Disclaimer: The writer is not a certified professional planner of any sort. All advise shown here are opinions based on the writers interaction with other parties and self-fact finding. In no way should they be used as the only advice to make final decision. What works for the writer may not work for you.
Do seek a qualified professional to access your needs before purchasing any products. He is not affiliated with any companies mentioned in this article. The writer holds no liability for any mis-advice causing loss of capital or other form of assets due to information gathered from here.
I never thought i would write something like this. I guess it is due to a variety of reasons. I have friends coming to me asking me what kind of plans do i have and what kind of plans should they get. I am not a license adviser, thus i cannot provide any advice. All that i can offer is simple coffee talk.
Even for simple coffee talk, it is difficult to explain insurance to them. The problem is that agents and advisers make it a difficult subject, Your mother, father make it a difficult subject, your friends make it a difficult subject.Hell you yourself make it a difficult subject! By the time you finish reading this (which you most likely won’t lol) , you will know that i make it as a difficult subject. That is why I decide to write this to save myself trouble from explaining to them all over again every time.
I am not saying i am tired of explaining, but its not always i get the best opportunity and time to explain so I think this is the best alternative. I hope that readers can contrast what I did and my perception of insurance with what you do so that it reinforced your belief in the way you do it or spark a thought to change if you think you encounter some deficiency somewhere.
To any adviser or agents reading this. This is strictly my point of view. There may be some portion in this that you disagree with or that I have stated wrongly, I would be happy if you can point it out. In any other case, I don’t have an axe to grind against any parties. I am only using this medium to reach my friends.
My Insurance Philosophy
Insurance to me is about hedging against life’s unknown. It is a struggle of the insurer, GOD and yourself about the possibility of something bad striking you. Should your claim in this life time be less than what you pay the insurer, the insurer wins. Should it be the other way round, you win (to a certain extent haha).
In terms of the true cost of how much should be the best to insure me, GOD would most likely have the best figure. The next person would probably be me. The guy that is in the weakest position here is the insurer, since he can only based on what he can gather about people in my age group and the general trend but in the end would depend on how truthful I do my underwriting.
My view of insurance is like how I view other things:
- Everything has to be a balance
- Keep the cost as freaking low as I can
- Control what you can and plan for the worst case scenario
Everything has to be a balance
I have encountered many opinion when it comes to how much you should spend on insurance as a whole. Most advisers will have a figure that is a percentage of your current income. But that is normally not the way it started out. Most is a number of times of your last drawn salary. Based on that figure, I should be insured nearly half a million (yes I am that expensive surprisingly).
I have friends who think insurance is a way sales people cheat alot of money from them. Apparently, he is a teacher. To me that is abit over the top, I would say because insurance is essentially a sales profession, there will always be a situation that many poor souls get mis-represented, with them knowing or not.
I have friends who after hearing agents or advisers talk about the cases they encounter and think that you die die better insure as much as you can when you are young. They are correct about insuring when you are young. This is when you are fittest and have the least health problems. Your health condition will get worse as you aged, and by then, your insurability will change dramatically and your cost of insuring will increase as well. Having said that, my point of view is that many were scared into buying savings and expensive whole life plans.
When the advisers starts to talk about the risks and cases he has encountered, this is when the customers attention is being shifted from cautious about the agent to relating to his own scenario and then coming to realise that he may be in the same situation. At this point, if the customers is still "zhai", his rational thinking will still be working, but most will not be evaluating the planned solutions the adviser comes up with later.
This is when the adviser starts talking about the recommendation. And from almost all that i have encountered, they will recommend Whole life or Limited whole life. This is not wrong (Which i would touch on later). However, many omit the alternative which is term. Without listing all alternatives, it does not benefit the customer. In the absence of a cheap alternative, the adviser can sell what he has on hand more easily should the customer be able to afford.
Insurance, like everything else is about balance. Its about
- Balancing the amount of medical and financial risk that you are willing to take vs the amount you should pay for insuring. For some people, they know themselves that their probability of getting something bad is rather large. These can be, for example, both parents suffer from diabetes or that the parents and grandparents have womb cancer or that you are naturally weak like me. This has to be balanced with a healthy lifestyle and necessary prevention activites to alleviate such concerns.
- Balancing the ability to service the premiums and your employability. One thing that many do not know of my concern when it comes to choosing whole life or term is that in this age of working, there is no such iron rice bowl or working in one company. With globalisation and increase competition, retrenchment and unemployability is a very big concern. Paying so much premium at the start of your working years through buying limited whole life enables you to own the policy and reduce your risk of not being able to pay for premiums in your older years. This may be no longer true. It is especially risky if you are an engineer like me. We are fucking expandable if you ask me. I would rather pay less premiums for more coverage that i can afford even when I am retrenched or unemployed.
- Balancing the duration of insurability with that of savings for retirement and old age. It is about how long you wish to be insured and also knowing the different risks that you faced at different stage of your life. If you balance insurance expense and savings well, you can achieve the same set of results if not better.
- Balance coverage vs cost. You have a limited amount of money. You require a certain amount of coverage. You have a problem. You need to work within that window to best fit all in.
Keep the cost as freaking low as I can
When it comes to insurance, I do follow keeping how much i pay as a % of my total networth quite tightly. It is the same for investments. The returns can be variable, however, the cost is something you can reign in and one should do that if his pocket is not deep like me.
It is not to say that I am strictly a buy-term-and-invest-the-rest (BTITR) guy. I do own a limited whole life plan. I recommend buying term and investing because i see insuring as an expense. It is basically a concept that many kiasu Singaporeans are not able to see. Most would go: "Wah lan eh! I pay so much i get freaking nothing back. Zhun bo!". I believe it is a chinese problem as well lol.
Insurance, like alot of things can be considered an expense. I see many that willingly pay 500 dollars to 1000 dollars for car expense, maintenance of car expense for something that is for sure depreciating. Insurance looks something very similar as well. So why is it "okay" to pay so much for a car and not insurance? Perhaps it is the fact that car you can see it as an asset or basically a hobby or something you long to have since you are a kid. The list of examples can go on.
Buying term and choosing the cheapest term can reduce your monthly premium by a hell lot. For example, a 100k term plan that covers Death, TPD, CI would set me back for 50 bucks per month. If you pay for a similar Whole life (not limited whole life) you will pay about 191 bucks. Thats almost 4 times. Think of the savings that you can save.