1. Guaranteed issue. Guaranteed issue life insurance is peddled on late-night television. You’ve probably seen the ads. The major selling point is that if you apply, you can’t be turned down. On the face of it, it might seem like a no-brainer. But there is actually far less to this policy than meets the eye.First, if you do purchase such a life insurance policy and die within two years, most policies call for the company to simply return the premium you paid. That means if you are very ill and don’t expect to live a long time, this might be just a waste of energy. Also, the death benefits are very low and the premiums are expensive.
If you absolutely need life insurance, can’t get coverage elsewhere, and think you have a chance to live beyond the exclusion period, you may have no choice but to purchase a guaranteed issue policy.
2. Life insurance for children. In general, life insurance for kids is a huge waste of money. That’s because most children are born healthy and live a very long time. And since children don’t have any income, you don’t really have any reason to insure their lives. Just because you don’t buy insurance doesn’t mean you don’t love your children. It means you are smart enough to put that money to better use–like saving for a college education.
If you have available disposable income - purchasing life insurance for children makes a lot of sense. Life insurance provides financial support in an unfortunate or unforseen accident or critical illness resulting in the child being totally and permanently disabled. Low or middle income family would be financially wipe off having to upkeep a disabled child over a long term period.
The second advantage when purchasing life insuance for your child - is the low premium rate that remains level throughout the child lifetime.
The key to Life insurance is financial protection (and not profiting from the policy). To profit from life insurance - the policyholder must die or disable. Life insurance is for those livings - people that you left behind and who depended on you financially or you are living but totally disabled.
3. Travel/accident insurance. This coverage is very cheap for good reason. Most people arrive at their destinations safely, and very few get into terrible accidents. And what does it matter how you die, by the way? Why would your family need more life insurance just because you died in an accident rather than from an illness? I know this sounds crass, but this insurance makes no sense. Rather than throw your money away on these policies, have an extra-large, fresh-squeezed orange juice at the bar while you are waiting for your flight. You’ll live longer.
The annual premium for Travel Insurance is approximately RM350. The cost of hospitalization in a developed country (USA, UK, France, Australia etc) would have killed you (instead of the illness / accident). The cost to repatriate a body from Perth Western Australia to Kuala Lumpur was RM50,000 (2012) using MAS. Your family member may just dump your body in Swan River which is much cheaper.
4. Whole life/universal life. Life insurance is a tool, not an investment. With whole life/universal life insurance, you will pay a higher premium with the promise that the company will take those extra dollars and invest them for you. The problem is that this type of insurance is very expensive. The investments don’t grow because the expenses eat up your interest.
Whole life and universal life policies are the reasons why life insurance companies can afford big buildings and Super Bowl ads. The only time these policies make sense if you have an estate-tax problem but this is a subject beyond the scope of this post.
Life insurance is a very important tool. When you use it for its intended purpose, it’s great. That means you should look to term life to cover your family protection needs. Ignore the slick sales gimmicks of guaranteed life, life insurance or children, travel and accident insurance, and whole life/universal life.
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