What Should You Prepare Before Buying Life Insurance?
The key to choosing the best life insurance policy is to adjust it to the needs and budget of each prospective customer. So, don’t just focus on cheap premiums. In order not to make the wrong choice, there are several points that need to be prepared before deciding to buy life insurance. Here are some of them:
1. Adjust the Budget
There is actually no exact formula for how much money should be set aside for life insurance. What needs to be understood is to make sure your current finances are healthy, or you already have savings and emergency funds. If your personal financial turnover is healthy, then consider buying life insurance.
Ideally 10-20% of salary should be allocated for insurance. This includes health insurance, life insurance, and car insurance (if necessary). But, again, it needs to be underlined that the allocation is adjusted to each of your finances.
2. Buy Insurance While You Are Healthy
Buy insurance, don’t wait until you are sick, because the premium will be more expensive. It is better to buy insurance while you are healthy. Ideally, if you are the breadwinner of the family, you should have insurance at the age of 30-39 years. Entering the age of 40, life insurance premiums will be more expensive because the risk of illness will also be higher.
3. Adjust the Policy to Your Needs
Don’t just be tempted by the benefits and high life insurance coverage. But consider the benefits and value of the coverage that you actually need. For example, if you have invested, you should avoid having unit link life insurance. This is because the premium paid will be allocated for insurance benefits and some for investment capital. This means that insurance and investment benefits cannot be obtained to the maximum of 100%. Therefore, adjust it to your needs so that you don’t regret it later.
Life Insurance Premium Prices
Life insurance premium is an amount of money that must be paid by the policyholder to the insurance company in order to transfer the risk to the company. The cheapest life insurance price varies from around Rp50 thousand to tens of millions of rupiah per month. Meanwhile, the policy payment period can be chosen to be paid periodically or all at once. Usually, life insurance premiums paid all at once are more economical.
Meanwhile, for family plans, life insurance premiums are paid until the first insured person dies or, alternatively, until the (second) insured spouse dies.
How to Calculate Life Insurance Premiums
How to calculate life insurance premiums can be done by utilizing the premium simulation calculator from Lifepal. Before using the life insurance cost simulation, you need to know first that the premium policy is determined by the following factors:
- Amount of insurance coverage: the larger the insurance coverage, the higher the premium, and vice versa.
- Insurance type: the type of insurance determines how much premium we have to pay. For example, for term life insurance, the amount will be much cheaper than whole life.
- Insurance term: the longer the policy period, the higher the premium. For example, a 10-year term life premium will be more expensive than a 5-year term life.
- Age of the insured: the younger the insured, the cheaper the premium will be.
- Coverage amount: the more dependents, the higher the insurance amount will be. This is because the more customers are covered in one policy.
- Health conditions: Bad habits for health such as smoking or extreme sports can burden the premium value. In addition, if you have a pre-existing condition the premium will also be more expensive.
- Rider: adding riders will also make premiums more expensive.
- Investment component: insurance products that offer both cash investment value and premiums will charge higher premiums than pure insurance or traditional insurance.
*Rider is an additional benefit that you can get if you already have a basic life insurance policy. To get a rider you will be charged an additional premium.
Life Insurance Simulation
We can get a cheap premium life insurance simulation by calculating the amount of insurance needed. Insurance is an amount of money given to heirs in the event of a risk of death or permanent disability.
This is because the amount of insurance coverage greatly influences the amount of life insurance premium that must be paid by the customer.
To find out how much insurance money is needed, Lifepal provides an insurance money calculator. Prospective customers can calculate the insurance money based on:
1. Expenditure
The way to calculate the insurance amount based on expenses is by adding up current expenses (over a certain period of time) multiplied by the inflation rate.
- UP of the amount of expenditure = Amount of monthly/annual expenditure x annual inflation (Generally 3 – 4 percent per year)
For example, a customer wants insurance money that can cover family needs for 5 years. This means he needs to multiply current expenses by 5×12 months. After that, adjust it to the inflation rate.
2. Income
The way to calculate the insurance amount based on income is by multiplying the current family income (over a certain period of time), then multiplying it by the annual salary increase.
