Insurance terms and definitions usually confuse people. It is because of the jargons that are used in the insurance industry that usually people are not sure of. We list it here for your easy reference.
Term life insurance – provide cover for a specific time frame i.e. the term. Generally term insurance provides cover for a limited time and usually have minimal or no cash values. It can be considered the purest form of insurance, and because they have no cash values, they tend to be the cheapest. Terms can be 5, 10, 15 all the way to 30 years or more. Premiums are to be paid over the duration of the term.
Whole life insurance - provide cover for whole life. As you can see, it is suppose to cover a person’s for life. Life insurance company like to confuse people further as some whole life insurance covers to age 100, some to 87 and some to age 80. So there is no fixed length of time. The difference is that whole life insurance have cash values. This means, if you surrender your policy, you can get back some cash. Premiums are to be paid for the whole life.
Endowment insurance – these have features from term life insurance and whole life insurance. They are usually for a specific time frame (10, 15, 20, 30 or more years) and have cash values. The cash values tend to be higher than that of whole life insurance. Premiums for endowment policy are usually higher than whole life insurance because they give you more returns. Premiums are to be paid over the duration of the term.
Investment-linked insurance – is an insurance policy that combines investment and protection. Your premiums provide a life insurance cover, and part of the premiums is invested in investment funds of your choice. Investment-linked insurance tend to be more flexible compared to other types of life insurance. You can increase or decrease the amount of cover and the premium. Instead of cash values, investment linked policies have units
Investment-linked insurance can be regular premium or single premium. Single premium investment-linked insurance are usually for investments. While regular premium plans are more to provide protection.
As you can see whole life, endowment and investment-link policies all provide cash returns. In whole life and endowment insurance, a portion of the cash value is guaranteed by the insurance company, while the whole amount of money in an investment linked is non guaranteed.
Universal life insurance – this type of policy is the most recent in Malaysia. It have the features of being flexible like the investment-linked insurance where you can vary the type and amount of cover. And it has a guaranteed cash value like the whole life insurance.
As you understand the difference between the types of life insurance, you can select the type that fits your needs the most.