Why I Am Not Sold By The Insurance Agent

Angry Man

My house has got a whole new look – thanks to the interior designers which put the furniture and fittings in place. The family car which has served us well for months has just went for a major servicing after running for another 40km. And i just had my dinner in a restaurant – a bento set prepared by Japanese chefs.

The services sector is paramount to the Singapore economy and as we get more innovative, it is not uncommon to see businesses offering different value added services to meet the demand of its people. Think Uber and Helpling.

That being said, i never let a financial planner handle my finances. Why, you might ask, since they are all services that help make the life of the common folks easier?

True. We are human beings after all and we tend to follow the path of least resistance. Why burden ourselves with the technicalities on how to fix a car or the myriad ways of where to place my sofa sets? I can definitely make my own meals, but i probably can’t dish out the the Xiao Long Bao at Din Tai Fung or to enact the perfect ambiance in a fine dining restaurant.

And if things goes wrong, the most i probably have is an upset stomach or a house that looks like a hostel. (which can be easily remedied without much repercussion)

My finances? There is more to just switching to the next better plan – my future is at stake.

Taking responsibility of my own finances

As Dave Ramsey aptly put it,

Personal Finance is only 20% head knowledge. It’s 80% behavior!

Don’t get me wrong. Personal finance can be complicated if you put the dynamics of investment and financial risk into the equation. Financial planners like the insurance agent or the bankers have their place in today modern society.

But if you are the ordinary man or woman on the street, like myself, chances are you are qualified to make your own decision. The word here is qualified and by that, i don’t mean you need to be educated in the area of Banking or Finance. If you have manage to chance upon this article, you are probably savvy enough to hook yourself onto the World Wide Web. With the internet, you can do wonders with the vast amount of information and knowledge out there – from learning how to cook a Shepherd’s Pie to planning your solo trip to Europe.

Can you manage and plan your own finances using the internet? You bet!

A website with useful resources would be MoneySENSE, a national financial education programme in Singapore. It has almost everything you need to become a financial literate – from the theoretical aspect to the nifty calculators.

Financial planning involves a few steps, and while you can budget and plan for your retirement the way you want it, there is one important factor that many have overlooked. Risk.

You can craft yourself an ingenious financial plan, but it can never be perfect should something unfortunate happen yesterday and ruin it. And that’s where insurance comes into play – to transfer the risk of loss to another party (the insurer in this case)

Encounters with insurance agents

Why would i not consult the insurance agents then? Well, i did, few years ago.  

After several sessions with 3 financial advisers from different companies, i have had umpteen reminders that i need to save for retirement since i’m in my twenties. Spot on. We should always start accumulating wealth early and take advantage of the effect of compounding, where returns are reinvested to generate their own earnings.

But that’s not what i’m looking for. As i already have some money invested in the Straits Time Index Exchange Traded Funds, or STI ETF, i’m looking at covering myself with term insurance to hedge the risk of loss from unexpected events.

However, I was informed that i need to diversify my investment and/or to have another account to grow my wealth so i was recommended a whole life insurance and endowment products on the basis that i need another saving plan. I was also informed that term plans has no cash value and i’m just throwing my money into the drain.

Being the skeptical me, i was not sold to their recommendation and furthermore i have just started working with not much funds for any other products.

Online Insurance Aggregators

Only recently when i came across the news that there were websites out there that actually helps you to compare the different insurance plans from different insurers, i know it’s about time to reconsider my options.

There are two useful sites which i have tried: compareFIRST and DIYInsurance.

comparefirst banner

Both are similar as they serve as a platform for consumers to compare the different insurance policies out there. They also provide handy calculators for you to work out the amount of coverage you need without consulting the insurance salesperson.

compareFIRST has a comprehensive list where you get to compare different insurance companies in Singapore. It even allows you to compare Direct Purchase Insurance (DPI), which is purchased directly from the company without any commission charged. The limitations of DPI is you can only purchase up to $400K of sum assured with a fixed term of 5 years, 20 years and up to age 65.

As i have calculated my need to insure myself up to $1 million, i could not take advantage of the more affordable DPI. I could have purchase two policies of $400K and one policy with $200K sum assured, but that is not cost-effective than if i were to purchase a single jumbo term insurance from a company.

Zurich Quote

Usually, insurance companies offer a substantial discount if you were to purchase a large term plans. I have used quotes obtained for Zurich Z-Protect in this example and as you can see, i end up paying $481.30 more a year if i were to purchase 3 separate DPI policies than a single non-DPI policy.

And this is where DIYInsurance has a sweet spot.

DIYInsurance Banner

As its name suggest, you have to do your own planning and calculate your own needs and because of that they rebates 30% of the commission from non-DPI policies back to the customer. That works out to be a saving of around $387 (good enough to purchase a pair of Scoot economy tickets to Bangkok.)

If you think that you probably get little or no services because of doing it yourself, you are wrong.