- UP from the amount of income = Total income each month/year x annual salary increase (Generally 2 – 5 percent per year)
For example, a customer wants the insurance money to be able to cover the family’s needs for 5 years. This means that he needs to multiply the current income by 5×12 months. After that, adjust it with the annual salary increase.
Functions and Benefits of Life Insurance
The benefits of life insurance for the community include death benefits and permanent disability benefits if the insured experiences a disaster. Most life insurance companies also offer critical illness insurance coverage as an additional benefit. This means that if the insured is diagnosed with one of the critical illnesses covered by the insurance, then cash benefits or insurance money will be given in full.
In general, life insurance protection includes cash benefits for risks resulting from unintentional events, with the exception of suicide, extreme sports, drug overdose, HIV/AIDS, fraudulent claims, death sentences, and inconsistent data.
The following are the benefits of life insurance offered to the public that you can get:
- Death benefits are provided if the insured dies, usually amounting to 100 percent (or more) of the insured amount.
- Total permanent disability benefits are given if the insured suffers from total permanent disability, so that he cannot work. Usually given 100 percent of the insured amount.
- Permanent partial disability benefits are given if the insured suffers from permanent partial disability, which is the loss of part of the body. For example, paralysis of the legs or arms. Well, usually the insurance money given is a percentage of the insurance value, based on a table determined by the insurance company.
- Critical illness benefits are provided if the insured is diagnosed with one of the critical illnesses covered by the insurance company.
- The purpose of life insurance can also be used as retirement or old age savings. For example, dual-purpose life insurance products and unit links can help the insured in accumulating retirement savings preparation.
- Life insurance benefits are also tax-free. So, the insurance money given to the heirs is not considered as income for tax purposes.
- In addition to getting compensation, the function of life insurance also covers funeral costs. So, when you buy a life insurance product, the cost of the funeral process is also covered and will not be a burden on the family left behind.
- Riders* or additional life insurance benefits include critical illness insurance, accident insurance, and health insurance benefits at the same time.
*Rider is an additional benefit that you can get if you already have a basic life insurance policy. To get a rider you will be charged an additional premium.
Types of Riders in Life Insurance Policies
Types of riders in life insurance policies include health insurance benefits at once, premium exemption, accident insurance, critical illness insurance, permanent disability, and payor benefits. For customers who want to get additional benefits (riders), additional premium fees will be charged. Generally, for life insurance riders (additional benefits) offered as follows:
1. Health insurance
Life insurance products generally do not provide basic health insurance benefits such as hospital cost coverage. So, to get these benefits, the insured can buy a rider (additional insurance). In the rider, not only the life insurance policy holder, other family members can also be included. However, the term still follows the basic life insurance contract. See recommendations for life insurance with the best health rider here!
2. Waiver of premium (premium exemption)
Life insurance riders also offer waiver of premium. Premium exemption benefits can be obtained when the insured experiences total disability due to illness or accident.
3. Accident insurance
This rider will provide two benefits at once in one policy. So when the customer dies due to an accident, later within 90 days the heirs will receive insurance money from the basic life insurance benefits and insurance money from the accident insurance rider (double indemnity).
4. Critical illness insurance
When a customer is diagnosed with one of the types of critical illnesses covered by the insurance company, they will receive cash compensation or full insurance money. Furthermore, the life insurance contract is declared to have ended.
5. Disability of limbs
This additional life insurance benefit will provide coverage when one of the limbs is partially or totally non-functional due to certain risks. For example, when the insured loses one leg, a certain percentage of the insurance money (UP) will be given.
6. Payor benefits
Additional insurance that will provide premium exemption when the risk of death occurs to the insured, total disability or conditions that result in being unable to pay premiums. The beneficiaries are usually children. So, it is suitable for dual-purpose insurance riders or education.
Is There Life Insurance for Seniors?
Generally, life insurance policies have an entry age requirement of up to 65 years and can be extended up to 99 years. This means that there are still few life insurance companies for the elderly that cover the entry age of customers over 65 years. This is because health risks will also increase following the age of the insured.
Generally, the amount of life insurance premium for parents ranges from IDR 300 thousand – IDR 3 million (or more) per month. However, the amount of insurance premium for parents varies for each individual. See and compare the best online life insurance policy options for parents at Lifepal!
