Perks and Drawbacks of Buying Insurance Products
Before buying an insurance product, it's better for you to know the advantages and disadvantages of buying insurance products first. Most of us only know the benefits of it, such as how an insurance product can help us to anticipate our financial condition in the future. But just like any other things, insurance products also come with some drawbacks as well.
Insurance itself is an agreement between insurance participants and insurance companies, in which they agree for insurance participants to monthly pay some amount of premium, and insurance companies to cover the participants' financial loss due to unexpected events. So basically, insurance functions to provide protection for the insured party from unexpected events, legal responsibilities, and compensation claims from third parties.
Insurance comes in some types, including health insurance, auto insurance, and education insurance. In this article, let's discuss anything related to insurance products, including the pros and cons of buying one.
Types of Insurance Products
Before we talk about the perks and drawbacks of buying insurance products, let's get to know the types that most insurance companies offer. Here they are.
- Life Insurance
Life insurance is an insurance product that will give coverage when the policyholder dies. The money will usually be given to the late policyholder's family member who has been registered by the policyholder. Life insurance is beneficial for those who are the only one in the family who has a constant income.
Nearly all insurance companies offer their life insurance products with their own benefits. You just need to choose one that meets your needs and preferences.
- Health Insurance
It can be said that health insurance is one of the most popular insurance products. As you can guess from the name, health insurance protects the policyholder from various possible health problems that might occur in the future. For example, being hospitalized due to sickness or involved in an accident.
This insurance product will cover the policyholder's hospital bill. Some cover the entire cost while some other cover only part of the hospital bill. You can choose one according to your needs.
- Auto Insurance
Another most popular insurance product is auto insurance as most vehicle owners buy it to protect their vehicles. This insurance product provides coverage and protection for vehicles that get damaged due to unexpected events, such as accidents. It also covers and protects lost vehicles due to theft.
- Education Insurance
For parents who want to prepare for their kids' education costs earlier, education insurance can be a choice. Policyholders can claim their education insurance when their kids reach a certain stage of education, such as when they enter the university. They can also claim it when the policyholders fail to finance their kids' education due to some unexpected events.
For example, losing a job due to a layoff. This insurance product is suitable for those who want to protect their kids' education.
Advantages of Buying Insurance Products
Below are the benefits of buying insurance products.
- Financial Protection
Financial protection is the biggest benefit of insurance. When something unexpected happens in the future, whether you are sick or your car gets damaged, you don't have to use your savings to pay for the bill. The insurance product you buy will cover it for you, making sure that your savings are safe. Insurance will help you to keep your finances stable although you unexpectedly have emergencies in the future.
- Future Savings
The future is a mystery, you have no idea what will happen in the future. You don't know if you still have a job in the next few years or are still healthy or not. By buying an insurance product, you are preparing yourself for the worst in the future. You can use insurance as your future savings, whether for health matters or risky events.
- Helps Manage Finances
The next benefit of buying insurance products is helping to manage your finances. Since you have to pay for a certain amount of insurance premium every month, this helps you to manage your finances well. You will learn how to hold yourself from being consumptive by buying things that you actually don't need.
So, buying an insurance product helps you to strictly control your finances and prioritize what's important in your life.
Disadvantages of Buying Insurance Products
Besides advantages, insurance also comes with some disadvantages as well. Here they are.
- Your Money Will be Gone If You Fail to Pay the Premiums
If you fail to pay the monthly insurance premiums, the money that you have previously given to pay the previous premiums will be gone. This means that you won't be able to make a claim when you need the coverage. Each insurance company has their own rules when it comes to this, especially about the number of months that you fail to pay the premiums in a row.
- Some of the Premiums Will be the Company's Profits
This point is related to the previous point. As it is said before, your money will be gone when you fail to pay the premiums for several months in a row. This makes you unable to make a claim. As a result, the premiums that you have previously paid will the insurance company's profit, meaning that you cannot get it back.
How to Choose the Best and Trusted Insurance Company
There are a lot of insurance companies out there. And each of them offers insurance products with their own benefits. So, some of you are probably confused to choose one. But worry not. Follow these following tips to choose the best insurance company according to your needs.
Know Your Needs and Financial Ability
Every person has different insurance needs. Make sure you know and understand well your own needs before choosing a certain insurance product. There are some types of insurance products available, including life insurance, auto insurance, and health insurance. For example, if you want to buy a health insurance product, ask yourself some questions.
