Two types of life insurance
There are two types of life insurance products (be sure not to confuse them!):
- Term life products last for fixed periods (5-40 years). If anything happens to you within this period, your dependents will be paid a sum of money. However, if something happens to you only after the term of the policy has expired, your dependents will not get anything.
Why is the product structured this way? Think about a parent who earns the money that supports the family. The parent may need this protection for his or her children until they grow up and become financially independent, say for 20 years. After that, if he or she has no other dependents, then it is no longer necessary to have a term life insurance.
For term life insurance, there is no cash payout at the end of the policy if it isn’t used (whereas whole life insurance will give you a cash payout – read on to learn more!). Because term life insurance has no savings or investment elements tied to it, your term life premiums will be lower compared to a whole life policy!
In general, premiums for a term life policy can range from RM300 to RM600 annually. Do note that the older you are, the more expensive your premiums will be.
- Whole life products last until your death, and pay your family a lump sum amount when you die.
An investment-linked whole life policy combines an insurance policy with a Unit Trust investment product. Part of the premium that you pay is to cover the risk of you dying unexpectedly (the insurance part). The other part of the premium is so that your dependents will receive a certain amount of money even if you die a natural death (the savings/investment element).
Premiums for a whole life policy are usually higher than a term life policy. Your premiums can range from RM1000 to RM4000 annually, depending on the sum you want to insure.
Another difference between whole life and term life policies: because a whole life policy lasts for a lifetime, your premiums stay the same as you age. With a term life policy, should you wish to renew the policy after expiry, your new premiums will be higher.