For most people, the most crucial and oftentimes most overwhelming task is deciding on which insurance product to buy, especially if it’s their first time to do so. That’s because when people are presented with too much information, the tendency is for them to just get more confused. With that, let’s just take a step back and understand the basic types of insurance.

Just disclosure though before I proceed – I’m not a Financial Advisor or a Wealth Planner. Nevertheless, I’m a firm believer in insurance and that all people should get insurance, even the smallest sum that they can afford can be beneficial during challenging situations.

With that, let’s proceed.

I personally like to categorize insurance products into two general types of insurance: life and non-life. I found that doing this helped me get through the initial confusion I had when it came to the concept of insurance.

Now, let’s define life and non-life insurance below:

This is an arrangement (or a contract) between the insurance provider and the policyholder. In a life insurance policy, the insurance company agrees to give a monetary amount (death benefit) to the designated beneficiaries upon the death of the life insured.

In some variants of life insurance policies though, the death benefit can be advanced to the beneficiaries in case the life insured is diagnosed with a major critical illness for use in medical treatments. The policy may either terminate (single claim) upon advancement of the death benefit or the life insured may file for additional claims but at lower amounts (multi-claim).

This is a type of insurance that covers properties, persons, and events that may entail liabilities. Some examples of non-life insurance are car insurance, home insurance, and travel insurance. These insurance products will cover your properties in case of loss or damage.

For this article though, we will only focus on life insurance and the different kinds of life insurance products that are commercially available to individuals. Typically, the type of insurance product that a person would purchase would be aligned with their financial goals and budget.

Life insurance products are typically categorized into two types: traditional and variable unit-linked.

Let’s define these below:

This is typically a pure protection insurance product. It can cover health and critical illness, death, accidents, and disablements, to name some. There are also traditional insurance products that provide protection and guaranteed payouts or anticipated endowments, such as those insurance bundled with education plans.

Traditional life insurance can also be grouped according to the coverage period:

• Term (pure protection for a certain period of time)
• Whole life (lifetime protection that comes with a maturity benefit)
• Endowment (protection for a certain period of time with guaranteed payouts and a maturity benefit)

As the name suggests, variable unit linked (VUL) insurance comes with protection and an investment component. This works by investing a portion of the premium payment in VUL funds. Depending on the results of one’s financial needs analysis and risk appetite, the Financial Advisor would recommend VUL fund options to help the policyholder potentially grow their money.

I would typically group VUL products based on the pay period:

• Single pay (one-time payment)
• Regular pay (pay continuously)
• Limited pay (pay for a period of time, for example 5-Pay & 10-Pay)

On a different note, I’ve seen some people say negative things about VUL insurance products in Facebook groups. They were complaining because their investment earnings were either lower than expected or lower than their premiums paid. Some were even at the point of considering surrendering their policies, which is an unwise decision because the money that they would get back would be significantly lower than their investment earnings and premiums paid.

It would appear that it wasn’t thoroughly explained to them how VUL works, which can be due to many things like lack of knowledge from the Financial Advisor, wanting to upsell (since VUL is usually more expensive than traditional insurance because of its features and charges), or plain lack of empathy for the client. It’s just sad because such stories spread like wildfire on social media and can lead to misinformation and turn potential policyholders off.

Anyway, for those wanting to get VUL insurance, always think of the long-term (like a regular investor). As you know, investment earnings are driven by market performance. On the short-term, you wouldn’t really see a significant rise in your earnings. Returns would normally rise over the long-term because of appreciating market performance, except if there are market-moving events.

Just the same, if there are events that severely impact the market, it would be wise to keep your money invested instead of pulling it out because that would lead to losses.

It’s also worth mentioning that you also have the flexibility to customize your policy with riders or additional benefits but keep in mind that these would entail additional cost.

I think one of the basic questions from uninsured persons would be regarding how to start. Here are some ways on how to get started with insurance:  

• You can start by reading product information on insurance websites and social media pages.
• You can initially buy insurance from online shops.
• You can set up a call with a financial advisor.
• You can also ask your friends if they have recommendations.

All in all, there’s no one-size-fits-all or “ideal” insurance product. The policy that you will get will depend on your budget, goals (pure protection, health, retirement, or education), and risk appetite (protection and investment via VUL insurance).

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