Okay, I've been asked these questions throughout my career and I decided to compile them in one article because I believe many others in my industry get asked the same questions. I guess they must be super popular insurance related questions!
1. Can I buy a bit of insurance first and increase the amount when I'm older?
Usually when people ask this question, it is because they feel that they won't fall sick when they are young but yet are worried they might fall sick so they want to buy a bit of insurance now and add on later when they are older and have a higher chance of falling ill.
In this case, wouldn't it be better if you simply buy insurance 1 year before you fall sick?
I mean, that's what people are basically saying right? If you had a crystal ball (that is accurate), and it told you that you would get an early critical illness at age 25 but would recover after an operation, what would you do?
Will you?
a) buy a bit of insurance just enough to cover for the recuperation of your operation?
or
b) buy the maximum you can buy?
I really happened to meet such a prospect by the way.
Let's face it, most of us will choose option B. Why? Some of us see it as a 6 figure windfall, some of us know we are unlikely able to buy insurance for the same condition anymore.
So why this question when you are healthy? You just want to save few hundred to few thousand dollars now because you think you won't use it. If you are so sure you know which year you will fall ill, why even get any coverage many years before you are ill? If you are not sure when you will fall sick, chances are you can't buy the coverage you want when you become sure.
2. Is it better to pay for a limited period instead of paying all the way for my coverage?
Most of the time people who ask this question just want to get this liability completed as soon as possible. They don't like the idea of 'debt' or commitment in their life.
From a technical standpoint, when you compress your payment period, it basically means you pay more upfront and hopefully less in the overall duration. If you choose to stretch your payment for the entire duration, it is likely you pay less upfront which gives you more cashflow but you may pay more over a longer period. If you pay more upfront and more over the entire duration, I seriously hope you got additional benefits to justify the decision.
If we go back to the premise of insurance as a mechanism to protect our liabilities and income with a small amount of money, then you might really want to ask yourself whether you are making an informed choice or emotional choice.
Let's look at this illustration of a male non smoker age 25 and assume he bought a wholelife policy that covers him for Death, Total Permanent Disability of $300,000 and Early to Advance Critical Illness of $150,000 for a yearly premium of $5,971.02 if he chose a premium term of 25 years.
For the exact same coverage male non smoker could choose to pay for wholelife at a yearly premium of $4,400.93.
So in both instances, if male non smoker gets diagnosed with critical illness at age 40, he would get a payout of $150,000 but would have paid $89,565.30 if he compressed his premiums to 25 years as compared to $66,013.95 if he stretched his premiums throughout his policy term. On the other hand, he would have paid more premiums if he stretched his premiums compared to limiting his premium term if he falls ill or dies at age 80.
What this illustration aims to show is the effect of cost and benefit of insurance should one falls ill early in life.
*I picked wholelife over term simply for easy illustration. Not as a recommendation.
3. My medical condition is recovered, why can't I cover for it?
People who asks this question usually perceive their condition either as not serious or feel they have no underlying illness simply because they can eat, play sports and not take medication after being diagnosed with pre-existing medical conditions.
I would like to give you an example of buying a car. Suppose you go and buy a car and you are quoted a brand new car price but the car got into an accident before and was repaired, would you be willing to pay a new car price or would you reason with the car dealer that you should pay a lower price?
Obviously, you wouldn't be willing to pay a brand new car price. Why?
The car dealer can tell you that the car condition is as good as new and the relevant parts have been changed or repaired. He might even tell you that the damage cannot be seen or felt anymore. Would you accept it?
Even if it's a brand new car and a naughty boy scratched it with something sharp 10 mins before you collect the car and the car dealer apologize and tell you he will re-spray it for you, we still wouldn't be willing to pay the full fee without a discount because we are aware that it's not brand new 'new'. In the case of a car, we might request for a new car as replacement if we were to pay for a full price.
Likewise for insurance, if a person has a pre-existing condition, the insurer has a right to decide whether they wish to cover the person and on what terms they would accept the coverage. After all, they are insuring the person for a significant amount of money. If you can choose the conditions whether to accept a car that isn't good as new, then so can the insurer decide if they wish to insure you once you aren't good as new.
That's why we say that insurance is bought with health not wealth. It is also precisely why consumers are encouraged to insure themselves as early as possible before they develop pre-existing conditions.
You might be interested to also read: Pre-existing conditions and preliminary underwriting
Summary
1. Don't buy coverage half foot in. If your logic is to have something in place just in case you need to use it, then the day you need to use it, you needn't worry about getting the second half of the coverage. It's too late.
2. Whether you compress the duration you take to pay for the premiums of your coverage or stretch it out to maximize the entire duration is a matter of preference. Just be mindful if you pay up all the premiums by the time you claim, you definitely would have gotten less value per dollar claimed because you paid more for it.
3. Once you are not 100% healthy, it's up to insurer's discretion whether they wish to offer you coverage for your medical condition. Just like how you probably wouldn't pay full price for an item that was repaired before on Carousell, insurers choose to cover your medical declarations as standard out of goodwill, not as an entitlement.
After reading this article, you might be keen to have a discussion to explore getting your protection planning done early. You can reach me by dropping me a message.
Be sure to share the article if you feel this information is helpful. You will enable a lot more people to learn more about protection planning.
About Janice
I specialize in portfolio optimization (ensuring you get maximum value for every dollar you put in) and retirement planning. I am also building a team of financial advisors who are committed to help responsible individuals attain their goals without misallocating their resources. Do reach out if you would like to explore a career with me.
Clients look for me primarily to outsource their retirement planning needs so that they can focus on other aspects of life that interests them. Many of whom are very good in earning their incomes in their respective professions and wish to ensure their monies continue to work harder while they focus on what they are good at. Refer to client testimonials here.
I've helped many clients who are referred to me reduce the costs they are paying for their insurance or help provide solutions when they deem they are stuck with huge commitments bought when they were younger but unsuitable for their present life stages. You can reach me at 94313076 or my social media accounts on Facebook and Instagram.
Disclaimer: The content created are based on my personal opinions and may not be representative to everyone or any organisation. If you have any doubts or queries pertaining to insurance or investment, please seek professional advice from a trusted adviser in an official setting. You may also reach out to me if you do not have a present adviser using the message box under 'Let's Talk'.
Comments