Under-insurance is common in Thailand ; where less than 10% of households have life insurance. The key to adequate protection is to establish your financial needs before buying a plan.

Despite a fairly long presence of life insurance companies in Thailand , many people still do not understand what life insurance is all about. Insurance jargon can be mind-boggling, even for those who call themselves experts. Moreover, the wide range of options available adds to the confusion and finding out which product best suits your needs can be daunting.

Products confusion and a lack of understanding of life insurance often lead consumers to buy the wrong plans. That means many end up “wrongly insured” and fell victims to fees-hungry sales people. This is particularly acute in a low interest rates environment where many insurance companies deliberately blur the line between savings and buying insurance protection by offering minimum guarantee return on life policy. Over the years, insurance agents have been aggressively marketing their savings-cum-protection products instead of the low-cost term policies that give more protection. The reasons is that endowment and whole-life policies give more lucrative commissions to the agents compared to term policies.

Types of insurance

To understand which types of insurance best suits your financial needs, one should grasp the mechanics and functions of the general types of insurance products in the market place, experts say. Essentially there are only 3 main types of life insurance products: term, whole-life and endowment. But soon there will be new products such as investment or unit-linked plans and life annuities. But for the time being let's explore the three main types first.

Term Insurance

This is probably the best form of insurance that exists, offering protection for a given period of time such as 5, 10 or 20 years. It is also the cheapest type of life insurance consumers can buy. Premiums are generally low, so consumers can get more insurance coverage for less money. However, term insurance premiums do get more expensive with age. So every time a term policy is renewed, premiums become costlier. But many companies do offer term convertible option into a whole-life plan, provided that your general health is still insurable.

Whole-life Insurance

Whole-life or permanent insurance plans, offer a lifetime of coverage as long as premiums are paid. Structured as a saving-cum-protection vehicle, whole-life plans have cash values, which give policy holders the option of “surrendering” or borrowing from their plan if they need the cash. One advantage of this plan is that one can lock into a fixed premium rate, which is determined at the age when they start the policy. But a key shortcoming of such plans is the high costs, should you require extensive coverage.

Endowment Insurance

This is a savings plan with a small element of protection attached. Endowment plans usually mature over a fixed period of time such as 10, 15 or 20 years. Such policies are useful to fulfill certain financial commitments in the future such as school fees or retirement. However, the long-term average rate of returns of an endowment plan is quite low compared with that of government bonds or low-risk mutual funds. On top of that, insurance protection from these plans is also low.

How much coverage do you really need?

Buying too little insurance coverage could put your family under some financial stress should you die prematurely. On the other hand, buying too much insurance is a waste of money. Why pay expensive fees to insurance sales people while your money can be invested elsewhere?

To determine whether a person is under insured, one has to conduct a “survivor financial needs analysis” by figuring out the amount of money needed by his dependents, inclusive of all future expenses should he die or become permanently disabled. The period of time required to support financial dependents should also be established. Next, the assets and liabilities of the insured person and his family are estimated to determine the net worth. The third step is to add existing life insurance coverage (if any) to the calculated net worth amount to establish the money available upon the death of the insured. For full details on determining your insurance needs, please refer to Insurance Planner

What insurance products should you buy?

What you require depends on your needs, purpose and objectives. You have to determine whether the main reason for buying insurance is to accumulate savings or for protection. If there is a need for just “pure protection or a temporary cover”, a term policy is your best choice. But if you have a continual need for insurance coverage, a whole life-plan with some term policies may be a better choice. However, it is important to have your financial needs analysed before you purchase a policy and if you don't have the time, get in touch with your financial planner who can give you a proper advice. But whatever you do, keep your insurance and investment/savings needs separate and never use your insurance agent as your only source of information.