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Types of life insurance policies and the advantages and disadvantages of each type


The concept of life insurance:

Life insurance means insurance that covers material losses arising from the realization of the phenomenon of death or reaching a certain age (life) or both (death and life).

Life insurance documents

A life insurance policy is a contract whereby the insurance company is obligated to pay the insurance amount to the insured, his heirs, or to the beneficiary or beneficiaries specified in the policy, in the event of the death of the insured on his life, or if the insured reaches his life to a specified age in the policy, in  exchange for payment The insured has to pay a one-time installment upon contracting or annual installments.

Life insurance policies can be divided according to the benefits that beneficiaries receive from life insurance into three main sections:

Insurance policies whose amounts are paid in the event of death or life, and they are mixed insurance policies that guarantee payment of the insurance amount to the beneficiaries if the insured dies during the insurance contract period or if the insured personally receives the insurance amount if he is still alive at the end of the insurance period.

We will discuss these types in some detail below:

First Section: Insurance documents whose amounts are paid in the event of death:

This section includes all documents that guarantee payment of a certain amount to the beneficiaries in the event of the death of the insured. The documents for this group are divided into two main types:

First – Temporary Life Insurance:

Under this policy, the insurer (the insurance company) undertakes to pay the insurance amount specified in the policy to the heirs of the insured, the beneficiary, or the beneficiaries specified in the policy, in the event of the death of the insured over his life during the insurance period that begins immediately after the contract, but in the event that the insured remains alive until The end of the insurance period, the company is not obligated to pay any amounts to the insured, provided that the insured is committed to paying the due premiums on their due dates.

Insurance companies also issue another type of temporary insurance, which is temporary deferred insurance, according to which the insurance company is obligated to pay the amount of insurance specified in the document to the beneficiary or the beneficiaries specified in the policy in the event of the death of the insured for his life during a specific period following the postponement period, in the event that the insured has paid a single premium or annual installments. On time. This type of document is suitable for young people who request insurance protection from the risk of death from the time they reach a certain age.

Characteristics of temporary life insurance: –

Several characteristics of temporary insurance can be identified, including the following:

1. The insurance protection is temporary with a specific period of time.

2. The ability of the temporary insurance contract to be renewed, as there is a possibility to renew the temporary insurance contract without the need to prove the insurance validity of the insured, ie without the need for a medical examination. The temporary insurance premium increases with each renewal due to aging. But for example, some insurance companies determine the number of renewals without a medical examination, and some insurance companies give you an additional five years only as a renewal of the temporary insurance policy that lasts for 20 years without a medical examination, and therefore you must return to the insurance laws in your country and you must negotiate with the insurance company at this point.

3. The possibility of converting temporary insurance to other types of insurance such as life insurance or mixed insurance without the need to provide proof of insurance validity.

4. Holders of temporary insurance policies are characterized by death rates that are often high. Therefore, we find that some insurance companies set conditions when dealing with temporary insurance, the most important of which are:

a. Setting a maximum limit for the temporary policy insurance amount, whereby it is not permissible to issue a temporary insurance policy with a security amount that exceeds this maximum.

B. Setting a maximum age limit for the life of the insured, so that it is not permissible to issue a temporary insurance policy for those over this maximum age.

C. The requirement of medical examination for those who wish to purchase this type of insurance.

Advantages of temporary life insurance:

1. Inexpensive, with a small amount, you can get the insurance policy you need. The temporary insurance policy is at least 10 times cheaper than the life
insurance policy 2. The temporary insurance policy is the best example of the idea of ​​insurance and transferring the risk of death to the insurance company, as it does not contain any savings. Reverse hybrid and life insurance policies.
3. The temporary insurance policy used by banks when giving mortgage loans or any other loan to ensure that in the event of death or total disability, the insurance company pays the value of the loan (the value of the insurance policy is equal to the value of the loan), and therefore the temporary insurance policy encourages the presumption.
4. The temporary insurance policy allows you to get insurance coverage only when you need it and for a specific period, and when you do not need it, you simply will not pay its premiums, and therefore you must pay attention to the period and amount you need to insure your life, and most people who have small children are afraid of interruption of income. They choose a temporary insurance policy until their youngest child turns 23 and is able to earn.

