Insurance: Asset protection

People spend a lot of time and effort building and saving assets, but little time thinking about how to protect those achievements against risks in life. In the wake of the Covid19- epidemic, health has become a more important issue, and the impact of the disease has been devastating on the global economy.

Insurance is an effective and extremely popular method to protect assets. In addition to insurance provided by the Government (health insurance, social insurance, etc.), forms of commercial insurance (provided by insurers and insurance organizations) are also very popular. There are two main types of commercial insurance: Life insurance and non-life insurance.

LIFE INSURANCE

"THIS PROTECTS PEOPLE AGAINST HEALTH - AND LIFE-RELATED RISKS (INJURY, ACCIDENT, DEATH) AND ENSURES FINANCIAL SECURITY WHEN RISKS OCCUR. ”

For example, if Mai signs a life insurance policy, she would agree to pay regular premiums (monthly, quarterly, etc.) to the financial reserve fund managed by the insurance company. If Mai suffered from health problems, or at the expiry date of the policy (specified in the policy), she would be paid a certain amount by the insurance company in line with the policy. This amount would be extremely significant to Mai since:

This would be a guarantee for unexpected accidents and risks for Mai, especially for when buying a phone by loan. With the principle of “lump-sum”, the amount she would be paid by the insurance company at that time would be much higher than the amount she borrowed to buy the phone (maybe up to 500% higher). In addition, depending on the insurance organization, Mai would also be entitled to a hospital stay of up to VND 300,000/day and up to VND 9,000,000 in case of an accident emergency resulting in death or permanent disability. She would even be paid her monthly contribution if she is hospitalized for at least 7 days due to illness or accident (if Mai stayed in the hospital for 7 - 30 days, the insurance company would pay an installment period on behalf of her; 31 - 60 days is considered 2 periods, etc.).

Mai could use this money to save and make financial plans, but more specifically, to buy a phone sooner. The reason is that, in addition to receiving back the entire amount Mai paid under the insurance policy, if she took out insurance packages with investment products¹⁰, she would also receive additional insurance interest (from the profit of an insurer’s financial fund, which is announced every year based on the fund's performance) and accrue such interest. At the same time, if she bought life insurance, Mai would also have the motivation to focus on saving and being more conscious of her daily expenses to pay for the insurance premium.

¹⁰ Some insurance packages include investment products with better returns than bank deposits.

If Mai has investments, when she encounters unexpected situations such as a hospital stay or injury, life insurance would also help her limit damage from reduced investment assets, lost income, or even bankruptcy. The compensation from life insurance would help her take care of her family or pay off bank debts that she is unable to fulfill because of unforeseen circumstances.

NON-LIFE INSURANCE

A form of protecting property, civil liability, and other insurance operations that are not part of life insurance. Here are several things to keep in mind when choosing non-life insurance:

Unlike life insurance, which often uses the form of “lump-sum”, non-life insurance uses principles such as contribution and subrogation. Subrogation is the right of the insured or insurer to pursue the party that caused the loss to them to recover funds paid in the claim. For example, Tuan was crashed into by another car when he was driving. As Tuan had bought non- life insurance, he was not too worried because he knew the insurance company would pay the cost of repairing the car. His insurer pursued the other party to retrieve the insurance money the company had spent. Thus, the risk was transferred from Tuan to the insurance company based on the principle of subrogation.

With non-life insurance, the policyholder only needs to pay a one-time premium and the insurance company will commit to paying and indemnifying the insured in case of risks arising out of loss of material or body. However, if the insured has not faced any risks by the end of the contract, they will not receive the paid amount.

RULES OF INSURANCE SELECTION

As you can see, each type of insurance has different characteristics and benefits. If you've decided to buy commercial insurance, here are some rules to keep in mind.

Determine needs and financial capabilities

You need to clearly define what your financial goals are – long-term accumulation, protection (Mai’s phone loan) or investment (Tuan’s stock investment loan, house loan). Pay attention to your financial capabilities. Non-life insurance premiums will depend on the purpose (for example, valuing the property for property insurance). Meanwhile, determining the life insurance premium is different. If you have a steady income and set aside an investment for the future, the insurance premium will account for 15 - 20% of that amount. For example, in Tuan’s case (with a salary of VND 25 million/month, he spends 30% of his income, or VND 7.5 million to invest), he will buy insurance of about VND 1.5 million/month (20% of VND 7.5 million investment). The reason is that if the premium is too high, policy holder may not be able to pay (especially new graduates like Mai, with no official job or stable income). But if the premium is too low, the insured amount will also be same and not higher (especially in the case of protecting Tuan’s investments) resulting in the loss of insurance value.

Choose the time and payment method oflifeinsurancepremiumsinaccordance with your financial capability, avoiding the suspension of the policy

Currently, life insurance companies try their best to help customers maintain their policy until maturity. For example, Mai just graduated from school, so it is very difficult for her to pay a large amount each time. She could therefore break down the term by month instead of by quarter to spread her premiums into easily-to-pay amounts. On the other hand, for non-life insurance, you only need to pay the premium once and can sign a new policy when it expires.

Declare truthful and accurate information

For example, avoid falsifying records, or getting sick then buying insurance because the insurance company will rely on this information to verify the profile (before signing the policy) or pay benefits (after signing the policy and the insured event occurs). If you make an error when providing information, the insurance company may refuse to review the application or handle insurance benefits. In addition, you also need to carefully review the benefits, especially any exclusion clauses, to avoid trouble and disputes later. For example, life insurance will cover death, except for in cases such as death due to drugs, stimulants, alcohol, and addiction.

Above are some rules that you need to understand and remember carefully to take advantage of the great benefits of insurance as well as avoid unpredictable risks. Accordingly, you can feel more secure when spending, and improve your quality of life thanks to the financial support from insurance.