What is life insurance? Why buy it and when?
Life insurance is one of the financial tools that many people choose to protect their income and safeguard against long-term risks.
However, to participate effectively, users need to clearly understand what life insurance is, what a life insurance policy covers, as well as the common types available today.
This article by Cathay Financial Group will provide essential information to give you a reference point before making a decision.
What is life insurance?
Life insurance is an insurance product provided by an insurance company to protect participants financially against risks related to health, bodily injury, and life [1].
Depending on the product, the scope of coverage, policy term, premium, and benefits payable may vary.
In essence, life insurance transfers part of the financial risk from an individual or family to the insurance company under agreed terms and conditions.
When an insured event falls within the scope of coverage, the insurer pays the applicable benefits specified in the policy.
What is a life insurance contract?
A life insurance contract is an agreement between the policyholder and the insurance company that sets out the rights, obligations, and conditions governing the policy.
Under the agreement, the policyholder is responsible for paying premiums according to the agreed payment method and schedule, while the insurance company pays benefits to the beneficiary or insured person when an event covered by the policy occurs [1].
The benefits under a policy generally consist of base insurance products and supplementary insurance products. The base product may focus on risks such as death or total and permanent disability.
Supplementary products, meanwhile, extend the scope of protection through benefits such as accident coverage, critical illness coverage, surgery, maternity, dental care, or premium waiver benefits.
Therefore, when reviewing a life insurance contract, the policyholder should consider the premium, policy term, scope of coverage, benefit payment conditions, exclusions, and additional benefits together.
These factors provide a basis for assessing whether the policy is aligned with financial needs and protection objectives at different stages of life.
Life insurance contracts and their key parties
Party | Role / Description |
Life Insurance Company | A licensed enterprise operating under the law, specializing in life insurance business. |
Policyholder | The contract owner who pays premiums to maintain the policy. May also be insured. |
Insured | The person covered by the contract. The insurance company pays benefits on behalf of this person. |
Beneficiary | The person or organization designated to receive benefits upon the death of the Insured. May be the policyholder, the insured, or a third party. |
Insurable relationships in a life insurance contract
An insurable relationship establishes the basis on which an individual or organization can purchase insurance for another person. Depending on the product and the insurer's requirements, commonly accepted relationships include:
Self: The policyholder is also the insured person.
Parents and children: Parents may purchase insurance for their children, or vice versa, subject to the terms of the contract.
Grandparents and grandchildren: Either party may act as the policyholder or insured person, subject to applicable requirements.
Siblings: Family members may purchase insurance for one another when the relevant conditions are met.
Company and employee: An employer may purchase insurance for employees as part of an employee benefits program or under a related agreement.
Credit relationship: Insurance may be linked to financial obligations under certain credit arrangements, depending on the product and applicable regulations.
Why buy life insurance?
Lasting financial protection for your family
Life insurance can help reduce financial pressure when the insured person faces risks such as accidents, critical illness, or total and permanent disability.
Depending on the benefits specified in the contract, insurance proceeds may help cover medical expenses, offset part of lost income, and maintain essential household spending. In the event of death, insurance benefits can provide financial resources that help the family continue funding education, living expenses, and care for dependents.
Savings for future goals
Some life insurance products combine protection benefits with long-term savings or investment features.
When the contract meets the applicable conditions, maturity benefits may provide additional financial resources for goals such as children's education, business activities, asset purchases, or retirement planning.
The actual accumulation value and benefits depend on the product, policy term, and contractual terms.
Peace of mind
Having a financial plan in place for potential risks can help families reduce financial pressure when unexpected events occur.
However, the level of protection depends on the benefits selected, sum insured, and exclusions specified in the contract.
Contributing to a stable economy
Insurance activities help distribute financial risks across society, support policyholders in managing losses, and maintain their ability to meet financial obligations when unexpected events occur. The insurance industry also creates employment and contributes to the broader social security system.
As insurers collect long-term funds through insurance premiums, they may allocate part of these funds to investment activities in accordance with applicable laws. This allows long-term capital to flow back into the economy and support production, business activities, and investment.
