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Kiasu Insurance

>> Tuesday, November 5, 2013

In a recent article, it was reported that OCBC's mortgage insurance plans are a big hit with homebuyers as the bank refunds premiums if buyers are alive at end of the 20-year home loan. According to the bank’s spokesperson, despite a slowdown in the property market, the number of new customers who bought these two mortgage insurance plans (single premium and regular premium version) from the bank went up by more than 60 per cent in the first nine months of this year.
 
In my opinion, the plan is simply an endowment where the sum assured is reducing in accordance to the loan amount and the maturity value is the premiums paid. It is nothing significantly new, except that most mortgage insurance are generally term plans that accumulate no cash values.
 
This comes as no surprise as the bancassurance market share in Singapore has been growing in leaps and bounds over the years. And the main products being sold are the endowment plans or Universal Life.
 
I suppose it is human nature in general to feel imbalance that we are paying for “nothing”. The fundamental of insurance is we buy hoping not to claim. For the minority that does claim, they would be the loyal advocates of the benefits of insurance. Recently, I met someone who suffered from a major cancer and even claimed to the annual limit of the private shield plan. Needless to say, he is a living example of the importance of having a hospitalization plan. However, for the remainder of the majority who does not claim anything, we end up as the ones “subsidizing” the others who claim. I guess this is where the root of the issue arises.
 
Of course our rational mind will tell us that you are buying a peace of mind, you never know when you could be the one claiming, wouldn’t you want someone to help you in your times of need if you were in their shoes – hence, what’s wrong in “subsidizing” others, etc.
 
Regardless, it would be comforting to have a plan where one gets the peace of mind for coverage and yet one does not suffer any “losses” if there is no claim (Kiasu – The fear of losing). As the expression goes, to have the best of both worlds, having the cake and eating it.
 
Obviously, there is no such thing as a free lunch. The concept is extremely simple, pay high enough premiums where the returns from the amount can be used to offset the assurance charges. It is no different from “buy term invest the rest” concept. Just that the “invest the rest” must yield a return to finance the term assurance charges. Now, bundling it all together in one plan is the hot mortgage insurance product.
 
I do not believe if it is a right or wrong issue here, it is simply a matter of preference.
 
Anyway, my point is, insurers should read between the lines and get creative. How about other insurance that can do the same? Example, single premium travel annual insurance that returns your premium; Home insurance, personal accident insurance, or even motor insurance. Is there any other kiasu insurance at the moment?

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