This article first appeared on The Independent Abecedarian as a collaboration piece between the two blogs.
The Independent Abecedarian tracks the financial path of a determined, goal-driven 21 years old as he navigates his way to his lifelong missions.
This is our first interview piece on Clearly Surely and we hope to have more in future.
Without much ado, we dive straight into the thoughts of the up-and-coming generation.
Clearly Surely Asks The IA
CS: Thank you for accepting this Q&A interview!
You are in your early 20s but with a firm view of attaining financial freedom. What do you think is the main barrier or obstacle that most people would face with regards to that goal?
TIA: Hi CS! As you explained in the email, it’s my pleasure to provide my best answers to your interview questions, with perspective of an early 20s financial blogger.
I believe the leading problem my age group has is the lack of priority in future planning. They do not have a firm goal and dream of their future, satisfied with just drifting along with the conventional flow of life – Study hard, Work slogging, Have a family, Retire in apartment. Without a goal or a dream to aim for, life will never have a purpose and will never feel fulfilled. If you read my past posts, you will see that every now and then I will remind everyone to really dream big and aim for the stars. With a truthful goal in mind, even if it’s not related to attaining financial independence, trust me that you will be happy and purposeful working on it.
CS: As you may already know, we are a site that focuses on providing Life Insurance knowledge to our users so that they can make better informed decisions when it comes to purchasing insurance. Where did you personally learn up the subject of insurance? How would you describe that journey?
TIA: Yes, I’ve been reading your blog posts for a couple of weeks now and they are really informative. Good job in keeping it up to this standard!
To be frank, I only started to learn more about insurance after I enlisted Army, which is around November last year. As an analytical person, one day I took the time to try searching for the best bang for buck policy around for myself, calculating and comparing every policy I’m eligible against every insurers. And in the end, I decided on AVIVA’s SAF Group Term Life that MINDEF recommended to me. As an NSF, the coverage to cost is really wide and worthwhile that I recommend to all serving National Service and even students just out from service. Currently, I even slab in the SAF Living Care rider plan to further insure for critical illnesses, which the main policy does not. Interested readers can view the coverage and terms at http://www.aviva.com.sg/life-and-health/for-individuals/SAF/overview.html
CS: Investing (or buying insurance) might entail risks and mistakes from time to time. Were there any mistakes that you made regarding insurance that might have been avoided?
TIA: No doubt that every investment decision has a risk, I believe the same goes for insurance purchase. The insurer might default any day, dishonour the big bills you forked out, or in some cases, subtly charging you extra for additionals you don’t need. As for personal mistake, the minor mistake I made with AVIVA Group Term Life was that I was unsure the amount I wanted to insure myself with. So at first I tried taking up the $200,000 coverage, then I topped up to $300,000 before realising it was a bit too much for my NSF allowance to take before I went back to $250,000. With each change in policy, I was sort of paying one month extra in cost as every change will require me to pre-pay for the first month. Damn!
CS: Do you personally believe that each and every one of us requires a sufficient amount of cover?
TIA: I agree but unfortunately ‘sufficient’ is really subjective for everyone. I might believe I’m worth more than a million dollars soon but in fact I my net worth now is much less, so how much is sufficient for me? How much you can afford is also a key factor in taking up the amount of coverage. No point paying a huge percentage of your pay to something you do not wish to happen to you too right?
CS: What do you think about the attitude of today’s youths (those below 25) regarding life insurance? Why do you think they have that attitude?
TIA: I’ve got a feeling that most of the youths today buy insurance is just because everyone around them (their parents, colleagues, etc) got it as well. I have some friends who not educated on what they’ve purchased – a couple of them bought policies consisting Income Protection section when they are still students, while the others purchased multiple overlapping policies instead of getting wider range of coverage. Hence I believe the government should provide more education from young before we even step into work society.
CS: There are many reasons why people avoid buying life insurance. What do you think the three main reasons are?
TIA: If talking about just the basic life insurance, I believe the top reason people do not get life insurance is they think of it in a way that there is no reason to get payout if one is dying. But what they do not realise that life insurance is not for them, but for the loved ones to get over it easier with their emotional damage that will be done, or financial if the policyholder is the breadwinner of the household.. Other reasons might be finding the costs too expensive to maintain, or if they’re good at saving, they’ll trust themselves better by saving up or investing for their retirement.
CS: We have long griped that Endowment returns are poor compared to people who understand how to make their own investments. Does that mean that endowment plans do not have a place in most people’s portfolios?
TIA: I agree on the point that Endowment Plans (ILPs included) are totally worthless to most, except for the rare few. To keep it straightforward, it is only worthwhile for the few who do not want to touch/learn any investment instrument at all for their lifetime, or if they’re someone with really bad habits in saving.. Otherwise for the majority, it should never have a place in your portfolio. I’m sure we’re all smart enough and I believe you rather lose some money on investment decisions you made yourself, learning from your mistakes, than to let someone you don’t know manage it. As a matter of fact in case you didn’t know, your ‘fund manger’ profits no matter if your fund ends up In-The-Money or Out-Of-The-Money- as long as he is managing your money, he takes the management fee off your fund. Plus, all transactions fee, maintenance/re-balancing costs, taxes are charged on your account of course, if not who else.
CS: Buy Term and Invest the difference. Do you think this is applicable to everyone or just a select group?
TIA: Honestly speaking, it’s my first time hearing this. After a little research and discussion with my trading partners, we agree that buying this is more applicable for people who are still building their wealth than those who’re already wealthy. It’s simple for wealthy people (or retirees). They can just purchase a well-rounded life insurance and write a will. This way, it protects their current assets and tops it up with the insurance claims for the next generation or their loved ones. For the rest who’re working on their wealth, it’s definitely cheaper for them to purchase term for the time being and investing the rest as the savings could be significant if compounded overtime.
CS: Final question. If you could share 3 words of advice to everyone in the world regarding insurance, what would those words be?
TIA: Savings Compound Overtime.
www.ClearlySurely.com aims to eradicate the knowledge gap between consumers and Life Insurance. Our Vision is that one day, every Man, Woman, and Child will be properly insured.