfully suggest that unless you have either one or both of the above reasons than you don’t have a need for life insurance. As we note, majority of Papua New Guineans don’t have a fair idea what a LIFE INSURANCE is.
It is our aim that should the right time come, you already know what to do. Winds of change is blowing PNG at speed never felt in the history of this young country and information such as this will be handy in not so far future.
You may have probably heard about insurance. So many types of them indeed. Here we only concentrate on life insurance. We shall cover other types of insurance in other posts later on.
Under life insurance, we are quite concern about two policies ‘Whole of life’ and ‘Endowment’ policies. These two policies have cost individual more than they expected from the start and so we are trying to show you the downfalls so you can make an informed decision.
We like to think of these two policies as “first generation dinosaurs” simply because of the fact that they are difficulty to understand and expensive.
When you buy the policies, you spend the first couple of years paying the agent who sold you the policies. On the investment aspect, it takes up to 6 to 7 years to break even (i.e. to achieve equal value the mount of contribution. These policies combine life insurance (which is generally expensive where you need more of it) and investment (which does not perform well because of the fees and costs).
Industry sources indicate that average life of first generation dinosaurs (i.e. Whole life policy or endowment policy) is seven years. Insurance companies know this and price them accordingly. If it makes past two years, the agent keeps their commission. Not surprisingly, a staggering high percentage of all policies written are surrendered prior to maturity with fair percentage lapse due to non-payment.
We suggest you buy term insurance when you are young and have the need for it. Reduce it as your dent reduces and your kids and investments grow up together. It is really necessary to consult your financial advisor to help you decide on this. If you have to apply for a whole life policy (or endowment) then we suggest you ask for a print out of the projected value of the policy for each year before you decide.
Obviously not every Papua New Guinean will qualify for life insurance. Other types of insurance are really necessary. If you are in business and investment, you should consult your financial advisors on relevant insurance covers. More of the different types of insurance will be covered in later posts.
How cost is determined
Insurers use rate classes, or risk-related categories, to determine your premiums; these categories don’t, however, affect the length or amount of coverage.
Traditional rate classes are:
Standard: Good health, average cholesterol, relatively low-risk lifestyle
Preferred: Very good health and family medical history, low cholesterol, low-risk lifestyle
Super-Preferred: Excellent health and family medical history, very low cholesterol, low-risk lifestyle
Your rate class is determined by a number of factors, including overall health and family medical history and your lifestyle. Tobacco use, for example, would increase risk and therefore cause your premium to be higher than that of someone who doesn’t use tobacco.