The idea of buying insurance has always been quite difficult for most people, after-all insurance started out pretty much based on a company that gave you a piece of paper since it ever began on this small country. Back in those days, all I could remember was "yes we got you an insurance" but whether anyone else know what that was about, I would confidently assume 99% of the folks who bought into it did not know what they got into. As time goes by, insurance agents emerged frequently into our lives and I could see people scorning as they are picked up by agents or receive calls from the agency. Like many of use, irritable as we all might be these folks are also just trying to make a living themselves so there's no need to be rude to someone who is making a decent living.
I still remembered the times when I first got out of school and a friend of mine went directly into the insurance line. The pitch was that I need insurance and while insuring myself, I could choose some simple tools to invest into (That was known as mutual funds) - In technical terms, these are collective investments. (In simple layman terms - Mutual Funds are set out to invest in certain countries/regions/sectors/industries on the onset) The guys who manages the Mutual funds are known as the fund managers. So these fund managers along with their team of analysts and support staff will raise funds to strategically invest into their so-called strategies. This is known as Investment-linked Policies (ILP) as most of us know that by know. Five years into the plan, I still did not know what I was getting myself into and finally one day. I dug deeper to understand all the technicalities and why insurance can be such a big thing in this world today.
Like what a close friend of mine said, I do sound like a module lecturer when this is being brought up and I can totally understand how boring it can be so let me be quick on this. Insurance is also a type of risk management technique and a more frequent type that we use almost daily today is known as "Risk Transfer". For simplicity, lets just say a 45 year old male employee buys an insurance plan of death sum assured SGD 500K and tomorrow he leaves the world. Assuming that he continues working until the age of 65 years old, the family recipient stands to gain (SGD 500K/20 years which is equivalent to SGD 25K) Well, it is debatable if this is sufficient for the family but look into perspective, the family stands to get nothing if he did not transfer the risk away.
In a way, this is a risk that can be transferrable in the form of loss of future income which is unpredictable.
When we talk about insurance, there are plenty of choices to choose from. From a top down approach, these are the areas to talk about when trying to understand more about it and it goes according from the level of importance and taking care of it one at a time:
1. Health Insurance
2. Life Insurance
3. Savings Insurance (Endowment)
4. Accident Insurance
5. Others
When I say the level of priority, it can be taken as a guide but not a hard and fast rule. Because in the eyes of unemployment, what one seek is to put the food on the table and provide necessities thus insurance is also a item on the shopping cart list. When we have excess, sometimes we just want more so do slow things down a little and reflect back on the original passion or life we once used to think and the things that once matter, would eventually become forgotten as well.
Interestingly enough, there will always be one which believes and one that doesn't believe in risk transfer. If one thinks that they can beat the market, by all means stick to the strategy but like many thing else in life, it is never a one size fits all strategy for everyone. Each one of us has our unique differences and circumstances which must be open up for discussion.
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