In my book on Project Management, I wrote about how to initiate and followed by how to plan the project. And then I did an about-turn to say, "Well...what if we find out that things are not going well?"
In his own words, Warren Buffet said that to make his billions, "The trick is to have a very long hill, which means either starting very young or living… to be very old."
Warren Buffet is 93 years old in 2024 while his partner, Charles Munger lived to a ripe old age of 99 years, just 30+ days short of his 100th birthday. What if we do not live as long? What if shit happens?
We need to talk about...insurance.
A simple definition of insurance is a protection against large scale financial loss for a small (or relatively smaller) charge. Should something bad happens, the insurance will help take care of the financial concerns of our loved one - the hospital expenses, living expenses of our loved ones, and perhaps even college fees for our children.
In general, there are 3 broad categories of insurance:
Life Insurance
As the name suggest, this type of insurance replaces the financial loss of the insured (either thru death or total disability). Within this, there are several categories, ranging from the cheapest to the most expensive.
(Cheapest) Term - Whole Life - Endowment - Investment-linked Product (Expensive)
Let's explore each one in detail from several perspectives.
Term insurance
Objective: protection
Scope: all cover death, and some cover permanent disability
Period: specific number of years or to a certain age (varies)
Cash value (if terminate early): None
Whole Life insurance
Objective: protection + savings
Scope: all cover death, and some cover permanent disability
Period: typically up to age 85 or more
Cash value (if terminate early): Guaranteed value and Non-guaranteed value. May have bonus (non-guaranteed)
Endowment insurance
Objective: protection + savings
Scope: all covers death, and some cover permanent disability
Period: specific number of years or to a certain age (varies)
Cash value (if terminate early): Guaranteed value and Non-guaranteed value. May have bonus (non-guaranteed).
Investment-linked Product (ILP)
Objective: protection + investments
Scope: all covers death, and some cover permanent disability
Period: specific number of years or to a certain age (varies)
Cash value (if terminate early): Non-guaranteed and highly dependent on fund performance. Subjected to investment risks.
One may choose to have at least 2 insurance products in the portfolio.
- The 1st one should be the term insurance, either personal or purchased thru company (usually cheaper). This is to ensure that our partner have sufficient to live on, plus our children to have enough for college.
- The 2nd one is typically the endowment fund which can be viewed as "forced savings". We can (and should) withdraw this after a certain age for our living expenses...and perhaps spend a portion for an Alaskan cruise.
One little-known fact: the endowment policy can be sold. This is known as Resale Endowment Policy (REP) - just have to google this. Several reasons to sell, of which the first is due to financial difficulty. The 2nd one is because the plan no longer fit the requirements and the policyholder feels that there is a better offer, or that they are moving to a different country. The fact that the policy can be sold means more flexibility...
Health Insurance
Heath insurance help you and your family form suffering financial as a results of an accident, illness or disability. While this is common in the USA, it is interestingly to note that this is not so common elsewhere. The various type of insurance are as follows
- Government-initiated (Singapore) - Medisave, Medishield Integrated Shield plan, Dependent Protection Scheme, Careshield, etc.
- Hospitalization and surgery
- Critical illness
- Disability
- Accident
Health insurance is fairly straightforward - we pay a certain amount annually and the policy will then help with our hospital bills. Yes, some companies do offer Hospitalization and Surgery as part the benefits package - some may be very generous.
But my suggestion that we need our own personal health insurance as we may switch to a different company at some point (or get retrenched). Do this when we are healthy - when we buy this at a older age, there is a possibility that certain ailments may be excluded. Do ask the agent if you can add-on a rider that covers loss of income during the hospitalization / recuperation.
Another one to get is the insurance for critical illnesses (cancer, hypertension, diabetes, meningitis, kidney failure, etc.). If you can afford it, get one more that is specific for cancer. I have lost a few friends due to cancer (they got diagnosed in their late 30s). The last thing you want is to have your family pay for the hospital bills if you did not make it...
General Insurance
The last category refers to any other type of insurance that is not covered under life or health. These include insurance for fire, travel, burglary, auto/car, floods, etc.
Home insurance such as for fire, burglary and floods are good to have but not a necessity,. Do check with the agent on the cost, esp. if the area you are staying is prone to natural disaster or if the neighborhood is less safe...in which case, then it is a must.
Travel insurance should ALWAYS be part of the travel expenses - this is an absolute MUST as one simply has no control of what happens in another country.
Auto insurance - no need to talk too much about this - it is REQUIRED to have insurance before one can pay the road-tax. As one who has been involved in traffic accidents, get the best one you can afford - please do not skim on this.
5 Steps to determine Insurance needs
Obviously, with such a big range of insurance products, the big question is which ones to buy. It could be a situation that we buy too much insurance that we have little left for investments.
- Establish the goals
- Estimate the funds needed
- Identify amount available
- Estimate the insurance needed
- Choose and design the plan
To be continued....
Considerations of Life Insurance
Consideration on Health Insurance
