Cedric Stephens, Contributor

Question: I am a single, 23 year-old college graduate who lives with my parents. Three months ago, I started my first job. A high-school friend contacted me recently. She suggested that I buy life insurance.

My immediate plans include buying a car and building a nest egg to pay for post-graduate studies. Should insurance form a part of those plans?

- BS, Kingston 6.

Answer: Members of your generation seem more grown-up than mine were at the same age.

This is the second question I have had about life assurance from a member of your age group in recent times. When the first policy was sold to me - a very long time ago - I was at the salesman's mercy! He was 'dressed to the nines' and drove a white, Oldsmobile Cutlass with white wall tyres.

At the time, I used 'Jolly-Joseph', the street name for public transport. Now, with the range of products on the market - traditional and alternative - from banks and other deposit-takers, consumers are fully in control and have choices that I never dreamed of.

Protection

Your friend's employer sent me lots of information about the product that she is trying to sell you after I contacted one of their executives. Included was a compact disc, specimen policies, premium and other details. I'll use them to answer your question - minus the sales pitch, of course.

Four types of illnesses cause most deaths in Jamaica: cancer, cerebrovascular diseases (strokes), heart disease, and hypertension.

Accidents are another big cause of deaths, especially for persons in your age bracket. These illnesses and accidents account for most of the deaths. Stripped of all the hype, life insurance provides money to pay funeral expenses, debts and provides income for family members if any of these events take place.

The plans that are being sold by your friend will provide you with some form of protection. They are: whole, straight or ordinary life, universal life and critical illness.

Coverage

Ordinary life, as I prefer to call it, pays a benefit on the death of the insured. Premiums can be paid monthly or quarterly. The plan includes a disablement benefit. If the insured is permanently disabled or loses a limb because of an injury he/she will be paid a preset part of the sum insured. Fifty per cent of the premium will be repaid if, after 20 years, no claims have been paid.

Universal life is a variation of ordinary life. Part of the premium provides life coverage while part is invested. Because of this, the sum insured does not remain fixed as it is with ordinary life.

The contract operates like a savings account with life insurance added.

The premium can also be adjusted. Two commercial banks, by the way, offer products like this.

The premium is payable annually. Claims will be settled on proof of death or on the very first diagnosis of cancer, a heart attack, coma, paralysis or major burns. A disablement benefit is also included.

Critical illness is defined in the third contract as cancer, a heart attack, coma, paralysis or major burns. This policy provides the least coverage.

The sums insured which are being offered have been set by the company. They are limited to a low of $250,000 and a high of $1 million. These amounts bear no relation to your income or financial needs. On the plus side, they would be better than nothing. Conversely, how will you to pay the premium when you are an unemployed graduate student?

In the final analysis, you will have to decide based on this and other information and the goals you have set whether life insurance should now form part of your plan or wait until you have finished graduate school - when you will be older and premiums are higher.

Cedric E. Stephens provides independent information and advice about risk and insurance. For free information or counsel, email Stephens: aegis@cwjamaica.com

The premiums for the plans being offered for sale are summarised as follows, based on the premium for a male (premiums for females would be lower):

Plan type Age Sum Insured Annual Premium