Basic Types of Life Insurance

Paying insurance premiums, when an insurance event occurs, the beneficiary can get a larger amount of money. Paying insurance premiums is an obligation under the agreement, and at the same time, the insurance buyer cannot arbitrarily take back the paid fees (unlike depositing money in a bank), so it saves the insurance buyer from unnecessary expenses. However, saving in life insurance is not like other forms of saving such as bank savings, postal savings, although these types are all for the purpose of saving. Saving in life insurance is saving regularly, with a plan and discipline. At the same time, it is also saving from very small amounts of money until the contract expires or an insurance event occurs, the customer will receive a very large amount of money from the insurer. Bank savings or postal savings cannot be strict and are not equal to small periodic amounts like life insurance, but with relatively large amounts of money, which not all customers can meet.

- Life insurance meets many different purposes of the insured : there are many different types of life insurance, so it can meet many different purposes of the insured. Specifically: Death insurance helps the insured leave a sum of insurance money to their family when they pass away. This amount meets many wishes of the deceased such as: supporting parents, educating children; Retirement insurance will meet the needs of customers with monthly allowances, thereby bringing comfort to old age, ensuring a stable pension for everyone, including those without social insurance. Life insurance also helps customers realize big plans in the future such as buying a new car, buying a house, preserving assets, etc. In addition, life insurance contracts are sometimes used

used as collateral to borrow capital for the purpose of starting a business, purchasing assets...

Maybe you are interested!

- Life insurance contracts are often long-term and very diverse and complex: In fact, the shortest term of a life insurance contract that insurers provide is 5 years. The long-term nature of a life insurance contract is to ensure the insurer's rights in investment activities while meeting the savings purposes of the insurance buyer. On the other hand, a long contract term will help the insurance buyer be able to pay insurance premiums. The diversity and complexity of life insurance is reflected in its products. Each life insurance product has many different types. For example, protection and savings contracts have terms of 5 years, 10 years, 15 years, 20 years. Each contract has a different term, different insurance amount, and different ages of participants. Even the relationships in a contract are quite complicated. Each life insurance contract can have 4 parties involved: the insurer, the insured, the insured and the beneficiary. It can be said that insurance contracts are richer but also much more complicated than non-life insurance contracts.

- Determining the value of life insurance participation is quite complicated : Life insurance premiums are calculated on a scientific basis, so that the insurance fund can accumulate enough money to pay when the life insurance contract expires or when an event within the scope of insurance occurs. In addition, the premium is also used to set up reserves, management costs and profits. To produce normal products, it is only necessary to indicate the actual costs incurred, that is, the input costs, these are accounted for in detail, fully and accurately to serve the valuation process. Life insurance is different, in the business process

Enterprises need to pay for contract management costs, exploitation costs, etc. However, these costs are only a part of the price of life insurance products. Other factors depend on: the age of the insured, average life expectancy, insurance amount, participation period, payment method, investment interest rate, inflation rate of currency, etc. Therefore, the pricing process here requires a firm grasp of the characteristics of each type of product, analysis of cash flow as well as the development trend of each product in the market.

1.1.3. The role of life insurance

- Firstly, for the people, life insurance contributes to stabilizing the lives of individuals and families, and is a spiritual support for the insured. Risks can occur at any time and reality has proven that many individuals and families become difficult and destitute when a family member, especially the breadwinner, dies or is permanently disabled. At that time, the family must pay for funeral expenses, burial, hospitalization, medicine, surgery costs and compensate for lost regular income. More difficult is a series of obligations and responsibilities that the deceased has not yet completed such as: paying debts, supporting elderly parents, raising children to study... Although the social security system and social organizations can provide financial support, it is only temporary in the short term, not ensuring long-term financial security, life insurance will partly solve those difficulties.

- Second, through life insurance services, a service with a large number of participants, insurers collect fees to form an insurance fund, which is used mainly for compensation, payment and reserve purposes. When idle, it will be a useful source of investment capital contributing to development and

economic growth. This source of capital not only has a long-term investment effect, but also contributes to the practice of saving, fighting inflation and creating more jobs for workers. Nowadays, in many countries around the world, scientific advances have contributed to accelerating the process of production development, improving socio-economic life, and prolonging the life expectancy of the population. This is a good thing, but it also poses a number of issues for society, first of all the State budget, that need to be addressed. That is, having to allocate an increasing amount of budget corresponding to the population growth and life expectancy to solve social security regimes, especially for the elderly and homeless. Therefore, the part of the budget invested in development will be more or less affected.

To overcome this impact, many countries in the world have used other measures to supplement development investment capital. This is considered a measure to support the State budget in ensuring normal living conditions for the elderly and disabled people in addition to the State's social welfare benefits and is a source of additional capital for the State budget in investing in production development, creating jobs, maintaining order and social stability.

- Third, life insurance is an effective tool to mobilize idle cash resources in all social classes to practice savings, contributing to fighting inflation. In terms of products, all life insurance products are able to resist the effects of inflation because when calculating insurance premiums, insurance companies apply a discount rate, this interest will compensate for the depreciation. When participating in life insurance, customers can rest assured about the value of money because when participating in insurance, the amount of insurance premium paid by the insured is not a static source of money but money that generates money.