Types of life insurance
Type | Coverage Period | Benefit Paid | Key Features |
Whole Life Insurance | From the contract date until the insured person's death | Benefits are paid when the insured person dies from a covered event | Traditional and widely used form of life insurance |
Term Life Insurance | For a specified period, such as 5, 10, or 15 years, or until age 65, 70, or 75 | Benefits are paid to the beneficiary if the insured person dies during the policy term | Suitable for protection needs over a defined period |
Endowment (Pure Survival) Insurance | For a specified period | Benefits are paid to the policyholder if the insured person is alive at the contractual maturity date | No benefit is paid if the insured person dies before maturity |
Endowment (Mixed) Insurance | A defined period | Benefits are paid to the beneficiary upon death or to the policyholder if the insured person remains alive, subject to the contract terms | Combines term and pure endowment |
Annuity Insurance | According to the term agreed in the contract | Periodic benefits are paid to the insured person or beneficiary | Designed to provide a regular income stream, often as part of long-term financial planning |
Investment-linked insurance | According to the policy term and product terms | Provides insurance benefits while allocating part of the premium to investment funds | Includes universal life and unit-linked products, with different investment mechanisms and levels of risk |
Retirement insurance | Generally designed to cover the retirement period | Provides periodic payments or income according to the agreed terms | Supports additional financial resources during retirement through individual and group products |
5 Tips for choosing the right life insurance
Define your needs and financial goals
Actual needs provide the basis for determining the sum insured, premium, and policy term. Before selecting a product, the policyholder should review:
Existing insurance coverage: Review insurance programs provided by employers, family members, or existing policies to avoid overlapping benefits.
Financial goals: Determine whether the priority is health protection, savings, retirement planning, or building financial resources for children.
Protection period and financial reserves: Identify the period for which protection is needed and the amount of financial support required if a covered risk occurs.
Insured parties: Clearly identify the insured person and beneficiary, particularly when purchasing insurance for family members.
Financial capacity and risk level: Consider income, health, occupation, and specific risks when determining an appropriate premium level.
Review the product package details
Each product has its own coverage scope, premium structure, and benefit payment conditions. Before signing the contract, the policyholder should review the premium and payment period, premium allocation mechanism, policy term, insurance benefits, and related conditions.
Life insurance premiums are not fixed for everyone. They are generally determined based on factors such as the insured person's age, gender, occupation, health condition, and level of risk.
Note: Life insurance premiums are not fixed - they depend on factors such as age, gender, occupation, health status, and the risk profile of the insured.
Research the insurer's reputation and reliability
Life insurance contracts typically have long terms, making the insurer's financial strength and operating performance important factors to consider before purchasing a policy.
Key criteria include:
Operating history and financial strength: Consider insurers with a stable operating history, appropriate scale, and the ability to maintain long-term operations.
Market reputation: Independent rankings and assessments can provide additional reference points, such as the Top 10 Most Reputable Life Insurance Companies ranking published by Vietnam Report.
Service quality: Review information from multiple sources about consultation, insurance benefit claims, and customer service processes to gain a more comprehensive view.
Publicly available information: Check corporate reports, company information, product details, and other relevant documents through official channels before making a decision.
For example, Cathay Life Insurance Co., Ltd. Vietnam (Cathay Life Vietnam) is a worthy option to consider. As a subsidiary of Cathay Financial Group with total assets of USD 457 billion, Cathay Life has a solid financial foundation. The company has also been recognized with the "Golden Brand of the Digital Age (GBDA)" award in 2024, acknowledging its innovation and business efficiency [2].
Explore additional benefits and supplementary riders
In addition to the benefits provided by the base product, a life insurance contract may be expanded with additional benefits or supplementary insurance products.
These benefits typically have separate premiums, coverage scopes, terms, and payment conditions. The policyholder should first identify the risks that require priority protection and then compare them with the benefits offered by each product to avoid adding unnecessary coverage.
Common supplementary products include coverage for health, accidents, critical illness, hospitalization, and surgery. When considering these options, the policyholder should review the sum insured, waiting periods, benefit payment conditions, and exclusions before adding them to the contract.
Read the contract carefully and evaluate customer service quality
The insurance contract serves as the basis for determining the rights and obligations of all parties throughout the coverage period.
Before signing, the policyholder should carefully review the premium, policy term, insurance benefits, benefit payment conditions, premium payment period, cash surrender value, and exclusions.
The information presented in the benefit illustration should also be compared with the official terms and conditions of the contract.
Exclusions require particular attention because they define the circumstances in which the insurer is not obligated to pay benefits. If any provision is unclear, clarification should be obtained before signing rather than relying solely on verbal explanations provided during the consultation process.
Service quality after the contract is issued is also worth considering, as life insurance coverage may remain in force for many years. Key criteria include:
Consultation quality: Whether the representative provides complete information about benefits, costs, and contract terms.
Support channels: The ability to review policy information, pay premiums, update personal details, and submit benefit claims through online or in-person channels.
Service network: The coverage of offices, service points, and affiliated healthcare facilities if the product includes cashless or direct billing benefits.
Claims process: The processing time, required documents, and procedures involved when submitting a claim.