- Do you need coverage for hospitalization?
- What is the most possible illness that you might have?
- Is it necessary for you to buy additional coverage for chronic illnesses?
- If you want to buy auto insurance, ask yourself if your vehicle's value is worth the insurance premium or not. Do you have a high possibility of losing your vehicle because you're living in an area prone to theft?
By asking these questions, you'll be able to get the optimum benefits of the insurance product you buy and the money you spend for the premiums. It is because you have insurance premiums that you must pay on a regular basis. So, it's also important for you to find out if the premium amount meets your financial ability or not.
The more expensive the insurance premiums, the wider the coverage given by the insurance company. But the question is, do you need it? Having insurance is highly suggested, but don't let this burden your finances in fulfilling your daily needs, which are definitely more essential.
Compare the Benefits and Premium Amounts
Once you have known the insurance products that you need, now you can make it specific by choosing the product that meets your budget. Then, find out what benefits that you will get according to the amount of premiums that you can afford. Ask yourself if those benefits are worth the money you spend or not. Do you think it meets your insurance needs without burdening your finances?
Licensed Agents and Companies
You can buy an insurance product from either insurance companies or agents. No matter where you buy it from, make sure the company or agent has a license. This license works as a proof of their experience in the insurance industry, as well as shows that they are under the supervision of the authority.
The license also shows that the insurance company or agent is legally registered in the insurance association in your country. If they have it, this means that the agent or the company is trusted.
Easy Claim Process
The claim process is the payment process by the insurance company for the bill that you receive. There are some claim payment methods given by the insurance company, the most common ones are cashless and reimbursement methods. The reimbursement system is the payment system in which the insurance company will pay your bill after you submit a claim along with supporting evidence, such as payment receipts.
This means you need to pay for the bill with your own money first, then the insurance company will reimburse it. On the other hand, the cashless system is a direct payment system by the insurance company for each transaction you make with the third party, whether it is a hospital, workshop, and so on.
With this cashless system, you just need to swipe your insurance card. The cashless system is easier and more practical, but the premiums are usually more expensive. But if you have the budget, you are suggested to choose an insurance product from an insurance company that provides this cashless claim system.
Easy and Practical to Buy
In this digital era, buying an insurance product shouldn't be complicated and hard. Now you can buy an insurance product online, without having to go to the insurance company's office. By buying online, you can save time, energy, and money. This is surely beneficial, especially for those of you who are always busy with your tight schedule.
You just need an internet connection to buy an insurance product that you need. If you prefer to buy online, make sure the insurance company you choose provides this service.
Risk Based Capital
The next thing to consider when choosing an insurance company is their risk based capital. Risk Based Capital (RBC) is the financial health of an insurance company. A large RBC ratio indicates a healthy company's financial condition. The minimum RBC criteria may vary in each country so that you can check the insurance authorities' website to find it out.
Before buying the insurance product, you have to consider the company's RBC then predict their ability in fulfilling the payment or claim when necessary.
High Liquidity Ratio
A high liquidity ratio indicates an insurance company's ability to meet their obligations in paying their short-term debts. And just like RBC, the higher the liquidity ratio, the better the company's financial condition. This number also shows that the insurance company is ready to have the risk when you face some unexpected events that put you at loss.
Good Reputation
You must not miss or ignore this point when choosing an insurance company. Make sure you choose one that has good reputation and credibility. You can easily check their reputation on the internet, such as in forums. Most professional, trusted insurance companies have official websites where you can look for necessary information that you have to know, including their reputation.
Good insurance companies will be willing to show honest reviews from previous customers. So, go to their official website and read other customers' reviews to find out if the insurance company is credible or not. You can look for information about how they handle policyholders' claims.
For insurance participants, the main benefit is the sense of security because of the guaranteed coverage against the risk of loss, especially in the term of finances. Insurance is an effort to anticipate future financial conditions and protection for yourself and family. Yes, insurance doesn't only protect yourself, but also your family.
For example, in life insurance products, the compensation is given to the heirs if the insured is disabled or dead. So, the family left behind will still have a secure financial condition. However, it cannot be denied that the premium amount is not that affordable. And you have to pay it monthly. You have to make sure that you are able to pay for the premiums on a regular basis.
Otherwise, you will lose the money that you have paid before. In conclusion, buying insurance products indeed brings many benefits of protection. But you need to consider your financial ability as well. Those are the advantages and disadvantages of buying insurance products.
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