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Agent:
"We should do a review. Your salary is higher now. You should need bigger insurance coverage."
This was what one of my insurance agents said to me many years ago.
I was wondering why did she say something like that.
Wasn't I financially more secure by then? Why would I need to increase my insurance coverage?
Agent:
"You are worth more now. Your life is more valuable. It is like insuring a valuable piece of art. More valuable the artwork, the higher the coverage."
OK, at that point, I think most people would have just bought into the argument.
I didn't.
I decided that the agent was only interested in lining her own pockets with more of my money.
Read this conversation I had with a fellow blogger on the need to buy insurance and how this need correctly changes with our circumstances.
AK:
We should look left and right before crossing the road. In some instances, we should look back as well to make sure we are not in the way of some speeding motorized scooters.
Risks have to be managed and having insurance helps to manage risks.
Since we are talking about risks, actually, insurance companies could go bust too. What then? OK, I am being a little perverse. ;p
So, even if we have insurance, it is still important to have a meaningful emergency fund and I do maintain a very large emergency fund well beyond the 12 to 24 months of recurring expenses that I usually suggest.
The need for certain insurance products in life diminishes if we have a large enough emergency fund as well.
Insurance is most relevant when we want to transfer risks which could result in catastrophic financial losses or hardship.
So, we have to insure ourselves against events which we or our loved ones might find hard to cope with on our own.
The financial ability to cope will, of course, differ from person to person and from family to family.
la papillion:
I think it's a important to know that everything we do runs a risk. Even if we buy insurance, it's also possible for the company to close down, as u had mentioned. (that's why don't buy all your policies from one single company).
That's not the only risk of buying insurance. These days, even if u bought a plan, u might not be able to claim because of some disclaimers laid out but u didn't know about.
So, I agree that we should progressively take the risk ourselves as our financial situation improves.
When we just started working, the insurer should bear a big part of the risk because we don't have the means to shoulder the risk. It should be inverted when our situation improves.
Don't think of ourselves as a valuable piece of art that needs insurance coverage.
We should become more valuable as a person because our wealth has grown.
As we become wealthier, we shouldn't need to have more insurance coverage.
How to become wealthier?
What?
Make more money and buy more stuff that we need to buy insurance for?
OK, maybe, I will ask that insurance agent who said I was a valuable piece of art to give you a call.
Related posts:
1. Emergency fund.
2. Best insurance.
3. Become wealthier.
Bloggy Award
6 comments:
Hi AK,
Always love reading your post. Maybe you misheard. Wasn't valuable piece of art she said, more like your valuable piece of f-art smells nicer to her.
If our expenses/costs remain constant even though our income/net worth increases, why will we need more insurance coverage?
Unless the insurance agent has much more to 'offer', otherwise doesn't seem like a good trade.
Maybe they are the 300 agents who defected fm GE to AIA who now need meek sheeps to pay for their $100m bonus.
Apparently, agents have now become very artistic. Maybe they've been attending auctions at Sotheby's or Christie's to learn the finer art of seduction (of sheeps).
I don't walk into a wine shop and ask the proprietor whether I should buy the most expensive bottle on the shelf. Neither should we ask insurance agents whether we should buy more insurance.
Think for ourselves exactly how will each insurance will help us. Don't be surprised that many insurance schemes fit our wants but no our needs.
Hi Marcus,
It is not uncommon to hear insurance agents telling their clients that they should up their life insurance quantum because their life is worth more as they advance in their careers. I have always found it rather strange that they should say that.
Hi Laurence,
For sure, we do not need insurance for everything in life.
Knowing what we need and what we want will help us make the right decisions. :)
The argument stems from "theory" of income replacement.
"...You now earn 2x more than last year/month etc
You will need 2x more coverage, in the event that you
kick the bucket, your loved ones can continue with their
lives as though you were still around..."
The aggressive ones will recommend 10x more coverage.
People with lazy thinking & greed will inevitably fall prey.
No one with influence or expertise bothers to educate the public about concept of insurance. ( if they did, it never got published and repeated like terrorism )
Its not in their interest to do so.
Even HDB or CPF with their various schemes... Dependant's Protection Scheme etc.
are very light in explanation. Its more to protect their own interests ( at your expense) then to protect the home owner. Its a guarantee that they will get the loan money that is outstanding.
But its pushed as though they have your interest at heart.
Banking and insurance are 2 of the most ingenious creation in the Capitalist world.
I dont think it can get disrupted for eternity. As long as humankind exist.
Hi Veronika,
Always enjoy your incisive comments. :)
I accept that insurance is necessary but it doesn't have to be a necessary evil nor necessarily evil. ;p
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