Wednesday, 10 February 2010

Insurance.. Precaution? Investment? or.. Unnecessary Expense? (2)

First, I would like to apologize for the late posting of this post... :-)

Second, I will get right down to business. As promised, I will talk about insurance from clients' perspective.

What do I mean by that?

Well.. everybody (or family) has specific needs in life, driven by each person's unique situations, opportunities, objectives and choices.

While insurance, as a financial buffer, is simply one of the many financial strategies that can be applied, or added, to a person's (or family's) financial management as a part of the whole financial planning.

When it is carefully and correctly chosen and applied, it can be a great protection and additional investment in the future. However, when it is badly chosen, it can definitely cause further problems.

Hmm.. am I making any sense?

Let's see..

As I mentioned in my previous post about insurance, these days, insurance industry is getting more and more competitive and insurance companies need to make good offers to gain the interests of prospective clients. The most visible part of the competition is, how much return these insurance companies are capable and willing to give back to clients after years of contract.

At the same time..

Prospective clients need to recognize their financial situation as a whole to be able to make the best financial decision on how to structure their financial investment and how they should diversify it.

First, prospective clients need to make a list of properties, they need insurance cover for and for how long.

Second, they need to decide how much of the properties' values they would like to be covered for.

Third, these data need to be cross-calculated against the whole income and other financial strategies applied by the prospective clients or families.

Hmm.. I guess I should give a clear example..

It is something like this..

When you feel the need for an insurance in your family arises (for house, vehicle education or life), start looking around for the type of insurance that fits your needs. Remember to look for:

1. Combined packages: education+health, life+health, house+contents, vehicle+accidents, etc.

2. Additional benefits: how much cash benefit that you can receive from the investment part of the insurance package and after how long.

Then, cross-check it with your current financial situation:

1. How much of your current salary you are prepared to set aside for the insurance (after allocating for daily needs, routine payments and savings).

2. Make a list of dates which you would like to receive the benefits from the investment part of your insurance (children's school entrance payment due dates, family holiday final booking due dates, your retirement expectation year, etc.)

ASK the insurance agent to provide you with TWO or THREE possible choices of premiums that are likely to be met by your calculation.


Insurance, even when it is combined with an investment plan, should NEVER be your only or main choice for investment.

Your personal or family investment should consist of a number of diversified choices, such as, savings, short-term and long-term time deposits and/or gold. If possible, properties or land and stock or share can also be considered.

The reason for this is..

Insurance is not savings, although it has an investment part of it. The premiums that you pay each year consist of two parts, insurance cover and investment benefit. Therefore, trying to achieve the full amount of your future needs from an insurance would cause you to pay a high premium, and there is almost no flexibility in regard to the timing of when you can withdraw your benefits.

What you should do..

Secure one-third to half of your future needs with an insurance+investment package, while at the same time, open a new savings account in your bank to achieve the remaining amount of that you aim for.

Whenever you have the enough amount in your saving account to open a time deposit, open one. Time deposit offers higher return than a savings account, so you will benefit more from your money.

Another alternative..

Banks also have programs called 'planned savings', which are aimed to reach a certain goal that you set for a time in the future; school entrance fee, holiday, etc. With this type of saving, the bank will withdraw a planned amount of money from your main account each month for the length of the saving plan.

Savings account, time deposits and planned savings account are good choices to diversify your financial investment (and its risks) and to complement your insurance+investment package.

A good combination of financial strategies applied to your investment can help you secure and grow your wealth for a long time. Not only you can plan your future well, you can also enjoy your life after retirement comfortably.

If you have any additional thought to add to this post, please fill in the comment form below.

Thank you for reading and have a nice day!

No comments:

Post a Comment

Your comments will help us improve. Thank you.