In this recap series of The Future Is Female conference 2017, we delve into one of the panels, Why Insurance Is A Good Investment For Yourself.
“You can’t trust anything that you don’t understand. The insurance industry has many channels and technologies that simplify investments into ways that everyone can understand,” -Philipp Kristian, an Innovation Specialist.
While insurance is commonly associated with health, it is more than that. If you invest a good insurance policy for yourself, you may just be able to secure your wealth better. Bryan Low, Citi-NIE Trainer, shared a personal example of his late father who had to liquidate his portfolio to fund his medical expenses because he has no insurance coverage. It is an instance that shows the importance of insurance in times of emergency.
The baseline for any insurance is protection, but a long-term coverage should include protection for total permanent disability and critical illnesses. Although there are many products available for such coverage, only one in five Singaporeans has subscribed to an insurance that covers all these. Therefore, it is important to encourage your family and friends and yourself to have insurance.
Insurance Coverage for Common Chronic Diseases
How does an insurance work in the case of chronic diseases?
Timothy Ho, Managing Director of Dollars & Sense, gave a quick breakdown on how insurance companies can help.
“Insurance companies do risk projection. Let’s pretend everyone in this room opts in for insurance and pays a certain premium each month. There will be a certain percentage of us contracting chronic illnesses and will receive a payout to help with our medical bills and ensure our family members can still have a decent lifestyle especially if the ill member is a breadwinner. Therefore insurance is a large component of financial planning, and while it isn’t as sexy as investing in stocks, bonds and properties, insurance is a protective tool where you protect yourself, your loved ones, and also your assets.”
The Central Provident Fund (CPF)
“If I have CPF, why do I need to still invest in insurance?” Philipp asked.
While CPF does help with hospitalisation for locals and it is enough, investing in an insurance can assure a better surrounding when you are ill. Citing a colloquial example of hotel chains, Bryan asked the audience if they would prefer to recuperate in Hotel 81 or Ritz Carlton. “For a little bit more each month you get to recover in a better surrounding,” he added.
Vivianna Low offered a woman’s perspective on CPF as a protection. Through research, she found that women tend to have less insurance coverage than men. Also, over the years, women tend to take a career break to take care of family members. Therefore, only a handful of women has a decent portion of CPF savings for protection.
As Vivianna noted that women outlive men for more than half a decade, she encouraged the audience to continuously review their financials and ensure that they have financial access when their partners are not around. Women also tend to open a savings endowment plan because it is easier to understand. She suggested that a female illness plan may be good for women who have financial plans in place as it acts as an extra protection against female critical illnesses.
Employee Benefits and Partner Coverage
“How do you figure out individual needs and if more is required when there is already employee benefits and possible partner coverage from your spouse?”
“When you buy an insurance policy, it is a long term purchase. You don’t want to buy it for a short while and then cancel your policy when you’re older just when you might need the coverage. Consider the long term affordability of the insurance plan you get. One of the things you should do is to look at insurance planning as one where you add on policies slowly. Add on a little by little when you need the coverage but make sure you hold the policies over a long term. You don’t want to purchase too much and then realise your next company offers similar coverage and you cancel your policies,” -Timothy Ho
How Do You Know You’ve Got a Great Policy?
While it is not easy to place a fixed value on insurance, it is important to look at priorities at any point.
“If your priority is protection, then please go ahead and purchase it. If you have children and your priority is taking care of your family, then your priority will be focused on education and health. Each stage of your life has different priorities and you may want to add different policies then,” Vivien recommended.
It is also important to note that insurance may not be the entire solution but a composite of inAfter alls. Afterall, investments can bring in decent returns over a period of two or three decades.
Life Insurance Isn’t Just a Payout When You Go
Philipp encouraged the panellists to share how life insurance can be seen as an investment equity. Bryan reiterated the fact that life insurance is not meant for the purchaser but for those he or she leaves behind.
“So before you even start thinking about life insurance, you have got to figure out if you want your children to be too comfortable. If my clients come to me to purchase a jumbo life insurance, I ask them why. When they say it is because they want to give their children a great life even after they have left, then I ask them what next. Do your children then not work? Will they not earn an income themselves? In my humble opinion, hospitalisation and critical illness are the most important coverage in a policy.”
He went on to explain what jumbo insurance was all about.
“If today you start off with a million in the bank and you’re thinking of leaving three million for your family. Firstly you can save as much as possible to reach your goal. Secondly, you can invest in a jumbo insurance policy. When a person passes away. such policies can contribute towards a target growth of 300% in investment. As between now and when you pass away the investment will aggregate to about 6 to 7% compounded. Life insurance has fairly guaranteed returns because two things will always take place – death and taxes.”
Types of Insurance
The first product is health insurance. You can purchase this insurance for yourself so that your hospitalisation fee is covered. If you have a critical illness or disability that prevents you from working, you can continue to have an income to tide over.
The second product is life insurance which you can purchase for your dependents, and the third product is general insurance which is for the assets that you own. The investment component often complicates the insurance product. As such, different insurance will offer different kinds of investment insurance that are not guaranteed.
Guaranteed investments-linked insurance can be attractive. It works by placing your investment in safe instruments such as bonds to ensure a payout. However, this also means that you are likely to receive fewer returns.
Vivien also added that insurance companies have begun introducing gender-specific policies, especially for women. She elaborated that such insurance policies are most beneficial for those who are at the childbearing stage and older.
At the end of the discussion, Philipp succinctly summarised how insurance can be an investment.
“You need to understand that when insurance companies guarantee you that there is no risk, they will absolutely ensure that there is no risk. But, all this cost money. Also, anything that includes investment is going to be more expensive as insurance companies are not the leanest companies. If you want a one-stop product that has all the bells and whistles, you will have to expect that there will be more costs due to the complexity of managing your product. If you want simplicity and ensure your baseline, then insurance agents can certainly help you do that.”
Edited by Joanne Ng
She was nominated and selected for FORTUNE Most Powerful Women conference in 2016 (Asia) and 2015 (San Francisco, Next Gen).
Anna has 10 years of experience in the financial sector and is currently a Director in Tera Capital. Her previous work experience includes positions at Citigroup, United Overseas Bank, a regional role in Business Monitor and a boutique private equity firm based in Shanghai. She graduated from Singapore Management University (Finance and Quantitative Finance).