Mr Christopher Tan, CEO of Providend said:

Instead of asking our insurance specialist to work out the insurance recommendations for you, we put that advice on the portal by way of the comparison tool. But anytime you need help or advice, you can always email, call or web chat our licensed and trained client service managers. Having said the above, when you come in for documentation, we will still do a final check for you to make sure your planning have been sound and we will still provide you with product advice, meaning, we will explain in detail the insurance you are buying.

That is basically saying you are getting your insurance with services – for less. Don’t worry about getting into sales talk with their client service managers because they are remunerated a fixed salary with no commission, so independent and transparency is the key here.

In conclusion

By taking responsibility of your own finances and doing it yourself, you not only save money but you also have a clearer picture of your own future – which means more flexibility to adapt to changes in different life stages. Would you rather be dependent and scramble to look for your insurance agent many years down the road when you get married, have your first child or buy your first apartment?

It’s your call.

(This is a sponsored post by DIYInsurance)

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Secrets That Are Possibly Hidden By Your Life Insurance Agent

Not all life insurance agents are trusted advisors. So, the simplest way to prevent being exploited is to seek for an independent agent that will save you time and money. Here are the other secrets that your Life Insurance Agent may be keeping from you…

1. THEIR INCOME IS BASED ON COMMISSION

The agent’s income is solely compensated from the commission. It is one of the possibilities for the agent to have a personal interest that leads to you buying the highest premium possible equating to their highest commission possible. Thus, it may change his/her perspective of things, as well as the type of products clients are introduced to.

2. CASH VALUE WILL NOT BENEFIT YOU RIGHT AWAY

Yes! Cash value will build-up. But it takes about five years to have the cash value equal to the amount you paid for the whole life insurance.

3. BUY TERM AND INVEST THE DIFFERENCE

The term insurance is significantly less expensive than the whole insurance. This is why you can buy term then invest the difference on mutual funds. In fact, the combination of term and your investment for mutual funds may be less costly that the whole life insurance.

4. YOU MAY NOT NEED CHILD LIFE INSURANCE AFTER ALL

Renowned experts namely: Dave Ramsay, Suze Orman, and Neal Frankle are on a arguing against buying life insurance for kids.

“The only reason you need life insurance is if anyone is dependent on your income…please, you new parents, do not let anyone talk you into buying a life insurance policy on your child.” said Suze Orman.

Image Credits: State Farm via Flickr

Image Credits: State Farm via Flickr

According to them, if your child is not at the risk of a serious illness and you are financially stable to cover foreseen medical bills then, you are better off without it. Instead, save up for your child’s education until tertiary level.

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7 Golden Insurance Tips Every Newlywed Should Know

The vow of “for better or worse…for richer or for poorer” entails an important promise to live in a financially able home. Managing your money on your own can be challenging enough so adding your spouse’s finances may be overwhelming at times. With that in mind, here are 7 Insurance Tips for Newlyweds

1. DISCUSS YOUR FINANCES AND SET YOUR GOALS

Discuss your finances with your new spouse as soon and as open as possible. You will need to communicate about your bank accounts and about your debts. Set up goals together in order to see which insurance suits your intentions.

2. LOCATION IS EVERYTHING

Housing insurance often pays for destruction, damage, and theft of your possessions. In the event of fire, your insurance will help pay to repair and replace your expensive belongings. Homes close to fire hydrants and fire stations cost less to insure. This is why location of your house is important.

3. TRY THE LUCKY SEVEN

If you are wondering how much life insurance coverage you need, then seek the experts help. Some experts suggest multiplying your annual income by seven so that your spouse is covered for at least 5 to 10 years.

4. CONTINUE DRIVING RED CARS

It is a myth that car insurance companies charge more for red cars. Higher charges come from the age of the client, client’s claims history, and age and model of the car.

5. CONSIDER FLOOD INSURANCE

Housing insurance cover damage caused by pipe overflows but, natural disaster flood are covered by flood insurance. Findings suggest that almost 25% of flood insurance claims are made from low-risk areas, so consider this policy.

6. HOME IS YOUR BIGGEST INVESTMENT

Your home is your biggest investment because unlike cars that depreciate its value the minute you drive them, your house increases its value over time. Houses that are less than 10 years old or those that are renovated within the last 10 years cost less to insure. What’s more? If the house is made of fire-resistant materials such as brick, you can save even more money.

7. BE FIT TO SAVE MORE

Live a healthy lifestyle that includes regular exercise and a balanced diet. Hop on the scale to see if your body weight is the ideal BMI for your age. This is because life insurance companies charge more for people who are overweight since they develop more health problems as time passes. So, stepping on the gym will not only give you a sexy body but it will also help you save more insurance money.

Image Credits: Alan Cleaver  via Flickr

Image Credits: Alan Cleaver via Flickr

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How Much Life Insurance Cover Do I Need?

Life Insurance

Life insurance is an important tool for an individual’s financial plan. Because you don’t have a crystal ball to predict what will happen to you tomorrow and the day after, you need to transfer this risk to a life insurance company – by paying a premium.

