How many insurance policies do you have?
I've met many different types of clients throughout my career as a Financial Advisor (FA). One type whom I'm sure many of you can relate to is the "Everything also buy because better protect my precious kid".
I do not mean to say that such efforts are useless, but I am of the opinion that an insurance plan is something you get because you genuinely need it, and not because you think you need it.
That is a mentality the more ambitious FAs have (if there's no need, just create one), and also a reason why the public attitude towards us is, "Move away, please."
First, let's talk Term Insurance.
For some, the whole purpose of a Term plan might simply be for them to Buy Term and Invest the Rest (BTIR). Take the difference in premiums between a Whole-life and Term and invest it. But it's so much more than that. As I shared in this week's #moneymonday, a Term Insurance revolves around a specific purpose.
Say I have a kid who's 10 now. In 15 years' time, there's a high chance that he's going to be a university graduate with loans. So I could get a 15-year Term plan that matures just in time for those debts to be due. I'd pay them off and he would be able to enjoy his post-uni work life without the crushing burdens of student loans and bank interest rates.
The same goes for your hospital plans.
If you have not gotten one yet, please do. The government-provided MediShield Life plan will not be enough. Neither will your Medisave (note the withdrawal limits) so stop kidding yourself. The only reason you might think it's fine not to get a hospital plan is if a. you're super rich or b. you have yet to be unlucky to end up saddled with a bill.
So the question is, what kind of burden are you willing to take on post-hospitalisation? If your answer is, "Minimal", get a plan and lo and behold, I do sell them too (grins).
See my #teachingtuesday for a breakdown of a hospital bill and the insurance coverage.
The last part of today's class on purpose-driven insurance is none other than the dreaded Investment-Linked Policy (ILP).
Slammed left, right, front, back and centre by online bloggers and burned parents, the ILP is a product that few understand well. I will not delve into the details of the ILP time-bomb (you can read all about it here).
However, I will touch on this.
One key reason why people still slam ILPs today is because they don't understand the specifics of ILPs and unfortunately, many FAs don't know how to sell them right either.
ILPs aren't just about Investment and Insurance. Despite their original raison d'etre to be a wrapper for both, some ILPs are actually structured to be investment-driven or insurance-driven.
For example, an ILP might a 100% investment with 0% insurance coverage. In contrast, if the ILP is insurance-focused, you might not get to enjoy the great investment returns you expected.
Despite the differences in today's ILPs, some people still approach them with a one-version mindset. It is important to understand that not all ILPs are the same. Each one has a different purpose and depending on your personal lifestyle and needs, an ILP that suits your friend might not suit you.
Please DO NOT buy a specific ILP just because you know someone who is better off for it and expect it to work just as spectacularly for you.
Insurance is not something that you buy and pay for just because. It is purpose-driven and selectively chosen because you need it and it works for you.
What your parents thought was good for you 20 years ago might not actually be good for you now. The plan that works for your friend might not work for you.
What about you? How optimised for you is your insurance?
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Money Maverick is a Licensed Financial Consultant with MAS, who specializes in Investments and Critical Illness Insurance.
The views on his blog are strictly of his own opinion and have no affiliation to any of the companies he works with.
Here are some of my resources on:
3) Retirement and Leverage: Leveraging a Private Annuity, Pros and Cons (ft. Jamus Lim)
4) Spending and Saving: The Biggest Spending Mistakes You DIDNT Even Know you were Making (and how to avoid them)
5) Job Assessment: A Case Study on How a $6k/mth Girl makes MUCH more money than a $10k/mth Guy
6) Financial Optimisation: How I Avoid the Largest 'Fees' of All