I got a call at work today from my first insurance agent. He thinks it’s a good time to do an annual review of Drizzt’s insurance and investment portfolio.
Now let me just say that it is absolutely necessary to do this kind of review. Your life, goals, risks and dependents changes so you might need these policies.
My agent knew from past experience that I do my own investments and believe very much in using term life insurance to hedge my risk.
My agent, unlike many new agents (he is experienced with 13 years in the industry) doesn’t believe in ILPs. This is especially so after the great financial crisis in 2007. Many folks who have bought ILPs have seen deep drawdowns in the value put in not to mention high distribution costs.
What he thinks I am missing for my needs
He have been advising me for 2 years and this will be the third year. He finds that it is such a waste for me paying all those premiums and not getting any money back.
He would advise that I purchase either a G10 or G15. Now folks who are not familiar with G10 or G15, I would explain that they are limited whole life plans where you pay 10 to 15 years and then you can stop servicing the policy and would be able to own the coverage.
This is not the first time recommended to me and you can read all about it here where I complain my difficulty in calculating these limited whole life policies.
Now If you are going to convince Drizzt to buy a limited whole life its not going to be that easy since Drizzt is not your normal gullible client who will likely agree with most points you have presented.
So here are some of the points he highlighted to me why I need these policy.
1. Unlike your investments, when you get bankrupt, you still have your insurance policy to fall back on
What he explained is that, many rich and affluent clients of his still buys endowment policies from him. The main reason is that should they get sued or undergo some form of litigation and get bankrupt, they will still have their insurance policy to fall back on.
I think rather than fall back on, it either means
- their dependents don’t have to suffer just because their parents faced setbacks
- that endowments cannot be liquidated to pay for the litigation and the insure will have this to fall back on.
Number 2 is entirely new to me, and I hope other insurance advisor to say this is otherwise.
I think this is very powerful. When you have a client that is savvy, reference to people that you have successfully sold to, are successful and where your client aspires to be at.
Explaining that their “role models” are doing this makes it all the more reason to buy this despite your initial misgivings
2. Leverage on your insurance to do more
Savvy people are always thinking what more they can do to put their money into good use. And the rich loves to leverage.
Say for example the rich wants to divide a sum of 6 million dollars among 5 sons for 1 million each. Dividing it up by giving each son 1 million will result in only 1 million left for the rich man.
With insurance, the rich man can use a portion of his wealth to purchase an insurance that will provide a sum assured divided equally upon death to his sons.
3. Use insurance to prevent your cash from getting depleted
People like Drizzt tend to count their pennies quite a fair bit and usually this argument works best as well with term life insurance versus whole life insurance.
It might be true that you will have a networth of 100k-400k cash. Cancer is one of the big killers in Singapore and if you suffer from it, your 300k coverage might look a lot but you will have to think that should you deploy half of it for treatment and you survived, you cannot work at 100% capacity.
Because of that your income falls or you might need to stop working for some time. Should there be a relapse, you will not have another CI policy to fall back upon.
Possibly this will work on Drizzt since you are playing on his fear of seeing his hard earned assets plunge to nothing.
But Drizzt pose this questions
- At how much would it be enough to insure against this scenario? how much is really enough?
- Given that this amount in (1) to be substantial, do we think Limited Whole Life would be able to cover that big of an amount for a average earning family?
4. Diversify because you do not know what life will throw to you
Life is great for a lot of reasons but at some point it will throw a nasty spanner at you. Even if you have a good job now and have a good buffer you really do not know what will happen down the road.
While you will lost a lot of your wealth with an insurance policy it becomes the last line of defense.
So his advice to at least save 10% of your disposable income for this.
I find this argument abit weak:
- If life were to throw a different spanner at you, you may lose this life insurance policy. At the end of the day, we can argue all day long and still a series of unfortunate will just killed your policy.
- If 10% of your disposable income comes up to $400, you will only be able to purchase a limited amount for insurance.
- Saving a very little amount in Limited Whole Life insurance for me do not make much sense when u already have that amount in cash already.
I think the crux of this article is not to teach an insurance agent how to sell it to increase sales, but to think through whether persuasive arguments make sense to you.
At the end of the day, Drizzt is not really savvy in insurance. He just know a little bit more than the average folks in the street. I do take what my insurance agent presented and evaluate at night.
I still find that
- Limited whole life should not be part of the majority of your insurance due to cost constraint.
- Cost is a big consideration when choosing which Limited whole life to purchase.
What do you guys think? 4 valid arguments?
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