How Much Exactly Is Insurance?

Even before meeting up with me, prospects often ask for an estimated quotation of insurance premiums. I perfectly understand their rationale for doing this and as much as I would like to give them this information, it cannot be answered by simply giving a number.

Similar to how most of us make purchases. First, we look out for the price tag to narrow down the items that are within our budget. Next, we compare the quality, specifications, benefits and various other factors from those shortlisted to determine the most value for money purchase.

This same conventional approach is adopted when shopping for insurance. Although this method may be used to shop for one's "wants" for simplicity, it is not suitable when shopping for one's "needs". In fact, the order is quite the opposite.

The recommended approach:

1. Determine your protection needs through a proper "Financial  Needs Analysis".
2. Compare the various offerings that best suit your needs and providing the most value for money.
3. Work out a budget for your other expenses to incorporate insurance as an absolute necessary expense.

a) A comprehensive "Financial Needs Analysis" must at least take into consideration the following and should be as accurate and detailed as possible to truly reflect your current financial situation:

1. Assets
2. Liabilities
3. Basic needs expenses
4. Current lifestyle expenses
5. Dependents needs
6. Potential disability or illness expenses

b) Premiums differ from insurer to insurer, and can vary by as much as 70% for a similar product, for the same individual. However, it is not an exact apple to apple comparison always. Company factors that will all affect the pricing of premiums include:

1. Contractual differences
2. Medical underwriting requirements
3. Reputation and Branding
4. Marketing expenses
5. Fund/investment performance
6. Bonus payouts
7. Claims experience
8. Agent commission
   
9. Product design
10. Additional benefits

Moreover, besides amount of coverage; type of product, type of coverage and individual circumstances will also affect premiums.

Some types of products:

1. Term
2. Traditional (Limited payment)
3. Traditional (Whole Life payment)
   
4. Investment-linked
5. Endowment
6. Hospital expense (healthshield)
7. Hospital cash
8. Disability income
9. Long term care
10. Personal accident

Some types of coverage:

1. Death
2. Total & Permanent Disability
3. Extended Disability
4. Partial Disability
   
5. Critical Illnesses
6. Male/Female/Child Related Illnesses
7. Infectious Diseases
   

Examples of personal circumstances:

1. Age
2. Gender
3. Smoker/Non Smoker
4. Alcohol consumption
   
5. Occupation
6. Height/Weight
   
7. Pre-existing medical conditions
8. Previous surgeries
   
9. Parents medical history
10. High risk hobbies like parachuting or scuba diving

c) Failing to plan is planning to fail. Planning for certain mundane things like what time to wake up, what to have for breakfast/lunch/dinner, schedule of daily activities, best MRT/bus/driving route to take, etc, comes as second nature. However, it can be very surprising that although money is a necessity in life, many fail to plan a proper budget to live within their means. Take charge of your finances and do not allow it to be an excuse not to have proper financial security.

The above lists are by no means exhaustive. Therefore, the role of a adviser is to assist you in navigating through all this. It cannot be simply summarized as a single price tag after a short conversation. Would you have the peace of mind to entrust your life's comprehensive financial security to someone whom you only talked to for a few minutes and based on just a number given?

Make the commitment to spend time and seek advice from a sincere, trustworthy financial consultant who will work in your interest based on your needs, compare for you the most value for money protection programme and even assist in your budget planning.