Thursday, August 27, 2009

Insure for what ? or against what ?

General insurance is more straight forward, you are insuring your car, house, home content etc. But in life insurance, what does insuring your life mean ? What are you actually insuring for or against ?
  • Death - end of life
  • Disability - partially or completely unable to live a standard live
  • High medical fee
  • Accidents
  • Income
Death is not a problem actually. Everyone got to go eventually. If anyone is still fear of death then its just becuase his personal growth hasn't reached a mature level yet. But then again, NOT everyone must be mature. Living a whole life like a dump kid is still a life, no different than the smartest ass in the world. Either way, they should and acquire solid personal finance despite the differences.

Death is not a problem, but dying too early or too late is. If you live a purposeless life then dying early may be fine for you. But almost suddenly you will realize you do have purpose afterall at the very moment before you pass on and its too late for you to do any thing about it.

"Sorry Mum I am gone, I meant to say I love you. Here is your ticket to Dubai ..."

Dying too late is only a problem when you are incapable of substaining your life but yet you are alive. This usually occurs in 2 major scenarios; financially drain and health problems. So you use up your money, cann't buy any more Starbuick and you sit outside desperately don't know what else to do. Or you have been in coma for 15 years but your body is still going, lying there doing nothing yet doctor doesn't want to certify you dead. Else with a wealthy and healthy being, no one would complain about dying too late ...

"Hi Nurse, I may not be able to speak but here is your salary for massaging me, thanks !"

Disability is hard word to agree upon in common sense but in this industry, a person is considered disable when he couldn't perform the tasks majority of the people can. This is further percisely identified as losing 2 limbs (Total Permanent Disability) or diagnosed of Cancer (Critical Illness) etc. Your family and you may need some helps when you are 'disable'.

"Kids, I can no longer serve you ... here is your last sum of ..."

Ironically the more we know about our body (more civilized), the harder it is for us to fix it. More complicated systems are invented to cure more complex illness. Cost has gone up so high that the poor sick people wish they could share some medical fee with the healthy ones. Hence insurance is the best bet to the solution. If you are sick, wouldn't it be nice someone else is paying your bill ?

"Doctor, please hospitalized me or else I couldn't pay you ..."

Part of the deal to be human is that we don't know all. Things may happen very sudden and out of our expectation some times. The last thing we want is for a car accident to ruin our life totally. So just in case ... it wouldn't hurt as bad if there are some financial helps ...

"I lost my limbs, but at least I have 3 years to pick up new way of life without too much financial worry."

Some may have noticed that insurance is all about money. If you cann't transform what you need into numbers/money, then perhaps insurance cann't help. Then how about insuring the money itself ? Sure you can! Remember insurance is an example of business that is only limited by human's creativity, which is unlimited. So if you are ill and cann't go do labour for 3 weeks, your insurance could have paid you daily allowances.

There you go, these are the general area of coverage of personal life insurance ;

  • Death - end of life
  • Disability - (Totally Permanent Disable or Critically ill)
  • High medical fee
  • Accidents
  • Income


grassonleaf said...

hi, found your nice blog a couple of days ago, and browse thru all your articles within these few days.

I have a question for you. I understand the concept of 'buy term invest the rest', and i plan to do so. However, i notice that the premium of group term life insurance is not guaranteed, i.e increasing over the time.

Now i am comparing 2 policies
1. Group term life with annual premium rm475. (policy offered by Great Eastern to PB mutual holders, you might heard about it)

2. An investment-linked insurance with annual premium around rm1200, carrying the same benefits as the group term life. They guarantee that the premium will stay the same throughout the insured period. (Not sure is there any hidden tricks behind)

I am still a student but will enter workforce next year. Definitely i'd like to take the first one with lower premium so that i can save more, and have more bullets for investment. But, the idea of increasing premium kinda holding me back. Any advice for me?

grassonleaf said...

thanks in advance

Michael Tsen said...

excellent question, I will write something about this soon ... basically the general recommendation is to buy one whole life plan, then use term insurance to cover the prime time.

If I were you, I will buy a whole life plan first, it could be the investment link policy you talked about but personally I still prefer traditional whole life plan. then after 1-2 years of working and you roughly know your market value, buy a term insurance to cover the years you plan to work.