Important Note on Insurance

The Short Story

Buy term life insurance and critical illness insurance because you will regret if you do not.
The Long Story

Many don’t appreciate insurance. Most regret only during the occurrence of risk events. When these events occur, accidents and prolonged illness can deplete your savings rapidly.

Many may delay the purchase of insurance because it is just to justify the returns from the expense. This is also why investment linked policies seems emotionally easier to sell.

A survey by LIA in 2007 found that the average policyholder is under-insured by as much as $362,000.

Plans that are bundled with savings and investments such as whole life and investment linked products seem to be more popular. The focus on cash value always undermines the importance of protection.

It is hard to price protection. That’s why it takes so much effort to convince someone to buy the protection only product. If agents sell a plan coupled with savings and investments, the product seems more attractive.

Premiums for whole life plans can be much more expensive than a simple term policy. The savings component can be easily parked somewhere else.

To determine the amount of insurance you need, it is good to start with a needs analysis. An advisor will have to understand your circumstances to ascertain how many years of income is needed should a risk event occur.

Many planners do not take into account the required household Cashflow. When planners are more concerned about their own earnings, their clients may suffer from a lack of Cashflow.

It is also not coincidental that the least sold insurance and the cheapest for customers, term, has the least commissions. Term is flexible in terms of coverage horizon. Logically, you may not require life coverage after your retirement because you have no or little earnings power and you should be able to save enough for bequeathing needs. Insurance works best to cover the risk of losing income so that your dependents will not suffer.

Delay the purchase is not a wise decision. If you are struck with some conditions, insurance companies may not admit you into their plan?

Please do not switch plans because there will be an underwriting process. If your health has deteriorated, you may be faced with higher costs or lower coverage.