Don't overlook tax benefits of insurance in financial planning

Insurance remains relatively underdeveloped in Thailand, despite tax benefits on premium payments and the availability of increasingly sophisticated products that combine long-term savings features with insurance coverage.

In terms of personal financial planning, life insurance can be critical in helping a family survive unforeseen tragedies, such as the death of the main income-earner. Since the Revenue Department allows a deduction of 50,000 baht from personal income tax on insurance premium payments, many experts say insurance should be one of the first investments an individual makes.

As an investment, most policies offer returns that are typically lower than stocks or bonds in exchange for guaranteed returns and principal.

Some types of life insurance create a cash value that, if not paid out as a death benefit, can be borrowed or withdrawn at the holder's request. Since most people make life policy payments a high priority, buying a cash-value type policy can create a kind of "forced" savings plan.

It's also important to consider various features of insurance policies, as some offer financial security to dependents in case of loss, retirement or disability.

Life insurance can be divided mainly into three types: ordinary, industrial and group insurance.

Ordinary is the type of life insurance plan that needs a relatively high sum insured, from 50,000 baht upward. It is appropriate for middle-income earners. Whether the insured may be required to undergo a medical checkup depends on each company's requirement. Premium payments are normally made every year, six months, three months or one month.

Industrial insurance is a type of coverage that needs a fairly low sum insured, from 10,000 to 30,000 baht. Payment could be made on monthly basis, and a medical checkup is not required. If the insured dies of a natural illness, the insurance company will not pay compensation, but instead return all premiums the insured has paid.

Group insurance is a type of policy that gives protection to more than five persons. This type of insurance is generally offered to corporate employees. The need for a medical checkup is determined by the insurance company. The premium for group insurance is normally lower than ordinary and industrial types.

According to the Insurance Department, the four major types of life insurance -- whole life, endowment, term and annuity -- are determined by protection and benefits.

Whole life insurance offers permanent protection from the day one purchases the policy until death -- as long as the premiums are paid.

The basic goal of whole life is to provide funding for dependents once the insured has died, which may also be used for final expenses and funeral costs.

Term Insurance is the simplest form of life insurance. It pays only if death occurs during the term of the policy, which is usually from one to 30 years.

Term life policies are renewable but premiums increase with age. The objective is to protect premature loss of life. This type has no saving features, so the rate is fairly low and no returns of principal are provided to the insured if they live up to the contract.

An endowment is a life insurance that is payable to the insured if he or she is still living on the policy's maturity date. Otherwise, it's paid to a beneficiary.

This type of insurance plan is a combines life protection and savings. A part of the savings will be payable to the insured once the contract is mature.

An annuity is a life insurance product that pays periodic income for a specific period of time or over the course of the holder's lifetime. There are two basic types of annuities: deferred and immediate. Deferred annuities allow assets to grow tax-deferred over time before being converted to payments to the annuitant. Immediate annuities allow payments to begin within about a year of purchase.