The subject of what insurance policy you should take can be a long and complicated discussion. There are several kinds of insurance policies for different purposes, and you should get to know which type of policy protects you against what sort of unforeseen event before taking one or any combination of them. In this article, we list the different types of insurance along with their pros and cons.
➤ Life Insurance
This is the most common type of insurance. It provides the insured person’s family with a lump sum after the insured person has died, or after a certain amount of time has passed.
Pros: Life insurance is straightforward and one of the cheapest types of insurance policy available in the Philippines. This type of insurance can provide some financial security if the person insured is the breadwinner of the family, and he or she dies unexpectedly. Depending on the type of life insurance (see below), policyholders can also insure themselves against disability and use it as an investment tool to earn money. For certain types of life insurance, the money can be withdrawn for any reason, usually, after a minimum amount of premiums have been paid. Life insurance can also serve as a flexible financial investment if you do your research.
Cons: Should the insured person’s policy have a term, no money is paid out to anyone if the insured doesn’t die after the time period stated in the policy. If you’re single and don’t have a spouse and children, there will be nobody to inherit the insurance money. It may be hard to get life insurance since you’ll have to show the insurance company that you are less likely to die early. If you drink or smoke, have a dangerous job or engage in life-threatening activities, or your family has a history of illnesses, these can work against you getting a life insurance policy, or the premiums you have to pay will be higher.
There are few pros and cons to life insurance, but these depend on which type of life insurance you get. There are three sub types:
➢ Term Life Insurance
This is a type of life insurance that has a fixed term or time period of one year to 30 years. If, at the end of the term, the policyholder doesn’t die, it’s the policy that expires and the policyholder doesn’t get any money. While it has the benefit of being the cheapest life insurance, and payments can only be made for up to 30 years, there can be no payout to anyone if the policyholder is still alive after the term expires. The payout may not also be as big, unless the premiums paid were high.
➢ Variable Universal Life Insurance
Also known as VUL, this type of life insurance gives benefits to the policyholder not only in case of death, but also disability, and has the bonus of doubling as an investment. VUL actually earns money, which can be withdrawn in part or in full for any reason. The premiums paid remain constant as the policyholder maintains this type of life insurance. To get more returns on the premiums, policyholders of VUL Insurance can select which investments their money goes into, such as stocks, bonds, and money market funds. The returns on the premiums can be high, but the policyholder also risks losing money on their premiums. VUL is for those who want more flexibility for their money and are willing to risk a loss to get a bigger return on their premiums.
➢ Whole Life Insurance
This covers the policyholder until death or until the policyholder decides to withdraw the money and effectively stop coverage. Policyholders can’t be insured past the age of 100. Like VUL, this also offers claims for disability, as well as investment options but without the choice of where to place the money. The premiums paid also remain fixed in whole life insurance.
➤ Health Insurance
Health insurance is an insurance policy that covers the costs brought about by sickness or injury. It covers both the policyholders and members of their families. The health insurance’s main purpose is to pay any treatment or diagnosis-related expense partially or completely.
Pros: Taking on a health insurance policy can be better than what most Health Maintenance Organizations (HMOs) provide. HMOs may be a benefit offered by your employer, but coverage can be limited and is usually provided at the HMO’s accredited hospitals and clinics. A health insurance policy often has better coverage and may include more dependents than your HMO. Taking a health insurance policy can ease the burden of medical expenses, whether for yourself or your dependents. Depending on the policy, premiums are affordable, as well.
Cons: The health insurance policy you choose may have limited coverage, paying only in part for some treatments and procedures, or covering only certain types of illness or injury. Health insurance doesn’t cover serious or chronic illnesses.
➤ Critical Illness Insurance
This type of insurance policy covers more serious illnesses that aren’t covered by ordinary health insurance policies. Under this type of insurance, the policyholder receives a lump sum if they are diagnosed with any of the illnesses listed in the policy.
Critical illnesses covered can vary, but most insurance companies list stroke, heart attack, cancer, benign brain tumors, cerebral palsy, Alzheimer’s disease, bacterial meningitis, blindness, deafness, coma, and various other serious illnesses or injuries.
Pros: Critical illness insurance can ease the burden of hospitalization and treatment costs of more serious illnesses, allowing the policyholder to focus more on their recovery. Confirmation alone that the policyholder has contracted a serious illness is enough for them to collect a lump sum. The money can be used at the policyholder’s discretion—whether to fund treatment or to enjoy their remaining days, should the illness be deemed terminal.
