For some, life insurance is a necessary evil, for others a smart way to secure their future. But beware, life insurance can mean several quite different products. So in this article, we’ll look at all the main types of life insurance, their advantages, disadvantages and, most importantly, who each is right for.
When you are offered a “good deal on life insurance” at the bank, it may well be a completely different product to the one your brother-in-law took out with his insurer. There are several very different insurance models under one name. All life insurance policies address the basic “what if something happens” question, but each one is different. And each costs different money.
There is a fundamental difference between risk insurance (if something happens, you get paid, otherwise nothing) and combined insurance (savings + insurance).
Life insurance contracts tend to be full of small letters and big hooks. If you’re not sure what you’re signing, or have already signed, contact us. We’ll review the contract, point out the risks and advise you on how to proceed.
Term life insurance is for one thing: financial security in the event of unpleasant life events. Death, disability, serious illness or long-term incapacity for work. Nothing more, nothing less. No savings, no returns, just insurance protection.
It’s ideal for those who want to protect their loved ones – for example, breadwinners, parents of young children or self-employed people without health insurance. The advantage is the low cost compared to the insurance cover. You can insure millions for just a few hundred a month. The downside is that you won’t get a penny back if nothing happens to you.
Endowment life insurance combines insurance with guaranteed savings. The way it works is that part of the money goes towards insurance protection (e.g. in case of death), and the rest “appreciates” in the capital account. At least on paper. Unfortunately, returns on capital insurance are often below inflation, fees are high, and clarity is difficult.
But the advantage is a guaranteed amount on survival and a lower tax burden. The downside is little flexibility – it tends to be complicated (and expensive) if you want to change the policy amount or money early. This product is a bit of a dinosaur these days, but it still exists. And it has its place – for conservative clients who want something certain and simple.
Investment life insurance (ILI) is a child of the modern age. It combines protection with investment in funds. But here too – read the small print and read it twice.
Part of the money goes to risk cover, the rest to investment funds. You can choose your strategy, whether you want conservative, balanced or dynamic, and take your own risk. The advantage is the theoretical potential for higher appreciation. The disadvantage is that insurance companies charge fees for each activity, so returns can be poor or negative.
In addition, it is difficult to explain, and even harder to compare with other investment vehicles. If you are familiar with funds and want an insurance policy plus an investment in one, an investment life savings plan may make sense for you. Otherwise, it’s often better to have the policy separately and the investments separately.
Tip: Accidents at work are not uncommon. It is not uncommon for situations to occur on the job that take an employee out of work mode. Do you know what you are entitled to when you are compensated for a work injury?
In this case, it is a kind of hybrid between life insurance and pension insurance. The aim is to save for retirement, with the policy providing a payout in old age – either in the form of an annuity or a lump sum. It has tax advantages, so the motivation is clear.
It is suitable for people who want to set aside money for their old age in a systematic way and also have some insurance protection – perhaps against death or disability. It also has the advantage of providing additional insurance for life beyond a certain age.
The downside can be a little flexibility, because if you need the money sooner, you lose some of the proceeds or pay penalties. And also lower returns than one would get from other forms of investment. On the other hand, as a stable conservative tool for financially literate individuals, it makes sense.
Accident insurance is a common supplement to a life insurance policy. It covers costs associated with an accident, such as hospitalization, disability, permanent consequences, or even death. It can be taken out on its own, but more often it is included as an add-on to a life insurance policy.
The advantage is its low cost and relatively high benefits in the event of an accident. The disadvantage is that the accident must happen suddenly and unexpectedly. While this sounds obvious, insurance companies often interpret it to mean that a twisted ankle while running up the stairs is “not sudden enough”.
It is important to keep an eye on benefit limits and exclusions (e.g. sporting activity, alcohol, extreme sports) when arranging. Accident insurance is an inexpensive insurance policy for sure, we definitely recommend considering it.
There is no universal advice. Everyone has different priorities, income and living situation. Still, a few basic rules apply:
It’s wise to review your policy every 2-3 years because life changes – kids grow, jobs change, mortgage is paid off. And all of this affects what policy is optimal for you.
So life insurance is not one thing, but rather a whole family of products, each addressing something different. Term life insurance protects you from the worst, endowment life insurance offers security and investment insurance offers the possibility of appreciation.
It’s not about having the ‘best’ policy according to the advertising leaflet. It’s about having one that matches your reality.
Tip: Home insurance is not the same as property insurance. Read on to find out when and for what situations you should take it out.
Life insurance is not just one product, but a collection of different types that address protection and savings in different ways. Term life insurance provides financial cover for adverse events such as death or disability, without savings and at low cost, particularly suitable for breadwinners or the self-employed. Endowment insurance combines protection with guaranteed savings, but is more expensive and less flexible, often with low returns. Investment life insurance allows you to combine insurance with investment in funds, offering the potential for higher appreciation, but at the cost of more complex management and higher fees. Retirement life insurance is for long-term savings for old age with tax advantages but limited flexibility. Accident insurance adds accident coverage to the policy but requires careful monitoring of exclusions. Choosing the right type depends on individual needs, priorities and financial situation; therefore, it is not advisable to rely on a one-size-fits-all product or a “package deal”. Regular review of the policy is key to ensure it matches the current life situation, and it doesn’t hurt to get expert legal advice to uncover potential hidden hooks in the policy.
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Ondřej is the attorney who came up with the idea of providing legal services online. He's been earning his living through legal services for more than 10 years. He especially likes to help clients who may have given up hope in solving their legal issues at work, for example with real estate transfers or copyright licenses.
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