Monday, October 08, 2007

Do not Under Insure or Over Insure

The most common mistake people make on buying insurance is whether they're under insured or they're over insured. Most importantly this is not something constant. You're fully insured now doesn't mean future you will too. You will need to do your financial assessments to figure that it out.

Just reviewed my insurance policy recently and realized that my my policies are under insure. This due the fact that my annual expenses have been increased for all these 5 years. Anything happen to me, my current insurance policies are not able to fully cover me. Therefore to summarize, I'm under insured. Saving money by not having insurance is begging for trouble. Remember, we are preparing for the unexpected. Plan for the unexpected and we will do well.

Since the insurance agents recently are so convincing, be aware that you're over insured too. Don't simply buy insurance if you don't know what the purpose is. What is the right insurance policy for me? Should we buy term or whole life insurance? Know the whole purpose before you buy everything. Many policies might overlap with other policies you have. Overlap is okay but make sure you don't over insure.

7 Comments:

Peky said...

I dont have the $$ to get myself insured. I live each day in fear that if anything happens to me, i dunno what will happen to them.. :(

Again...someday...someday...I'll fix this...if I still have the ability to... hehe..

ChampDog said...

If you don't have the $$, term life insurance is the right choice for you. It is the most basic type of insurance. It is specially designed for people like you. You will be surprise with how cheap the term life insurance is. Talk to the insurance agent or just give Great Eastern office a call and said you're interested in term life insurance.

You can fix it now unless term insurance is still expensive to you. Just remember that most Insurance Agent won't sell you term insurance because they can't earn a lot commission out of it. Maybe even is $0 commission. I don't know. They usually will discourage you from buying it. So just tell them, I want to insure $100K for term, please quote the price for me.

Chong Kong Hui said...

You are right. Commission for term life is not good for agent.

However, Term Life in Malaysia is not really cheap as compared to term life in USA.

Feel free to check my blog on term life vs unit-linked. It is quite obvious it is better to get insured with unit-linked policy as it cost cheaper (after applying Discounted Cash Flow).

Heard a story from agent, true story. The borrower wanted to save money and don't want to buy either MLTA or MRTA for newly applied and approved mortgage. After 1 years plus, the agent receive call from this borrower. She want to buy insurance. So, the agent meet up with her and found out she has diagnosed cancer and have 4 young children. Too bad for her, no longer insurable. Some case happened to another agent.

Why wait until not-insurable then want to buy insurance, insurance company is not a charity body. So to speak.

ChampDog said...

Oh really? US term life is way cheaper? How much cheaper? Perhaps this is due to the fact that term is not popular in Malaysia.

Are you taking into investment return as part of your calculation? That's why the unit-linked insurance is cheaper?

I thought the MRTA is a MUST requirement? No?

Yes, there are a lot of similar cases but don't forgot there are even more cases for those who are insured and nothing happen.

The bottom-line is you need to know the exactly purpose of being insured or being not insured. If you're not sure, then probably yes, it is better to get insured.

Chong Kong Hui said...

I am Hong Leong Assurance agent. Have done quite extensive study on life insurance. US mortality charge is almost 60% cheaper than Malaysia.

Check my blog for the comparison between Unit-linked and Term Life. I didn't take in the investment return as it is highly depends on individual investment strategy. I merely compare it based on cost and discount the cash flow accordingly.

No wonder if you surf any oversea website, they have strong emphasis on Term Life. Famous quote: Buy Term and Invest the Difference.

Why Term Life is not popular? I believe no agent want to sell or promote (low premium). Why MLTA so popular? Because all agents want to sell it (high premium). Simple.

There was a period of time where MRTA is compulsory by banks but within quite short period, things changed due to competition.

I will rather over-insured a bit and never have to claim it than never insured or under-insured but have to claim it. That is the function of life insurance - give you peace of mind.

ChampDog said...

That is interesting and thanks for sharing the information. I will read more on that.

Btw, do you research on other insurance products (other than the one from HL)as well? E.g. investment-linked product? Are they also cheaper than term too?

You're right, over insure a bit still okay and yes, give you peace of mind.

Chong Kong Hui said...

I have the opportunity, on behalf of one of my high net worth client, to meet a broker represents 3 US insurance company. They really have competitive product (as well as much lower mortality charges) as compared to life insurance company in Malaysia.

I have not analyse term life from other company. If anyone can forward me Term Life quotation for Male, 33 years old, non-smoker for 20 years for RM300,000 (and RM500,000) and unit-linked policy for RM300,000 protection - I am more than happy to analyse it and give you the conclusion and share it "online" via Google Doc.

Click the following for the sharing of my life insurance plans

https://docs.google.com/document/d/1CK_LaRJJu3j6UTdyYo0vlpBDlJ4DPlK-qR-hZw1RiqM/edit?hl=en&authkey=CPLtz4EG

No single product fits all purposes - good to use different product for its strength and cover it's weakness with another product.

By the way, product features change accordingly to market - e.g. now no more Critical years whole life policy and more unit-linked policy than traditional whole life.

Your requirement for life insurance also changes from young to middle age; from low income to higher income; from no family to family of 3 or 4 etc.


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