Colin Bloodworth looksat the how to finda plan that suts your needsand budqet

Choosing theRight Policy
For LifeInsurance
ast week we reviewed theimportance of life insurance.
We also saw how the am ount ofcover needed can be seriously
un derestimated. For someone
with a youn g family a figure
equivalent to 10 times annual salary may
still not be sufficient to compensate theloss ofthe brea dwinner,
We also addressed the dangers ofdelaying a decis ion to take out insurance.
Not only do pre miums rise rapidly withage but should a serious illness or accident occur while you are uncovered, theinsurance companies may no longer wish
to know you, So having agreed th at action
is called for where do you start?
Ideally, the exercise should start witha calculation of how much your fami ly
would need in term s of a lump sum togenerate all appropriate income. Tills
would include a projection ofthe cost of
seeing your children through theirplanned education.You can obtain quo tes
from insurance com pan ies to see what
th is wou ld cost.
If th e above exercise produces a pre mium th at is beyond your means then
you will need to take a more realistic
approach to determ ine how muc h you
can actuall y afford to pay.Th ere is nopoint in paying a premium th at coul dbecome a seri ous burden or wh ich you
are unab le to maintai n, resu lting in thepolicy lapsin g. Fortu nately there are twomain types of insurance, one of w hic h isless costly.

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Who le ofllfe

Th is is a fo rm of insuranc e wh ere after
two or three initial years part of yourpremiums are invested in stocks,bo nds
and sim ilar assets.The policy th en starts
to have an investm ent or surrende r value.
Ifyou maint ain the policy over a nu mb erof'years, typically 15 to 20, the surrender
value could be in excess of the pre miu ms
you have paid. In fact, if your premiums

here is noare su fficiently high and theintinpayin
investm ent perf orm s well youa premiumcou ld buil d up a sum to theuldbecomea
point where it can continue toserious burden
fund the policy and you do notrWhichyou
need to pay furth er prem iums,
are unable
There is however a factor
maintain,that is wo rking against you andresulting inthethat is your age, Even th oughlicy lapsingth e premiums remain th e sameColin Bloodworth
the actu al cost of insuJing you
rises every year so that agreater call is placed on th e
und erlying investment If th elatter is not growing fasteno ugh the cost of coverage
could swallow up th e rem ainingfunds to the point of exhaustion.At
this point th e policy wo uld terminate or
you wo uld have to agree a higher premium, Ideally thi s sh ould not happen andthe policy should sustain itselffor the"whole of life" as per its de finition.
Level tenn assuranceThis is a far more economic form of cover.
Depending on the te rm selected, which
wou ld typically be from 10 to 20 years, thefixed premium is based on the average
cost of cover over the term. The downsideis that the policy has no investment or
sur render value, It automatically lapse s
without value at the end of the term. The
big plus facto r is the lower cost
Te1111assurance is also available forjust one year, This wou ld be cheaper stillin the early years but wo uld rise sharply
with each year of age so it would not be agood idea for the longer term, altho ugh it
may suit someone who needs cover for alimited period,

The risk\\I1u1e life insurance is we ll underst ood it
is easy to overlo ok th e risk ofliving but
being unable to work. In certain cir cumstances it could be even worse ifthebre adwinner survives but needs
expe nsive ongoing care,
Med ical insur anc e is th e first line ofdefen se. It is vital to be covered yet th isin itself do es not cover loss of ear nings.
Idea lly,critic al illness insurance sh ould
be bo lted on to life cover. Thi s would
payout a sum of money in the eve nt of
the insured suffe ring on e of a list of critical illnesses, including th e most common ones of str oke, heart disease or cancer. Cons ide ring th at more peo ple
ac tually suffer a cri tical illness and survive th an actually die be fore the age of65, there should be a greater awarenessof cr itical illness.
Striking a balance

At the end of the day, everyone
has to determine how muchth ey need to live comfortably
and how m uch sho uld beallocated to protect their way
ofl ife, not forgetting also theimport ance of saving for thefuture, All of which makes
financial planning all important and chall enging task .
Colin Blood worth,direct or of PPI
Ind on esia. has spent over 20 year sin Indonesia. If you have anyquestions on t his or a related
subject you can contact the w riterat indon esia@ppi-advisory.com