Cathay Life Vietnam – Insurance foundation and service quality
Cathay Financial Group is present in Vietnam through three main entities: Cathay Life Vietnam, Cathay United Bank - Ho Chi Minh City Branch, and Cathay Insurance Vietnam, all with a long-term investment orientation and a commitment to sustainable development.
Cathay Life Vietnam has been operating in the Vietnamese market since 2008. The company currently operates a network of more than 120 business locations across six major cities, including Ho Chi Minh City, Hanoi, Da Nang, Hai Phong, Dong Nai, and Can Tho. With a team of more than 2,400 insurance consultants, Cathay Life Vietnam currently serves more than 500,000 customers nationwide.
In the life insurance sector, Cathay Life Vietnam offers products including Protection, Savings, Education, Investment, and Supplementary Products [3].
Cathay Life Vietnam places special emphasis on its customers, guided by the mission of "Insurance for all, happiness for every family."
The company views insurance not only as a financial product but also as a foundation for protecting families and communities. This approach reflects its core values of credibility, responsibility, and innovation, which are expected to continue taking root and expanding in Vietnam as the company moves forward.
Frequently asked questions about life insurance
Who is life insurance for?
Life insurance can be relevant to various customer groups, particularly individuals with financial dependents, those raising young children, or those preparing financial resources for retirement.
For young single individuals, protection needs and the ability to maintain a policy over the long term can also be assessed based on income, financial obligations, and personal goals.
Life insurance does not eliminate financial risks, but contractual benefits can provide additional financial resources when a covered event occurs. The level of financial support depends on the sum insured, selected benefits, and applicable conditions.
Why should you buy life insurance as early as possible?
Age and health condition are commonly used to determine insurance premiums and eligibility requirements.
As a result, purchasing coverage at a younger age may provide advantages in terms of premium costs and the length of the protection period. However, the specific premium and benefits still depend on the product, health profile, occupation, and the insurer's underwriting requirements.
Age alone should not determine when to purchase life insurance. The ability to maintain premium payments consistently and actual protection needs should also be considered.
How much should you spend on life insurance each month?
There is no fixed premium amount for everyone because costs depend on factors such as age, gender, health condition, occupation, sum insured, policy term, and the selected product.
Some personal finance guidelines use a percentage of income as a reference for setting an insurance budget, but the 10% to 15% range should not be treated as a universal requirement.
An appropriate premium is one that can be paid consistently over the long term without affecting essential expenses, emergency savings, or other financial obligations.
At Cathay Life Vietnam, customers can explore various insurance product categories, including Protection, Savings, Education, Investment, and Supplementary Products. Each product has different coverage, benefits, policy terms, and premiums. Therefore, customers should assess their needs and financial capacity before selecting a product, while also reviewing the product information and benefit illustrations provided by Cathay Life Vietnam to determine an appropriate premium level.
What documents are needed to purchase life insurance?
The application typically includes identification documents for the policyholder and insured person, health and occupation information, and other documents required for the specific product.
In some cases, the insurer may require a medical examination or additional documentation as part of the underwriting process.
For products distributed online, the application and verification process may be simplified. However, whether a medical examination, proof of income, or additional documentation is required depends on the product and underwriting results.
How long should you pay premiums?
Premium payment periods may extend for 5, 10, 15, 20 years, or longer depending on the product, while the policy term may differ from the premium payment period. These two concepts should therefore be distinguished when reviewing a life insurance contract.
The premium payment period should be selected based on protection objectives, the duration of the financial plan, and the ability to maintain cash flow.
In particular, policyholders should review the provisions regarding late premium payments, policy lapse, reinstatement, and cash surrender value in advance to reduce financial risks if circumstances change.
Conclusion
Understanding what life insurance is the first step in determining whether a product aligns with actual financial needs.
Rather than choosing based solely on premium levels or individual benefits, policyholders should assess the contract as a whole, including the scope of protection, premium payment period, exclusions, and the ability to maintain the policy over the long term.
References
[1] LuatVietnam. (2023). Bao hiem nhan tho la gi? Khac gi so voi bao hiem xa hoi? LuatVietnam. Truy cap tu: https://luatvietnam.vn/bao-hiem/bao-hiem-nhan-tho-la-gi-563-32806-article.html
[2] Baodautu. (2024). Cathay Life duoc vinh danh giai thuong Thuong hieu Vang thoi dai so nam 2024. Baodautu. Truy cap tu: https://baodautu.vn/cathay-life-duoc-vinh-danh-giai-thuong-thuong-hieu-vang-thoi-dai-so-nam-2024-d227391.html
[3] Cathay Life. (2026). Gioi thieu Cathay Life. Cathay Life. Truy cap tu: https://www.cathaylife.com.vn/cathay/about