Insurance companies operating in Indonesia have various types of protection products. One that is owned by many people is life insurance. So what is life insurance? To find out in more detail the meaning, benefits, and types of life insurance, let's take a look at the discussion of The Newbie this time.
Definition of Life Insurance
Based on Book 4 Insurance published by the Financial Services Authority (OJK), Life Insurance is insurance with the object of coverage in the form of a person, and the insured is a person's life. In addition to life, coverage can be extended to cover health and accidents.
This insurance provides a guarantee of protection in the form of transfer of financial risk for the death or life of the insured person. The purpose of life insurance is to cover unexpected financial losses due to someone's death.
This guarantee can be given if someone dies prematurely or suddenly. With this guarantee, the life of the family left behind will not be neglected.
Life insurance guarantees can also be given if a person has reached a certain age and is unable to earn a living or support his family. If there is a risk, such as losing the opportunity to earn income, the insurance company will cover it.
Life Insurance Benefits
After knowing the meaning of life insurance, some of you are wondering about what are the benefits of having life insurance?
By having life insurance, of course you will get a number of benefits. The following are the life insurance benefits that The Newbie has summarized from some of the best life insurance companies such as Prudential, Sinar Mas, Allianz Life, AIA Financial, and Manulife Indonesia Life Insurance.
1. Protection from the risk of death
The main benefit of life insurance is to protect the insured from various forms of risk that may occur in the future. This risk includes when the head of the family dies due to an accident or any cause that causes loss of livelihood.
By having life insurance, the insurance company will pay the sum insured if an adverse event occurs in accordance with the applicable policy.
2. Compensation benefits for partial and permanent disability
The best life insurance products are always able to provide insurance benefits in the form of protection from the risk of partial or total permanent disability. The life insurance company will pay the insurance benefits according to the agreed policy.
Insurance can end if the insured suffers permanent total disability due to an accident. Generally, the amount of coverage will be provided with a lump sum payment system.
3. Ensure the life of the family or heirs left behind
Life insurance also has the benefit of ensuring the survival of family members who are abandoned or disadvantaged if the head of the family is no longer able to earn a living.
This benefit helps provide certainty in preparing for the family's future, such as children's education and other things. By having life insurance, it means that you are protecting your family and loved ones from the risk of financial loss and freeing your heirs from difficult dependents.
4. Help manage finances properly and appropriately
Another benefit of having life insurance is that it protects your financial condition from unexpected risks in the future. In addition, indirectly, you will be forced to commit to leaving a little money from your income in order to pay for life insurance in a disciplined manner.
Managing finances can also help you allocate funds for the future. If your lifestyle tends to be extravagant, life insurance can help you save and set aside some of your income to pay insurance premiums on a regular basis.
5. Can be used as a credit guarantee
Some life insurance products can also be used as credit guarantees if you apply for a large amount of debt, such as a Home Ownership Loan (KPR).
Usually when you apply for a mortgage, you are required to have life insurance. This product will later guarantee repayment of debt in the event of a disaster when the credit has not been paid off. In addition to benefiting the borrower, this product also avoids the burden of family debt.
6. Preparing for retirement and ensuring the continuity of children's education
life insurance are unit-linked able to help policyholders to prepare pension funds. You can also use the product to save money.
If you have children who are still of school age, you can also get life insurance to ensure your child's education costs in the future.
7. Additional benefits of getting medical treatment costs
Some life insurance products also generally include additional insurance benefits, such as coverage for critical illness and medical care costs. Policyholders can take advantage of this feature to complete family protection.
8. As a replacement for lost income
Another benefit of life insurance is that it can be used to replace lost income, such as if you have an accident at work that results in disability or death. Later, the family will receive temporary income as stated in life insurance policy .
9. Tax free
If the owner of the life insurance policy dies, the sum insured given to the beneficiary is tax-free. This means that life insurance payments are not considered income for tax purposes.
Meanwhile, beneficiaries do not need to report the amount of money when they file their annual tax returns. Those are some of the benefits of life insurance that you can get to provide more protection for yourself or your family.
Types of Life Insurance
Life insurance also has several types. The following are the types of insurance listed in Book 4 of OJK Insurance.
1. Term Life Insurance
All term life insurance provide coverage for a certain period of time called the policy term . Policy benefits can be paid only if:
(1) The Insured dies within the stipulated period
(2) The police are still in force when the Insured dies
It should be noted that Term Life Insurance provides temporary protection in accordance with the period determined by the policy. However, in some cases, a policyholder may continue coverage for an additional period or change the coverage to fixed benefit insurance.
Types of term life insurance coverage:
- Term Life Insurance with Fixed Sum Insured (Level Term Life Insurance) – generally a five year fixed term policy with coverage of IDR 100 million
- Decreasing Term Life Insurance – generally a five-year fixed term policy with coverage of IDR 50 million
- Increasing Term Life Insurance – a death benefit that starts at a value and will increase.
The main characteristic of this type of insurance is that it provides lifetime coverage to the insured as long as the policy is still valid and provides insurance coverage plus savings.
Types of whole life insurance coverage:
- Traditional Whole Life Insurance – whole life coverage with a fixed premium rate (premium rate level). The policy is paid when the insured reaches the age of 99 or 100 years.
- Last Survivor Life Insurance – policy benefits are paid after the death of the two insured persons.
- Joint Whole Life Insurance – after the death of one of the insured, the death benefit in the policy will be paid to the surviving insured.
The definition of dual-purpose life insurance is to provide certain benefits whether the insured lives until the end of the coverage period or dies during the coverage period.
Every endowment life insurance policy has an insurance term maturity date (maturity date). The due date will be reached:
(1) at the end of a predetermined period of time, or
(2) when the insured reaches the specified age.
4. Unit Link Insurance
There are several companies that combine insurance products with investment products known as unit links. The way Unit Link insurance works is that the premium paid will be allocated into two separate management mechanisms, namely the management of basic premiums for protection purposes and management of investment premiums.
You don't have to worry about suffering losses because investment premiums are managed by investment managers who are experts in their fields. By purchasing unit-linked products, the insured can benefit from insurance protection as well as invest in unit-linked products in Indonesia, which are generally provided by life insurance companies.
How to pay for unit link insurance:
- Single premium – paid in advance
- Periodic premium – paid in stages
Life insurance is very necessary for those of you who have dependents. It means that the dependents here are the family (parents, spouse, and children) who are your responsibility and basically the other members of your family have no income so you are the sole breadwinner.
Amount of Life Insurance Premium
Basically, the premium set by the insurance company can be collected on a monthly, quarterly, or even yearly basis. This all depends on the policies of the insurance company and the contract you have entered into with them.
In addition, there are several things that will affect the premium amount, such as:
- Age – the older the insured, the higher the premium that will be charged by the insurance company, given the high risk to be borne.
- Medical History - the insurance company will ask for your medical history as a requirement in the application. It aims to calculate the amount of risk that will be borne by the insurance company.
- Hobbies and Habits – insurance companies will charge higher premiums for people who have a dangerous hobby or profession, such as: skydiving or scuba diving. This habit is considered to have a high risk to the safety of policyholders. A smoker will usually be charged a premium rate twice as high as those who are not smokers.
At the time of taking out a life insurance policy, the bereaved family member must fill out an insurance claim. Usually, there are several supporting documents that must be completed such as a death certificate or proof of death and the original insurance policy.
This claim will be settled in one lump sum payment to the person named in the policy contract and acting as the beneficiary.
However, in some cases, claims may be rejected if irregularities or indications of fraud are found.
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