Life Insurance in Pakistan: A Fundamental Guide

Fiza Jawaid
August 05, 2019

In Pakistan, you’ll find every individual in search of ways to save their money. If they have money then you’ll find them looking for the safe options to invest in. In this modern age, people of Pakistan look over the fact of unforeseen events. When it comes to Life insurance, people will tell you thousands of reason for not to invest in one but few of them are aware of the benefits that life insurance policy is going to provide you when you’re in need of it.

This blog post is going to give an overview of Life Insurance in Pakistan.

What is Life Insurance?

Life Insurance is a contract between an individual (the buyer of the insurance policy) and the insurer (insurance company).In this agreement, the insurer is liable to pay the death benefit to the beneficiaries upon the death of the insured.

The purchasing of a life insurance policy is determined by the applicant himself. the selection of the policy is driven by the lifestyle of the insured’s dependents and how much the amount will be required to maintain the needs of his family.

Life insurance is classified into three types:

Whole Life Assurance

When the sum assured is to be paid on the happening of the certain event, i.e. death of the insured, and then it is called whole life assurance.

Term Life Assurance

On the maturity of the life insurance policy, the amount is paid in one shot to the policyholder.

Annuity:

When on the maturity of the policy the sum assured is paid in installment, usually monthly, it is called an annuity.

The best age to get life insurance

The ideal age for obtaining life insurance is technically right after birth. Life insurance is age-banded, which means that as each year passes, the policy becomes more expensive.

The best age to purchase life insurance is under 35, but few people in that age group are able to afford life insurance.

What is the cut off age to Get Term Life insurance?

While you have to be 18 years or older to take out a life insurance policy, you can take out this type of insurance for or on behalf of a child or minor. It is recommended to take out a life insurance policy no younger than 25 years but no later than 50 years. The sooner you take out life insurance, the greater the benefit will be.

However, if you are over the age of 60 years, you may not be able to get term life insurance as most providers have this age as a cut-off to provide benefit. This is largely due to the fact that the insurer runs a greater risk of having to pay out a full benefit in case of death before they are able to cover the cost of the payout from monthly payments or premiums.

What are the various modes of payment for premium?

Premiums can be paid by the policyholders to the insurer in multiple ways depending on the insurer you are getting a policy from eg: in yearly, half-yearly, quarterly or monthly instalments.

Key Difference between Health & Life Insurance

The following points explain the difference between health insurance and Life insurance:

Life insurance, as the name suggests, is an insurance plan that covers the risk of contingencies that can affect human life and pays out the sum assured to the nominee on the death of the insured, or to the insured on the expiry of the definite term. Conversely, an insurance product, taken out by an individual, to compensate for the cost of medical and surgical expenses, but only up to the amount covered, is called health insurance.

In life insurance, both survival and death benefits are provided to the policyholder. On the contrary, health insurance provides treatment and medical benefits, in case of illness or accident.

The premium for life insurance can either be paid in a lump sum or periodic intervals, usually quarterly. In contrast, the health insurance premium is paid in a lump sum for the whole term.

An assured amount is paid to the nominee on the demise of the insured or the insured on the maturity of the policy, in life insurance. However, in case of health insurance, no money is recovered, if the term of the policy is expired instead it is reimbursed in case of any health issue. Life insurance is usually taken for a long-term say 10 or 20 years. As against, health insurance is taken for one year.

Key Differences between Whole Life and Term Life Insurance

In Term Life insurance, the policyholder gets insured up to a particular period only. On the other hand, whole life insurance works throughout the life of the policyholder.

In Whole Life Insurance, there is no definite period specified, i.e. it is not known how long the contract will continue. Conversely, in Term Life Insurance the definite time is specified in the contract.

Types of Life Insurance Plan

1. Endowment Plan

This kind of insurance policy is considered to be as the solid one in terms of return. This is one of the reliable methods of saving in which the sum is guaranteed to the insured either at the specified time or at his death.

The benefit of this plan can also be increased by the completion of specific requirements. You can read about all the details here. This cover is known as supplementary cover.

2. Children Education Plan

This plan is going to help your child’s future. In order to make it grow and protect, this insurance policy is well suited for all the parents. It also offers Cash value. On the death of the insured, Assured sum or cash value whichever ever is higher is given to the beneficiaries.

Some of these policy’s receivable can also be used for marriage as well. furthermore, some companies provide education continuation plan too under this policy.

3. Marriage Plans

Its a dream of every parent to see their daughter getting married the way she has always dream off. This policy is going to help you to make your daughter’s dreams come true. You can receive the benefit while you save money under this policy. At the end of the decided term, the holder of the policy will get the sum.

Some companies provide add-ons under this policy.