The insurance premium is invested by the insurance company and the investment interest is returned to the insured in the form of a discount on the insurance premium cash flow, and also in the form of interest sharing. It is also important to note that when participating in insurance and paying periodic premiums, not the entire premium is affected by inflation corresponding to the insurance term, but each part of the premium will be affected in different terms. Through that, we see the great role of life insurance in curbing inflation.

- Fourth, life insurance also contributes to solving a number of social problems such as: creating more jobs for workers, increasing investment capital for children's education, creating a beautiful lifestyle, saving with a plan... In a highly competitive environment, life insurance companies that want to develop products and expand their market need a large-scale agent system to help promote, advise and distribute the company's life insurance products to customers. When organizing life insurance services, life insurance companies also need a large number of employees using computers, statisticians, accountants... because of the wide range and scope, long time, so developing this service will create more jobs for workers.

In recent times, the actual number in Vietnam as well as experience in other countries shows that the force of life insurance agents will develop very rapidly in the coming time. The construction and development of the force of agents and employees of life insurance companies has created jobs for thousands of workers, contributing to the stability of security and order for society and economic growth for the country. Thus, it can be said that life insurance is both a source of additional capital for development investment and an effective tool to curb inflation, creating jobs.

jobs for workers, reduce difficulties for individuals and families of people at risk, in order to contribute to protecting national security, ensuring and stabilizing the economic and social life in each country. Therefore, for countries where the State's role in social security is not yet strong, it is necessary to promote long-term life insurance services because it contributes to supporting the State budget to solve some difficulties in social security funding and development investment.

1.2. Basic types of life insurance

1.2.1. Types of individual life insurance

- Life insurance : “Life insurance is an insurance service for the case where the insured person lives to a certain period, according to which the insurance company must pay the insurance money to the beneficiary, if the insured person still lives to the period agreed upon in the insurance contract” [20, D3]. The characteristics of this insurance product are: The insurance money is paid on the contract maturity date when the insured person is still alive; The contract term is determined; It is a type of insurance that is purely economical; The insurance premium can be paid once or periodically within a certain period of time less than or equal to the insurance term of the contract; Interest may or may not be divided; The surrender value (refund value) may be paid when there are no conditions to continue participating in the insurance.[18, p13]

- Term insurance : “Term insurance is an insurance service for the case of the insured person dying within a certain period of time, according to which the insurance company must pay the insurance money to the beneficiary, if the insured person dies within the period agreed upon in the insurance contract”[20, D3]. The characteristics of this insurance product are: The insurance period is determined, usually this period is 1 year, 5 years, 10 years or determined by the period of time

from the time of participation to the age of the insured when the contract ends; Usually implemented under an insurance contract but sometimes implemented as a supplementary product or additional insurance benefit of the insurance contract; Insurance premiums can be paid once or periodically for a certain period of time less than or equal to the insurance period of the contract. The insurance premium is low because there is no need to establish a savings fund for the insured; This product can be implemented for individuals or for a group of people under the same contract.[18, p14]

- Mixed insurance: Mixed insurance is an insurance business that combines life insurance and death insurance[20, D3]. This insurance product has the following characteristics: It both insures against risks and saves money; The insurance amount is paid when the contract matures or when the insured person dies during the insurance period. That is, in all cases, the insurance company must pay benefits to the customer; The insurance period is predetermined (usually 5 years, 10 years, etc.); The insurance premium can be paid once or periodically within a certain period of time less than or equal to the insurance period of the contract; Interest may or may not be paid; The surrender value (refund value) may be paid when there are no conditions for continuing.

- Whole life insurance: “ Whole life insurance is an insurance service for the case of the insured person dying at any time during his/her life”[20, D3]. The characteristics of this product are: The insurance amount is paid when the insured person dies; The insurance period is indefinite; The insurance premium can be paid once or periodically and does not change during the insurance period; Whole life insurance is a type of long-term insurance and the premium payment creates a savings amount for the beneficiary because it is certain

The insurance company will pay the insurance amount; May or may not pay interest; May be paid the surrender value (refund value) when there are no conditions to continue participating in the insurance. .[18, p15]

- Periodic payment insurance: “Periodic payment insurance is an insurance service for the case where the insured person lives to a certain period; after that period, the insurance company must pay periodic insurance money to the beneficiary according to the agreement in the insurance contract”[20, D3]. The characteristics of this product are: The insurance money is paid when a certain period is reached; The insurance premium can be paid once or periodically and does not change during the insurance period; Interest may or may not be shared; The surrender value (refund value) may be paid when there are no conditions to continue participating in the insurance.

1.2.2. Types of group life insurance

Group insurance has many similar characteristics to individual life insurance, but the most noticeable difference is: Group insurance is insurance for a group of people, instead of just insuring one person or a family member as in an individual insurance contract. The "group" here must satisfy the condition that a group of people is established not for the purpose of participating in insurance. Unlike individual life insurance, the premium of group life insurance is calculated based on the risk characteristics of the entire group such as age, occupation, and gender.

The process of forming a homogeneous group of insureds to which the law of large numbers can be applied, and from which the probability of death or illness in that group can be estimated. Since insureds do not have to provide evidence of insurability on an individual basis, the purpose of this exercise is to minimize adverse selection for the insurer by any

Comment