Often I got emails from anonymous persons asking me which insurance to buy as there are so many insurance products out there that make it confusing. I always reply that buy based on needs and the choice will narrow to just a few to make. Then they will tell me how to determine one’s needs and I’ll tell them that I can help them do that through a full fact finding. Some will meet me while others told me to do it through email. For the latter, I’ll never do that as I don’t believe in advising via emails. Face-face discussion is important. Also those who do not wish to meet often cited busy schedule. However, I never accept busy schedule to be a good excuse. If a person is going to spent a few thousands dollars every year and yet is too busy to meet and do some research, they are either (1) too rich and hence the money spent is immaterial (2) Do not care about their own wealth (unbelievable?) or (3) Not sincere person and who is merely shopping for products without purpose. Back to the complex number of insurances products:

Recently there have been a number of products that can help a person make multiple claims or less severed claims (known as Early Payout Insurance). I always wondered what are insurers doing and why are people so excited about it. So here is back to basic what is insurance: Insurance is a contract between two parties in which the insured transfer the financial risk of an insured event to the insurer. In return for this service, the insurer charges the insured a regular premium.

Therefore, for multiple claims style / less severed claims style of insurance products any person who wish to buy such a product is interested to transfer the financial risk to the insurer upon the 2nd or subsequent insured event. For less severed claims, the insured is transferring the financial risk upon diagnosis of a less severed critical illness. Sounds good? Except that the world is a zero sum game in which the premium is also higher. In fact, the expected return of the insured for any insurance should be negative so that the expected return of the insurer is positive (and therefore a viable and profitable business).

The question is that is the product necessary? Is the premium worth paying? Actually the same can be asked for the whole lot of insurance products of which most are quite useless. To understand what insurance to get, it is important to ask oneself’s what is the need.

Some agents tell their clients that multiple claim / less severed style insurance is justified based on the need to hedge against

(1)  Lost of income as a result of critical illness and a second critical illness will make the lost of income more acute;

(2)  Large medical bills especially if one is hit a few times with a critical illness

(3)  Recent media reported that some critical illness like early stage cancer will not meet the definition of 30 CI based on the standardized LIA guidelines. Therefore if a insurance can pay a less severed illness, the insured will  to gain perhaps by having some extra cash to pay for medical bills and/or lost of income.

But what many agents will not tell their client is that there are cheaper alternative than this. A good as-charged shield plan will be able to hedge against large hospital bills. Also in the event lost of income due to inability to perform own’s material duties, a disability income insurance is the product to meet this needs. The hospitalization insurance and disability income insurance are taught in the CMFAS M9. Why is it that agents do not tell their clients these so as to help their clients make a more better decision?

It has to do with commission you see – the shield plan only pays commissions enough to reimburse the transport fee while the disability income insurance is similar to a term insurance of which the commission su*ck. Moreover, the disability income insurance is complicated and difficult to explain. Instead of explaining for hours on how a disability income insurance works, the agents prefer to explain a few minutes on other products.

Commissions should be outlaw and it will save clients’ ton of money.

BTW, here is another tip which earns me no commissions and many agents will never tell their clients: There is this insurance product call Self-Insurance. I told one of my client this and he was shocked to hear there is such a thing.

In Self-Insurance it means that the insured party agrees to transfer the financial risk of an insured event to the insurer who is none other than himself. Thus, the insured and the insurer is the same person. Why would anyone want to do this? If the insured event’s financial lost is small, one can self insured by putting aside this amount in a saving account. For example, it is not worth insuring medical bills for common-flu. How much would the doctor charge for the common flu? Maybe $30? Say if a person gets a flu everyweek, the total bill will come up to 52x30=$1,560 in a year. So in self-insurance scheme, you just need to set aside this amount in your saving account. The wonderful part is that there is no premium to pay! Unethical agents will always tell their clients to insure everything under the sun. Don’t believe in these unethical advisers. Take charge of your own finances and ignore gimmicks and hypes.