Cons: Unlike VUL, this type of insurance doesn’t offer the flexibility of investment. The lump sum the policyholder receives may not be enough to cover all the expenses for treatment, limiting them to use the money to make their remaining days comfortable, at the very least. Depending on the severity of the illness and the costs it incurs, the lump sum may also not be enough to take care of the policyholder’s family.
➤ Personal Accident Insurance
This type of insurance gives the beneficiaries of the policyholder a cash benefit should the policyholder and/or co-insured family member die, suffer from injuries, or become permanently disabled in an accident. The purpose of this policy is to provide the policyholder and their family financial support in case the policyholder dies or is rendered unable to work temporarily or permanently, especially if the policyholder is the family’s breadwinner.
Pros: Should the policyholder die due to an accident, their family can receive the entire amount of the policy. If the policyholder or their other beneficiaries become permanently disabled in an accident, specific rates will apply. The loss of limbs or eyes is also covered by this policy.
Anyone who has been rejected for life insurance can opt to get this policy since there are no restrictions or requirements for the policyholder’s health. It can help with funeral or medical costs and is a good way to protect yourself and your family members. This policy is usually affordable and can come in handy should you or your family members figure in an accident.
Cons: A personal accident insurance benefit can’t be collected if the policyholder was under the influence of alcohol or drugs, or suffers self-inflicted injuries during the accident. It’s also not applicable if the accident was caused by a preexisting condition or sickness. There is no investment option in this insurance, and premium payments must be continuous for the policy to be effective.
➤ Auto Insurance
This type of insurance protects you against vehicle loss due to accident or theft. If you lose your car to car thieves, this can subsidize the loss and help you buy a replacement vehicle. In case of an accident, this policy can cover the damage to your vehicle or other vehicles your car collided with. This can also cover some medical costs if anyone gets injured.
Pros: Now that traffic in Manila is the worst in the world, the greater the chances of you and your car figuring in even the most minor of accidents. A policy on your car effectively reduces potentially high payments on any necessary repairs if you get into an accident.
With auto insurance, you’ll feel a bit more secure while on the road, knowing that you’ll have the financial capacity to handle possible car troubles. You need auto insurance if you drive your kids to and from school every day and also drive to work.
Cons: Auto insurance in the Philippines only covers damage to your car and other cars involved in an accident, or theft. A basic policy doesn’t cover damage or loss due to floods, tsunami, earthquakes, lightning strikes or other natural calamities. You have to pay extra for your vehicle to be protected against these occurrences that the insurance business has termed “Acts of God.”
Another drawback is that if your vehicle is totaled in an accident or lost due to theft and isn’t recovered, the insurance company won’t pay the entire cost of the lost vehicle. You’ll only receive a sum equal to the car’s current depreciation and market value.
➤ Home Insurance
Also known as property insurance, home insurance covers the loss of or damage to your residence. Whether it’s due to a flood, typhoon, fire, earthquake, lightning strike, burglary or robbery. In these events, a home insurance policy can reimburse you for expenses incurred from paying rent or relocating to another house. Some home insurance policies also pay for medical treatment to any member of the policymaker’s household who is injured by any accident that occurs in your home. Third-party liability may also be included, such as if your home is damaged or destroyed by fire and affects a neighbor’s property in the incident.
Pros: Having home insurance can cover costs of damage which you may not otherwise be able to afford. Should your home be partially damaged by fire, the insurance can cover the cost of extensive repairs. Items damaged or lost to theft or fire can likewise be replaced with a home insurance policy. And compared to the actual cost of repairing the damage or replacing lost items, paying a monthly premium for covering all these is cheaper.
Cons: On the other hand, home insurance can be expensive if the home insured is older and is susceptible to fire. As with insuring a person with vices, monthly premiums can be higher for older houses as they pose a greater risk. Some items in your home demand higher premiums, such as jewelry. Also, it’s not a guarantee that you’ll be able to get a large sum in return for your premiums should any of the covered incidents happen.
Insurance is an expense most people tend to avoid, simply because of uncertainty. Insurance companies will argue that uncertainty is precisely why you should have insurance, but no one can be sure what will happen to you or whatever property that can be insured.
While there are no absolute rules to follow when getting any sort of insurance policy, it’s best to first take into account which policies can be of real benefit to you before deciding to sign up. A good strategy would be to read up first on the Insurance Code of the Philippines and pore through any policy thoroughly so you’ll be aware of the requirements and legal protections you have before agreeing to any terms.