Does your insurance coverage give you the security, freedom and provision you need for your future goals? Or do you have your insurance premium payment on autopilot, so you’re not really aware of what you’ve spent or when you should buy another insurance plan?
On Money and Me, Michelle Martin spoke with Providend CEO Christopher Tanto break down the concept of insurance and help you think through strategies to tailor your insurance cover to your needs.
Michelle Martin: What do you think of the purpose of insurance?
Christopher Tan: The whole purpose of insurance is protection. My view is that insurance is an expense, not a savings, so when buying insurance, buy as much as you need, but try to pay as little as possible.
Many people use insurance to save money or invest, but it’s actually a very expensive way to do it and there are many better options.
Michelle: What is the matrix for deciding which type of insurance is best for me?
Christopher: Unfortunately, many people start out buying the insurance product(s) before deciding whether they really need it. Instead, ask two key questions before deciding which insurance products to buy: How long do you need the insurance coverage? and What insurance coverage do you need?
Michelle: So does it come down to how long you need coverage in terms of age, where is your starting point versus your end point?
Christopher: The key question is, “Are you buying it for just a period or are you buying it for life?” “. It also depends on the type of coverage.
(1) Death benefit
The purpose of purchasing death cover is to replace your lost income upon your unfortunate death. The question to ask if you need this cover is ‘Do I have any dependants?’.
If you don’t have dependents, you don’t need death cover because you’re not going to have any financial impact on anyone when you die, unless you want to give [the insurance payout] as a gift.
If you have dependents, you need death cover until your youngest dependent becomes independent or when you retire, whichever is later. When your dependent becomes self-employed, they will not be affected by your loss of income due to death and when you retire, you will no longer receive any income. So this coverage is a temporary need.
(2) Disability insurance
The goal is to replace lost income due to disability. Similar to “death cover”, this is a temporary need until your youngest dependent becomes independent or when you retire.
(3) Medical Crisis Coverage
There are 2 financial impacts:
- The aim is to replace the loss of income, for example when you can no longer work, due to a medical crisis. This is a temporary requirement until your youngest dependent becomes independent or when you retire, whichever is later.
- If you buy insurance to pay for your medical expenses, you will need it for as long as you live.
If you buy insurance to replace the loss of income, this is a temporary need.
The only insurance you need all the time is medical coverage.
Michelle: How do we review insurance policies that they may already have?
Christopher: First, ask yourself if you still need the blanket. For example, you may be approaching retirement [age] or your children have already grown up, so you no longer need this cover. If so, you might consider opting out of coverage.
Second, if you’ve had an exam and realized you might still need the insurance coverage, ask yourself if that coverage is enough. If it is insufficient, you may need to increase your coverage. After which, see if those policies you have still meet your needs, if not, you may need to consider upgrading your coverage.
Finally, if you need to buy new policies or increase the amount of coverage, the key question would be whether you can afford the premiums, if not, you may need to restructure your entire insurance portfolio to drop some plans and replace them with more affordable ones.
So review your insurance [with your advisor] Its very important. We have to decide what we need because we cannot cover all the risks. It doesn’t make sense to spend so much money on insurance premiums, leaving us with nothing to save for our long-term goals and our retirement.
The premium for whole life insurance is much higher than term insurance, but the coverage is also much lower. That’s why we should first ask ourselves, ‘How long do I need this coverage? If I don’t need it all the time, why should I buy whole life insurance? “.
Michelle: In terms of what you can do with your insurance policies, can we just consider buying them out or terminating them, or selling an option?
Christopher: If you looked [your insurance policies] and realize you don’t need your expensive whole life insurance policies but you can still afford the premium, I would suggest keeping them as early termination always means you make a loss [in terms of returns]. But, if you no longer need your policies, or can’t afford the premiums, there are a few options:
First, if you have children, you may consider assigning the policies to them to take over the premium payment. Upon your unfortunate death, they will receive the insurance proceeds.
In a second step, you can contact your insurance company and ask them to reduce the sum insured. In this way, you will be able to reduce the premiums. Another way would be to request a released font. The insurance company will calculate the existing cash values you have accumulated and estimate the sum insured you can afford. Basically, your face amount is reduced, but you can stop paying the premium.
If you don’t want to do this or terminate your policy, you can consider selling it in the secondary market, but some people don’t prefer this option.
The last option would be to surrender your policy. However, please note that dropping an insurance policy can have serious consequences due to changes in health status, so consult a trusted advisor for consideration before deciding to restructure or drop policies. insurance policies.
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This article was first published in SILVER FM 89.3.