I meet many people who come for my advice. I advise both on investment and insurance. However, insurance planning is always more tedious, more explanation required and for the client always a painful decision. Why?

(1) There has been a number of young couple coming to me for advice because they are concerned with protection planning. Having a huge debt due to mortgage, they also have dependents or at least intend to have children. Due to these huge responsibilities, it is only nature that they want their family to be well taken care of financially. Yet these couples are always at their early thirties or mid thirties. At such old age, insurance premium isn’t cheap anymore. Also at this age, illnesses such as cholesterol and hypertension are so common (there is no illnesses that surprised me these days – I seen all sort of illnesses declared).  This results in their insurance premium going up due to health extra. Of course, there are times they are not permitted to purchase the product due to their health. Normally for a reasonable protection plan, it will cost them between 10% to 30% of their gross income – depending on whether is it single income or double income earner. Naturally a double income earning family will spent less in insurance in terms of percentage (nearer to 10%). A single income earner who has to pay the premium for the entire family could end up paying up to 30% of his income in insurance itself. The more dependents, the more it gets (so family planning is important). At all instances, they will have to make a very painful decision whether to execute the plan, partially execute the plan or self-insure completely. They have to make a decision whether to spent so much on premium or risk their family being destroyed financially. It is not an easy decision for anyone. 

(2) On the other hand, very young graduates are not able to foresee their future needs. Without any dependents, no girlfriend or boyfriend and no mortgage to service because they are still staying with mummy and daddy is unlikely to get a proper coverage. The irony is that the coverage is dirt cheap at this age. I always tell young people to get proper coverage now so that they don’t need to have a burden of premium when they have a family. But it is very hard for young people to understand since they have not reached that life stage.  

On the other hand, I always tell young couples with children (or intend to have children) that they should have got a proper coverage when they were  younger so that they don’t have to burden with such high premium now. THEY also tell me that they were advised to get coverage when younger but had ignored their agents’ advice. Most of the time it is because of the reasons in paragraphs (2); sometime it is because they don’t trust their agents. So the cycle goes that insurance premium always looks unaffordable. The high cost of premium could be compounded by having bought  previously inferior insurance policies and they cannot get rid of it anymore due to ill health or otherwise.

My advise to young people with no dependent, no debt, no girlfriend or boyfriend is this: Get coverage for yourself first. These are hospital & surgical, disability income insurance and a limited-paying whole life policies with critical illness. The premiums for disability income and whole life are cheaper when it is obtained younger. When you have dependents, get a term insurance (assuming you are still healthy) to increase your coverage. Term insurance is very cheap, so getting it older will still be quite affordable although there is a risk of not able to buy it due to health problems occurring at older age.

By the way, I met two financial savvy young men. They are in their mid twenties to late twenties. They purchased a limited-paying whole life policy which the premium paying term is only 10 years. Both opted for a $200,000 coverage. Their premium was $7000+ annually. This sounds a lot of money but it is only limited to 10 years. As both got no debt, dependent and probably no girlfriend, this amount is easily affordable. By the time they actually start a family they would have already completely paid off their whole life policy premium yet got themselves covered for life! So by the time their expenses start to escalate due to increased family commitments, their insurance premium for whole life policy is zero. I find these two young men to have the foresight.