‘Believe it or not, getting life insurance is the same as placing a bet. Instead of betting on a winning number, you are punting on when you are going to die. In the long run, you are going to “tio beh pio” if you bet long enough.
For those who think that it is rather demeaning to associate life insurance with betting, we urge you bear with us and read to the end. We promise that this makes perfect sense.
We are presenting it in a quickfire Q&A format and we betcha have no objection!
What is life insurance?
It is a bet with your insurance company on your death. You place a wager, you die and they pay. As simple as it can be.
Can I bet on Donald Trump dying? Everyone hates him.
No, you are not allowed to purchase a life insurance for someone that you are unrelated to.
This is due to this concept of insurable interest whereby you have to stand to lose when the insured person passes on.
Can I bet on something else?
Death can be too morbid for some. Like football, we can always bet on something else than the final score such as who is kicking off, which team is getting the first yellow card and when Jose Mourinho is getting the sack.
In life insurance, you can venture into critical illness, disability income, hospitalization, accident, etc and the list goes on. After all, who actually bet on just one item?
Can I do a multi-bet with insurance?
A multi-bet is one whereby the gambler combines a series of single bet into one bet, which increases the payout tremendously with each additional bet. For example, you may have to guess the winners of 3 consecutively horse-races in order to get a windfall.
In insurance, some policies are basically multi-bet. Think about Eldershield and CareShield – you have to be unable to perform not 1, not 2 but 3 Activities of Daily Living in order to make a claim. Although the payout is not fantastic, you can say this is closest to a multi-bet.
How do the insurance company make money?
A bookie depends on statistics to ensure that the odds are in their favour. No matter how you bet, the house always wins in the long run. If you think about it, bookmakers are really smart geeks that know their numbers.
Likewise, the insurance companies depend heavily on the actuarial science to formulate the premium tables. They calculate how likely each person is likely to die, according to the age, gender and BMI and add their own profit margins on top of that.
As you can see by now, the parallels between the two are uncanny. To our knowledge, some bookies hedge their risk with other bookmakers in the same manner how insurers arrange reinsurance contract.
Some lotteries pay the winner in instalments. Does the same apply to insurance?
In some countries, the lottery winners can choose to claim their winnings either in one lump sum or in tranches. Amazingly there are some policies that dispense your claim the same way.
Disability Income, Eldershield and CareShield policies provide claim payout in regular instalments. In fact, some older Critical Illness plans arrange for partial payment to be made regularly for a specific period.
Wow. Is there any difference between the two then?
Of course, there are!
You cannot save with a bet, unlike insurance. Whole life, endowment and investment-linked policies have cash values that allow you to build up your assets conservatively.
In addition, life insurance policies in Singapore are backed up by SDIC insurance. That means your policy assets are safeguarded up to a certain limit. Good luck to you if you bookie run away though.
Wagering our final bet
Insurance is always associated with umbrellas, parachutes and raincoats to laud its protective qualities. Isn’t that super boring and kinda too figurative?
We opine that betting provides a better explanation for how insurance operates and boy, are we right!
Gambling is a no-no in our books but you may wish to bet on insurance though.
Because unlike betting, you can always count on insurance to come through at the very end!
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.