Disadvantages of temporary life insurance:

There are no disadvantages to temporary life insurance and therefore it is the best type of insurance . But insurance companies say that it has some defects, including: –

1. Insurance companies say that if you are 30 years old and you choose the temporary insurance policy for 20 years, when you become 50 years old, you will not have Life insurance and you will have to buy a new temporary insurance policy at a high price due to aging and deteriorating health.

The response to that is that insurance in general and life insurance in particular is not an end in itself, but is merely a means of transmitting the risk of death for a certain period because every human being must die by God, and the main purpose for which the idea of ​​life insurance exists is the fear of interruption of income on whom A person financially supports them, but if the children become able-bodied men, the risk that most people pays for their life insurance ends.

2. The insurance companies say that the temporary insurance policy does not have a savings part, so the one who insures himself will not get any money at the end of the policy and some people feel injustice because they pay premiums for 20 years and if life comes to them, they will not get any money, but if it happened. Death the heirs will receive the value of the document.

The response to that is   that you pay compulsory insurance on your cars in most countries of the world, and it is possible that a car accident will not happen to you and therefore you did not benefit from the money you pay, and you pay fire insurance and it is possible that the fire did not occur and therefore did not benefit from the money.

The most important point is that you are my friend, the reader shuffling papers, you think that the insurance company is a bank that will invest your money and give you interest, but the insurance company is a company that bears the risks you are exposed to, such as the risk of death, and you give it installments in exchange for that, and if the death (risk) occurs, the insurance company will compensate the heirs But if the danger does not occur, you will not get anything.

And for your information, insurance policies that have a savings part, such as mixed insurance policies or life insurance policies, give you less interest than any other investment, and we will explain that in this article.

Second – life insurance:

According to this document, the insurance company is obligated to pay the insurance amount to the heirs, beneficiary, or beneficiaries specified in the policy in the event of the death of the insured on his life at any time after the date of the contract or when the insured lives for the last age in the life schedule, and the last age in the life schedule in Egypt is 85 years and in America 100 years, provided that the insured is committed to paying a single premium upon contracting, or annual installments, for the duration of the contract.

Also, insurance companies issue another type of life insurance, which is deferred life insurance, and according to this policy, the insurance company is obligated to pay the amount of insurance to the heirs, beneficiary, or beneficiaries specified in the policy in the event of the death of the insured over his life at any time after the postponement period specified in the contract in exchange for payment of the insurer It has a single installment upon contracting or annual installments on time.

Lifetime insurance benefits:

Insurance companies say that life insurance has several advantages, but I see them as disadvantages. The first, third, fourth and fifth advantages are disadvantages and not advantages:

1. Lifetime insurance provides a permanent guarantee.

2. Life insurance is considered one of the most flexible types of life insurance policies. It can be converted into another type of life insurance policy without submitting to a medical examination.

3. Life insurance contains an investment component as a result of the long period of insurance in this type of document, and as a result of using equal premiums in paying the cost of insurance, which allows the insured to obtain a liquidation value for the policy. 4. It is possible to borrow against the security of the document. 5. Life-long insurance allows the insured to cover the risk of death in the advanced years of life at a small cost

Disadvantages of lifetime insurance: –

1. Life insurance provides a permanent guarantee. 

Insurance in general and life insurance in particular is not an end in itself, but is merely a means of transmitting the risk of death for a certain period because every human being must die by God, and the main purpose for which the idea of ​​life insurance exists is fear of Income cuts out for those who are financially dependent on them, but if the children become able-bodied men, the risk that most people pays for their life insurance ends.

2. Any life insurance policy with a savings component I do not recommend it at all, whether it is a life insurance policy or a mixed insurance policy .

For clarification, we must shed light on the difference between the monetary value and the nominal value: –

Cash value: It   is the cash amount that the insurance company provides to the owner of the insurance policy upon canceling the contract. This term is usually used in life insurance.
The cash value is the sum of the premiums paid to the insurance company minus the value of the brokerage commission and the value of issuing the insurance policy with the addition of the interest value.
Face   value : the nominal value in the field of insurance means the value of the insurance policy that you have purchased, for example when paying 2,145 dollars annually in a lifetime insurance policy for a 30-year-old person is equal to 250,000 dollars.
For example,  you are a 30-year-old male in America who wants to insure your life in the amount of $ 250,000. You will find the terms of the documents as follows: –

– The temporary insurance policy (provides insurance protection in the event of death only), whose coverage period is 20 years, has an annual premium of $ 150, and the temporary document that Its coverage period is 30 years and its annual premium is $ 223.
– A life-long insurance policy that lasts throughout your life or until the last age on the schedule (in Egypt the last age of 85 and in America the last age of 101), its annual premium is $ 2,145 for a 30-year-old person.