Fortunately, you don’t need any divination to find out how much life insurance cover you need. Since this article is penned in the year 2015, i have reasons to believe you belong to the Gen Y’s population and is knowledgeable enough to work out your own insurance needs by following the steps below. That is also the reason why very soon you will be able to purchase life insurance cover directly from the company without the need of financial planners. (If you belong to the Gen X’s, i don’t see why you need any life insurance besides your Medishield or Medishield Life)

Working out how much you need is no rocket science. It’s as easy as sitting down with a calculator on your hand and asking yourself a few questions.

1. Do i have any dependants?

This should be the first question you ask when you buy life insurance.  You want to provide for your loved ones should something untoward happen to you.

Let’s assume Michael has a wife and a 3 years old son that he need to take care of. He is also providing allowance to his aged parents who have retired and not working.

2. How much do they need?

Finding out how much your dependants need is important to determine how much life insurance cover you should be looking at.

Now Michael contributes $2,000 a month to household expenses which include paying for the bills, foods, daily necessities and children expenses. His wife is also working and contribute the other half of the household expenses amounting to $2,000 a month.

If something unfortunate happens to Michael tomorrow, his wife would have to shoulder the responsibility of paying for Michael’s share and may not have enough to cover a monthly household expenses of $4,000 a month.

So Michael wants to protect his share of liability.

He needs to provide for 20 years of household expenses until his son graduates from university and starts working.

He will need to cover himself sufficiently such that the large sum of money paid out can be invested to generate a passive income of $24,000 a year. Let’s assume a modest 4% rate of return, Michael simply divide $24,000 over 4% to work out $600,000. That is the cover he needs to provide a passive income of $24,000 a year for his family.

Once they no longer need this passive income, the bulk of this money could be used to purchase a home for Michael’s son.

3. What about mortgage, other loans or even children’s tertiary education?

For mortgage you would have taken up a mortgage decreasing term assurance to take care of that.

if you look into loans and children tertiary education, you could have factor those into your monthly expenses. That is also to say i am assuming you would have set away a portion of your monthly salary into a portfolio that gives at least 8% of growth to your children education fund.

4. Does that means i don’t need any insurance cover if i have no dependent?

You would hope so. But you might want to look into replacing your income should you become disabled or get critically ill. That is when you should consider getting yourself covered for total permanent and disability until the age you retire.

As for critical illness, a simple rule of a thumb is to cover for 5 years of your income because of the prognosis of cancer (or the survival rate of cancer, being the most common critical illness in Singapore) You can basically go without income for 5 years since you will be focused on recuperating and going for chemotherapy and other cancer treatments.

For hospital cover, don’t forget you have your Medishield or Medishield Life to take care of them.

What’s next?

We should be expecting a web aggregator to be rolled out in the first quarter of 2015. Now that you know how much you need to get yourself covered, most consumers can actually skipped the middleman to pay a lower premium and make use of web aggregator to find the most suitable product at the most affordable price.

 

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Starting A New Family? Here’s 4 Tips

It’s not easy starting a new family. While you might be busy dreaming about the warm and fuzzy moments you’re going to have in the future with your spouse and your children, there are some pressing financial issues you would need to face right now. How are you going to use your money wisely on a daily basis? How are you going to safeguard your family future? Don’t fret, we’ve brought to you a few tips, so you can better manage your family finances

Keep Your New Expenses In Mind

Maybe you’ve thought of getting that new TV you’ve been eyeing for a while. Maybe you’ve saved just the amount of money needed to get that massage chair that’s always been at the back of your head. Well, did you take into account all the new expenses you’re going to have to pay for, now that you’re starting a family?

You’re no longer just earning for two, you’re going to have to provide for three, or more (if you struck the twins or triplets lottery). There’s plenty of child related expenses you’re going to have to take note of, such as baby food, diapers and immunisations. It’s best if you lay out all the expenses you would need to care for your baby, so you know for sure what you’re getting into, and to allow you to better budget for the future.

Set Up A Savings Plan

If you hadn’t already done so, you should set up a savings plan so you can better provide for your child’s future. Savings plans are more easily set up compared to investments or bonds. The basic idea is a simple automatic, monthly deduction of funds which will go into a special account, which can only be accessed once your child reaches a certain age. It might be hard to consistently set aside money on your accord, which is why a savings plan would be great as you don’t even have to think about it once you set it up. The “pain” of having less income per month isn’t felt so strongly this way.

Get Life Insurance and Medical Insurance

You always need to be prepared for the unexpected. Insurance acts as a safety net, so you and your family can be protected should anything happen to any one of you. Medical insurance is important as there are many medical issues which your child or any family might face which would require a hefty bill. The presence of a medical insurance plan would help you cover these expenses should the need arise.

Although many modern families are dual-income families, this does not mean the early demise of you or your spouse would not result in a heavy financial burden on your family. Life insurance helps your family deal with the financial needs that would be definitely be harder to attend to with the absence of you or your spouse.

Teach Your Child Good Financial Habits

Financial habits are ingrained from a young age, so make sure your child adopts the right habits that will put him in good stead for a financially stable future. Managing family finances is a team effort which involves every single member of the family, including your children. Little things such as not buying toys they don’t need, turning off the lights, and putting aside a small sum of money each day help your family make better use of your finances.

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