Life insurance: What is it, do I need it, and how does it work?

There’s no denying that life can be unpredictable, but what we can do is plan for all eventualities. While preparing for an uncertain future can be a daunting experience, buying life insurance now will help ensure that your loved ones are protected from financial burden - before it’s too late. In this week’s article, Kwiksure highlights the most important things people should know about life protection policies.

What is life insurance?

Life insurance is a product designed to help provide financial security for a person's loved ones (e.g. spouse, family) should something happen to them. This type of insurance comes into play in the more dire times of a person’s or family’s life, by paying out a predetermined amount of money if the policyholder were to pass away.

There are other times life insurance might kick in, and in some cases a lump sum payment will be made in the event that you develop a serious illness or disability. With this money, you can focus on getting well again without worrying about paying for the care and support you need.

What are the different types of life insurance?

There are two main types of life insurance:

• Term life: Term life policies are designed to protect your loved ones until such time as they are financially dependent. Typically, this is the cheapest type of life insurance, as it only lasts for a specific amount of time (e.g. 10, 15, or 20 years) and hence poses less long-term risk for the insurer.
• Whole life: Unlike term life, there are no fixed time frames for whole life coverage. As such, this type of life protection policy will last the policyholder for the entirety of their life, as long as they wish to maintain the policy.

Do I need life insurance in Hong Kong?

Life insurance can benefit people from all walks of life. As a general rule of thumb, if a loved one (e.g. spouse, parents, children, dependents, etc.) is likely to experience financial burden should you no longer be able to provide for them, you’ll probably need life insurance. Whilst the need for this type of insurance is often greatest for breadwinners with young children, buying life insurance when you’re younger can help lock in more favorable rates.

Conversely, it should also be considered if there is a cost to replacing the salary and services provided by secondary income providers or housewives/husbands. The costs of living are skyrocketing, and a single income may no longer be enough to comfortably cover your loved ones’ expenses. Both spouses should therefore have adequate life insurance to cover the lost income and/or economic value of lost services that would result from their deaths.

How does it work?

Once disbursed by the insurer, beneficiaries can use the money they receive to pay for the deceased’s funeral, as well as any outstanding debts that the person had. The payment provided by these policies can also be used to address mortgage payments, rent, day-to-day expenses, education, etc.

It’s important to bear in mind, however, that the specific circumstances and benefits under which a payment will be made can vary significantly between insurance companies, and even among policies offered by the same insurer. Exclusions, which are circumstances or actions that the policy won’t provide any benefits for (e.g. suicide, illegal activities), can also vary widely by insurer. As such, we highly recommend studying all policy documentation, as well as seeking advice from a reliable expert like Kwiksure before applying for life insurance.

Where can I go to buy life insurance in Hong Kong?

As a leading expert in all things insurance, Kwiksure has 18+ years of experience matching people with the best car, life, health, home, travel, and fire insurance in Hong Kong. Whether you’re single, married, a parent, or retired, our knowledgeable team are standing by to explore the best life insurance options for your needs, as well as give you impartial advice. For a free quote, get in touch with Kwiksure today!