But if you are in Egypt and you are a male and you are 30 years old and want to insure your life: –

– The temporary insurance policy with an annual premium of 500 pounds for 20 years, you will get 205,000 pounds in the event of death.
– The temporary insurance policy with an annual premium of  $ 500  for 20 years will get you $ 205,000 in the event of death.
– The mixed insurance policy (insurance protection in case of life and death) with a monthly installment of 500 pounds (6000 pounds annually). The date of death (you will not get the cash value), and the profits are less than the percentage of any other investment, even less than depositing the money with the bank. In Egypt, the average annual profit in the insurance company is variable and often ranges from 6% – 7% at the present time.

3. Savings insurance policies (mixed and lifetime insurance policies) and the myth of borrowing against the guarantee of the policy I think that the idea of ​​borrowing money with the guarantee of the money that I paid in the savings part of the life insurance policy or the mixed insurance policy is a flaw and not an advantage, because I basically borrowed my money that I paid to the insurance company in the form of installments and I do not borrow from the insurance company’s money, so how do you make me borrow my money with interest The answer that the insurance companies tell us is that they will lend us our money that we paid with interest that is less than the interest of the bank, and that these are the terms of the contract.

And I see that this division will make any unjust division, even if you decide to leave and revoke your life insurance policy and lose your life insurance policy due to your need for your money, you will face the biggest shock in your life, which is what we discussed in the next section.

4. Savings insurance policies (mixed and lifetime insurance policies) are expensive and the contract termination problem is problematic

Savings insurance policies (mixed and life insurance policies) are expensive as they are at least 10 times more expensive than an indentured insurance policy.
In savings insurance policies (mixed insurance policies and for life) the first three years and sometimes four years of premiums go to pay the brokerage commissions and issuance expenses. If you try to liquidate the document or borrow with the guarantee of the document, you will not get money, and the insurance company tells you that these are the terms of the contract.

A separate article,    which is better: temporary, life, or combination insurance

Section Two: Insurance policies whose amounts are paid in case of life

This section includes all documents or contracts that guarantee payment of the security amount specified in the policy or several periodic amounts (payments) in the event that the insured survives his life when it is due. The documents of this group are divided into two main types:

First – Pure endowment insurance (deferred capital):

Under this policy, the insurance company guarantees the insured for his life an amount specified in the policy in the event that he remains alive until the end of the policy period in exchange for the insured paying the installments on time, but if the insured dies before the date specified in the policy, the policy becomes expired and the insured is not obligated to pay anything To the inheritors of the insured.

Although the cost of a pure endowment insurance contract is lower compared to other contracts related to fund formation and accumulation of savings, some people refuse to purchase pure endowment insurance due to a sense of unfairness because they do not receive any of the paid installments if the insured dies before the end of the contract period and the amount of the insurance is due, and therefore Insurance companies at the present time issue two types of pure endowment insurance contracts:

1. A pure endowment insurance contract that does not guarantee the refund of any amount at all to the insured in the event of his death before the end of the insurance period, which is the normal pure endowment insurance contract.

2. A purely endowment insurance contract that guarantees reimbursement of all or part of the paid installments, either with interest or without interest, in the event of the insured’s death before the end of the insurance period.

The cost of pure endowment insurance contracts issued by insurance companies varies according to the advantages of each type and method of paying the contract cost.

Disadvantages of pure endowment insurance (deferred capital):

1- Personally, I see that pure endowment insurance (deferred capital) does not meet the main purpose of insurance, which is to transfer the risk to the insurance company, so what is the risk that a young person at the age of thirty lives until he reaches the age of fifty ?, and as long as there is no risk that makes many people Life fears and tends to insure its life from the danger of life. I consider pure endowment insurance (deferred capital) as a gamble.

 2. Insurance companies say that pure endowment insurance (deferred capital) is an almost compulsory way to save, by paying installments in advance. However, he is aware that he has a lower interest rate than any other investment, even if the money is deposited in a savings account at the bank.