4.Retirement Plan

Working whole life is not the option and Retirement is something that has to come to everyone. So why not plan your retirement smartly by getting a plan for it.

This plan is going to help you in certain cases i.e. accidental death, sudden death, injury permanent disability. This plan also provides the option of receiving the accumulated cash value and get yourself enrolled for pension plan of life.

How does it work for you?

There are three, major elements of Life Insurance:

1) Death Benefit

The benefit is the amount guaranteed by the insurance company to the beneficiaries identified by the insured upon his death (or completion of policy tenure). The insured will choose the desired death benefit amount based on the estimated cost to cover future needs of dependents.

2) Premium Payment

The cost of insurance (COI) is determined by the insurance company. The premium amount is exclusive of other fee charges. Premium is influenced by the number of factors i.e. age, medical history, occupational hazards and risk propensity. The insurer is obliged to pay premium till the time he expires.

3) Cash Value

Cash value acts as two pointers:

  1. A saving account can be attained by the policyholder with cash accumulated on a tax-deferred basis during his life. Some policies have restrictions depending upon the money withdrawn.
  2. The second purpose of cash value is to offset the rising coast or to provide insurance as the insured ages.

Why Life Insurance is necessary?

There is nothing like imaging yourself on a death bed and helpless. The worst scenario you can imagine after this is “Your dependents being left with nothing to survive for the rest of their lives” To make sure this doesn’t happen, Life insurance is important for every individual.

This decision of purchasing an insurance policy is going to come handy once you’ll be old or in-case of retirement, it is going to pay-off the huge numbers that you’ll be unable to pay from current cash-flow. Life-saving and the death benefit is one aspect of insurance policy however you’re also going to get money once the tenure of the policy is at its completion.

1. Life Insurance for Children

In the case of Hereditary Risk, Parents can buy a Life insurance policy for their child. In the thought of expecting a long life for their child, parents will go to every limit to make their future secure. The best way is to buy an insurance policy under their name so they can use it when they will need it for their families.

2. Life Insurance for Parents

Life insurance can also be important in terms of investment. You can do this by getting a life insurance policy for your parents. Suppose that the premium of this life insurance policy is going out from your pocket and by making yourself the beneficiary of this policy, you’re going to save is the amount for the longer period of time. This option is considerable when your parents are young in age.

3.Life Insurance for Business Persons

Life insurance policy is also important for business persons. You’re running a business of your own or in partnership and most of the people relies on you. It’s necessary for you to buy a personal Life Insurance policy for the purpose of your business obligation.

4.Starting off with a “Family”

Life Insurance policy can be purchased when you’ve decided to start off a family. In this time, the rates would be comparatively cheaper than the time you get older. Better consider buying it now!!!

5. Marriage

One of the best offers the Life insurance policy comes up with is Marriage plan. In Pakistan, one of the most important things to worry about is ” how we are going to bear the expenses for our child’s marriage” this scenario is mostly applicable to girls. Buying a marriage plan under life insurance is the best thing you can gift to your child and peace of mind for yourself as well.

6. Child’s Education

Education plan under the life insurance policy is also one of the reasons why you should start making up your mind towards this financial product. This plan is going to take care of the finances of your child’s education on which the whole development of your child’s career and life is dependent upon. In Pakistan people usually don’t plan upon the finances that are going to come in their ways as the child grows up. Today he is in school and in the next 10 years, he is in high school and just like that he is standing in front of you and wants to go for a certification which is not pocket-friendly. This plan is going to help you then.

When does a policy lapse? How it can be revived?

It can be paid within a certain period specified by the insurer, from the date of first unpaid premium. It can be revived by paying the premium within the set time period.

Companies that provide Life Insurance in Pakistan.

1. Jubliee Life
Insurance
Deals in Conventional as well as
Islamic banking. Life Insurance plans
are offered in both categories.
2. Adamjee Insurance Investment plans and conventional individual life-saving plans are offered.
3.State Life Insurance Individual & Family, savings and
investment plans are offered in
conventional banking type.
4. TPL Life Insurance Both savings and investments plans.
5. IGI Life Insurance Individual & Family, saving and investment
plans are offered in both conventional and
Islamic category.
6. Pak Qatar Family Takaful Insurance Individual & Family, saving and investment
plans are offered in the Islamic banking category.
7. EFU Life Insurance Individual & Family, saving and investment
plans are offered in both conventional and
Islamic category.

These are the basic points towards the importance of insurance in an individual’s life. The most important thing you should keep in mind while buying an insurance policy is to get it compared. With so much competition online, it is pretty hard to get your eyes on the right options. Smart Choice is here to make your life easier. Simply log on to www.smartchoic.pk and get your plans compared. For further assistance please feel free to talk to our representative available at your service.

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