FAQ #13 What are the main types of life and health insurance?

Since there are various kinds of risks, there are various kinds of insurance policies as well that you can consider. It is also important to take account of your wishes, responsibilities, and time horizon, when compiling an insurance portfolio.

The cheapest form of life insurance is term insurance, but if you need protection for the long run, you are probably better off with permanent insurance (a.k.a. whole life insurance), with or without cash-value build-up. Universal life insurance offers very important investing and money management advantages, beyond the basic function of permanent protection as well. Its creative applications make it important even for some people who do not really need or want to ensure a death benefit to anyone when they die. Somewhat similarly to universal life insurance policies, segregated funds also combine two basic component, risk protection and pursuing investment gains.

Many people do not know enough (or at all!) about the wide variety of a very basic new type of insurance, critical illness insurance, that is relevant basically to everyone, but perhaps even more so for single and/or self-employed people. With changing demographics and deteriorating health care system, another new type of protection, long term care insurance, will surely become more popular. These new policies, while similar to traditional disability (income protection)plans in some sense, are basically complementing and not substituting those.

An important development in the industry is that there are more and more policies (extended health and dental care, business overhead protection plans, injury only protection, etc.) available to the self-employed, or lower income and other people who were somewhat neglected before.

Insurance companies are the sole providers of investment products (segregated funds, annuities) where (unlike when investing in traditional mutual funds or equities) you can get maturity or death benefit guarantees, as well as creditor protection. These features make insurance company issued investment products potentially interesting mainly for seniors, business owners, and some professionals.