You must know before purchasing a pure endowment insurance policy (deferred capital) what are the issuance fees and the commission of the insurance company. Personally, I do not recommend buying this type of life insurance.

Second – life payments contracts (pension payments):

Under these contracts, the insurance company is obligated to pay a periodical amount in the form of first or last payments every period of time for the insured as long as he is alive either during a specified period or at any time, and the company stops paying these payments in the event of the insured’s death. The different types of pension payments contracts can be identified through the following form:

It is noted from the previous figure that there are eight types of payments:

1. Urgent immediate life-long payment:

This type of contract guarantees the insured a periodic pension payment that is paid to him at the first of each period as long as he is alive, and the payment stops as soon as he dies, and these payments are paid in installments Wahid

2. Urgent normal life payment:

This type of contract guarantees the insured a periodic pension payment that is paid to him at the end of each period as long as he is alive, and the payment stops once he is luscious, and he pays for these payments a single installment

3. An immediate deferred lifetime payment:

guarantees This type of contract for the insured has an immediate pension payment that is paid to him at the beginning of each period as long as he is alive, provided that these payments start after the expiration of the postponement period specified in the contract. The trustee pays for these payments either a single installment paid once upon contracting, or he pays periodic installments only during the period of postponement.

4. Ordinary deferred lifetime payment:

This type of contract guarantees the insured a periodic pension payment that is paid to him at the end of each period as long as he is alive, provided that these payments are paid after the expiration of the postponement period specified in the contract. The trustee pays for these payments either as a one-time installment upon contracting, or he pays periodic installments only during the postponement period.

5. Immediate, urgent temporary payment:

This type of contract guarantees to the trustee a periodic pension payment that is paid to him in the first period of each period during a specified period as long as he is alive and the trustee pays a single installment for these payments.

6. Ordinary urgent temporary payment:

This type of contract guarantees to the trustee a periodic pension payment that is paid to him at the end of each period during a specified period as long as he is alive and the trustee pays a single installment for these payments.

7. Immediate deferred provisional payment:

This type of contract guarantees to the trustee a periodic pension payment that is paid to him at the beginning of each period as long as he is alive, provided that these payments are paid after the delay period specified in the contract has passed. The trustee pays for these payments either as a one-time installment upon contracting, or he pays periodic installments only during the postponement period.

8. Ordinary deferred temporary payment:

This type of contract guarantees to the trustee a periodic pension payment that is paid to him at the end of each period as long as he is alive, provided that these payments are paid after the delay period specified in the contract has passed. The trustee pays for these payments either as a one-time installment upon contracting, or he pays periodic installments only during the postponement period.

The advantages and disadvantages of pension payments: –

In order to judge the contracts of pension payments, we must compare the compulsory insurance system provided by the country in which you live with the advantages of pension payments contracts provided by the insurance company and that you invest the money you pay to the private insurance company or the compulsory government insurance system in an external investment at an average compound interest rate. Prevailing in the market until you reach the age of pension.

This is difficult to do in this article because it will take a lot of time and effort, but soon we will discuss articles on how to prepare for retirement age .

Section Three: Insurance documents that are paid for in the event of life and death (mixed insurance)

This section includes all the documents in which the insurance amount is paid upon the death of the insured person for his life during the insurance period specified in the policy or when the insured person remains alive until the end of the insurance period. All mixed insurance policies pay their cost either by a single premium or in regular annual installments (throughout the contract period) or in limited annual installments (for a period less than the contract period).

A mixed insurance contract is considered to consist of two contracts:

1. A temporary insurance contract that guarantees payment of the contract amount if the insured dies during the period of stress.

2. A purely endowment contract that guarantees payment of the contract amount in the event that the insured survives his life until the end of the contract term.

Uses of mixed insurance:

Insurance companies say that blended insurance is used as a semi-compulsory means of saving and investing through the commitment to pay insurance premiums on time.

Types of mixed insurance contracts:

1. Ordinary mixed insurance contract and

according to this contract, the insurance company is obligated to pay the insurance amount specified in the contract the beneficiary or the beneficiaries in the event of the insured’s death during the term of the contract, but if the insured remains alive until the end of the contract term, the company is also obligated to pay the same amount of insurance. For the same person, in exchange for the trustee paying a single premium or an annual premium during the term of the contract.

