Well I realised I have been posting alot about investments and as a financial adviser I should be well rounded and post other financial portfolios too. This post I devote to insurance.
Now I grew up never being a believer of insurance because, my father told me they cheat people's money. My friends told me insurance agent very pushy. Other people tell me insurance don't pay till you are dead.
Well in some ways those saying ain't wrong. The truth is there is nothing wrong with the product but something wrong with the salespeople. After being in the industry for 13 years, I know exactly what some salespeople will do to make the sale. I know in times of desperation people can do stupid things.
I have met many clients who have told me their regular premium investment linked policies don't make money.... sigh.. its not suppose to. The mortality charges paying for your death and disability coverage is being drawn from your units, so as you grow older more is drawn to cover those charges.
Many a times the failure is not in the product but the failure to manage expectations. Just like what makes a good horror movie. Well my expectations of a good horror movie is one that leaves you thinking about it after the show ends. One without a soppy happy ending. Just think about horror classics, they never ended resolving the issue.. closing scene is still flickering lights and evil laughter. But nowadays horror movies has happy endings with issues resolved and they live happily ever after... yawn.
Ok ok that may not be the best analogy of managing expectations.. so lets look at some other expectations. Now imagine this scenarios:
1. You are in a plane, the pilot comes over the radio telling all passengers to put on your life jacket and prepare for crash landing
2. You bought a new car but damn suay, on the way home you got tire puncture
3. It started to rain, you go into the shop to buy an umbrella. You walked out of the shop, opened the umbrella, its full of holes
What is the expectations for each scenario?
1. Life jacket is under the seat
2. Spare tire is in the trunk
3. Go back to the shop ask for refund
But what if there was no life jacket under the seat, no spare tire in the trunk and no refund at the shop. You will feel cheated! Because its expected. But if you took the flight and the airline company have told you before you bought the ticket that their policy was that passengers have to pay if they wanted the life jacket. You have the choice to take the flight without the life jacket, take the flight with life jacket but top up some money or not take the flight even though it could be the cheapest.
Lets say you took the flight cheap without the life jacket and if scenario 1 happened, your expectations have been managed. You will not be upset (probably upset for not paying more for a jacket) because you chose. The airline company disclosed and you fully understood the risk. They probably made you signed some indemnity to indemnify them from the risk of you not wanting the life jacket.
That will be too much risk and paper work for them... but if only the financial industry have something like this. Imagine I go speak to a family man, I know his family. I try to talk to him about coverage but he tells me: insurance bluff people, cheat money, I cannot see until I die. Then I whip out an indemnity form ask him sign. The form will state the exact time, place, setting and whatever the guy said on it. He will sign on it. If something untoward happens and people start coming to ask why no insurance, why Tang you never ask him get himself covered since he got family, I can whip out this indemnity form and say I did, but he want to invest property, buy car, entertain frequently, invest stock market, find business opportunity, go shopping, everything else but buy insurance......
Everyday I live in fear of knowing that life is unpredictable. Not fear for myself but the fear of the people around me who some chooses to just ignore the need for financial planning. The fear that I may not have the opportunity to speak to the closest people before something happens. Then again, I ain't Snata Clause. I do not have a sleigh pulled by Rudolph and friends that can traverse the whole world on the 24th of December.
Some clients I have spoken too very quickly will tell me, Tang I have insurance already. Ok.. but when it starts raining, umbrella has holes. You cannot believe that there are individuals with $10,000 coverage: I have already...
Ever considered liabilities and who is going to pay for them if something happens? Some people's credit card debts already more than $10,000. Well that is why sometimes families have to lose their dignity to ask for money from relatives, friends and even social support just to get through life after something bad happens to a key family member...
I have this very funny client when I showed him a term plan he commented: Wa this one like 4D. Term plans are plan that has very high coverage no cash value, just like car insurance. But if objective of client is coverage for death then I will recommend term. To put into perspective, it can be like $200 per month for coverage of a $1,000,000.
Told my client yes its like 4D except that for 4D you hope you tio, then get pay out, if not tio jia (get eaten). But for term plan, don't tio good thing, but if you tio got pay out. Win win situation,4D win lose situation.
For investment savvy clients, I will ask them if they know what an option is? Options are investments, you buy for a strike price and pay a minimum option fee for it. At the strike price you have the option to exercise it. Just like insurance, you pay option fee (premiums) for a future promise of exercising it at certain events.
Insurance are like options. Its a small fee for a big payout later. If you took the above example of a term plan paying $200 per month for $1,000,000 you need to pay 400 years of premiums before you cover that amount.
So if you now think you actually have an umbrella(insurance) already. When was the last time you opened it to check for holes? You don't want to check it for holes when it is raining. Do it now while its sunny. They say make hay while the sun shines. Think about it.
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