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Published on March 28, 2008

 Why? It does not depend on economic conditions but always remains as a necessary financial vehicle to help people manage their personal finances in a world where family structure has changed from a large, extended family to a small, nuclear one.

I will give you a clear example of the benefits of life policy in terms of tools to manage economic, personal financial burdens as well as business risk.

Life insurance can help build financial stability, or ease financial crisis from unexpected incidents that may harm your life, health or living out of your own savings.

It is a fact that death, sickness or disability of individuals can definitely decrease or stall one's income and increase one's expenses. This could result in a short-term or a permanent crisis. Such scenarios make life insurance almost indispensable.

Independent of the current economic environment, buying life insurance depends on three factors: your life cycle or age at the time of buying a policy, your financial risk-management objective - what kinds of economic risk to plan for - and your financial capabilities.

These factors will define your policies. For example, those who just started working or building a family are likely to carry other financial burdens such as housing loan, caring for dependants, parents and/or children.

They often cannot afford to pay high premiums. So their suitable policies should serve to prevent unexpected incident rather than savings or investment benefit. If they face unexpected incident, a life policy will compensate some expenses or indemnity.

Meanwhile, those with large savings can buy an endowment policy, which offers different benefits when compared to other investment tools: a fixed guaranteed return throughout the policy period, and protection coverage.

For example, Somsak, 40, has average annual savings of Bt100,000 and pays 15-per-cent annual income tax. He also has financial burdens: he takes care of his family with two children and housing loans and so on.

He has two financial plans to consider: Plan A, where he saves all his money in a bank deposit offering an annual 4-per-cent interest rate, or Plan B, where he saves Bt82,000 in a bank deposit and Bt18,000 in a life policy.

The second plan has more interesting and competitive benefits.

Somsak can diversify his investments, receive annual income tax benefits of Bt2,700 and have his life protected for Bt1.5 million in case of unexpected events that can threaten his life in the next 20 years.

The policy can help reduce his financial burdens, while he saves Bt2.5 million at the end of 20 years.

If Somsak chooses Plan A, he will only receive the total bank deposit amount with interest. His savings will reach Bt3 million only if he can maintain his saving capability for at least 20 years.

Otherwise, his beloved family will get only his savings made prior to a life-threatening incident.

Finally, to whom can his financial burdens be passed on?

If you were in Somsak's shoes, which plan would you choose?

In the current volatile economic environment, affected by local and external forces, managing personal financial risks becomes even more challenging and requires more prudent decisions.

And to truly benefit from life insurance one must largely be disciplined.

Yongyuth Lim is executive vice president of the Life Operation Group of Siam Commercial New York Life Insurance.

Yongyuth Lim