2. Double mixed insurance contract, and

according to this contract, the insurance company is obligated to pay the insurance amount specified in the contract to the beneficiary or beneficiaries in the event of the insured death during the contract period. If the insured remains alive until the end of the contract term, the company is obligated to pay double the amount of insurance to the person. The same, in exchange for the trustee paying a single installment or an annual premium during the term of the contract.

3. Mid-term mixed insurance contract

Under this contract, the insurance company is obligated to pay the insurance amount specified in the contract to the beneficiary or the beneficiaries in the event of the insured’s death during the contract period. The trustee pays a single installment or an annual premium during the term of the contract.

4. Relative mixed insurance contract

under this contract, the insurance company is obligated to pay the insurance amount specified in the contract to the beneficiary or the beneficiaries in the event of the insured death during the contract period. But in the event that the insured remains alive until the end of the contract term, the insurance company is obligated to pay a percentage of The amount of the security for the same person, in exchange for the trustee paying a single premium or an annual premium during the term of the contract.

5. A mixed insurance contract with profit sharing

Under this contract, the insurance amount is paid to the insured person personally if he remains alive until the end of the insurance period or to the heirs if death occurs during the insurance period, provided that the annual premiums are paid until death or until the end of the insurance period, and the insured has the right to obtain the profits that The insurance company distributes it to the holders of the insurance policies shared in the profits. Which results from:

a. The savings that the company makes in both death rates and expenses are taken into account when determining the premium.
B. The increase achieved by the company in investment returns over that which is taken into consideration when calculating the premiums.
C. The consideration paid by the insured as an increase in the premium in exchange for sharing in the profits.

Advantages of mixed insurance:

1. It offers double protection from both life and death hazards.  This is a defect, not an advantage, so how can a person’s life be dangerous? Is it because a person of retirement age needs expenses and money and is unable to work? There are better ways to prepare for the retirement period than these mixed documents that give less return than depositing money with the bank.

2. It is possible to borrow against the security of the mixed insurance policy within certain limits. Borrowing with the guarantee of the policy is a defect, not an advantage, and we explained that above in the part of the defects of the life insurance policy.

3. It is considered a semi-compulsory way to save by paying installments in advance. But at an interest rate lower than any other investment, even depositing money into a savings account at the bank.

Disadvantages of mixed insurance:

Despite the importance of mixed insurance and the high demand for it in developing countries in particular, due to the lack of insurance awareness, the following disadvantages for issuing mixed insurance:

1. The high cost of mixed insurance compared to temporary insurance.

2. The low rate of investment return on the savings parts of the blended insurance contract compared to the alternative investment rates in the market.

3. The rest of the defects mentioned above in the defects part of the life insurance policy.

Advice on mixed insurance: –

 You must carefully choose the amount that you will believe in your life, and you must know the term time value of money, which in short means that the dollar that you will get today is more valuable than the dollar that you will get in the future because of inflation, so when choosing the amount that you will insure on your life, you must Be mindful of this concept. An example of the failure of mixed insurance policies due to the time value of money: – Assuming you are in Egypt and you are 30 years old and have a mixed insurance policy (life and death insurance protection) with a monthly premium of 500 pounds (6000 pounds annually) for a period of twenty years, you will get 264,000 pounds In the case of life and installment payments for 20 years. Suppose that God wrote for you to live until the age of fifty and that you paid your installments in full for 20 years, the  value of 264,000 pounds in the future at an inflation rate of 10% annually, it will be like 39,241 pounds at the present time. The question is: –  

If you are a retired person at the present time you are 50 years old, how many years will the amount of 39,241 provide you with a decent life?

Anyone will ask, after being certain that the mixed insurance policy and the life insurance policy do not give the main purpose of life insurance (insuring your children until they are 23 years old and able to earn)  How do we choose the appropriate amount to insure our lives in light of inflation?

note: – If you have an insurance policy with a savings part in it, a mixed insurance policy or a life insurance policy, and after reading this article and related articles on life insurance, you have decided that temporary insurance is the best life insurance, do not cancel the insurance policy Mixed until you get the temporary insurance policy first.

in the end, the last point you will add in the comments, share with others, do not read and leave.

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