Why Over-insuring Today makes Perfect Sense

Posted 29 April, 2018 by Surely
in Opinion

Our collective insurance report is out and it is not a pretty sight. It appears that despite our best efforts to enhance our sum assured and increase our own personal savings, we are back to where we started. Over-insuring could be our solution to this problem.

Currently, our protection gap stands at 23% – which is a slight deterioration from the 2012 results of 22%.

For the first time, LIA (Life Insurance Association) has conducted an analysis of our Critical Illness protection gap. You can head over here and see how poorly we have fared.

But that is not our focus for this article.

Instead, we want to know when it comes to bridging the protection gap, why are we not making any headway and what can we do about it.


Life on the treadmill


Our first question is whether LIA has made a mistake.
How can our mortality protection gap be the same in spite of improved financial awareness?!

It turns out that we all have made a wrong assumption.
We have presumed that our protection needs are static.
Instead, our coverage requirements have risen by 25% over this period.


Source; LIA Protection Gap 2017


The enemy who has silently sabotaged our attempts to address our protection gaps is none other than inflation.

Inflation has caused our cost of living to increase over the years.
In turn, the amount that we need to protect ourselves will only continue to grow in the future.

If you are praying that the trend will stop, think again.
Inflation is almost guaranteed in the modern society.
And if we face deflation instead, our economy must be in trouble – something we do not hope for.

Your future self will be needier than the present you for sure!


Why we must over-insure now.


You think:
“Why don’t I just review my protection gap every 5 years and get more coverage accordingly?”

The first part is definitely right. Our financial situation is in a constant flux. You may have a child; your close family member may be unable to work due to injuries. All of it results in heavier financial responsibility on you.

An annual review is a great practice to have so that you don’t miss out these changes.
However, you may not be able to obtain any more insurance policies.

This is due to the dirtiest words in insurance – pre-existing conditions.

Your health may deteriorate with time and cause you to be uninsurable.
In fact, a quarter of our working population is already in substandard health conditions.
Even if you are able to obtain coverage, the premium may be too costly.



By the time you need this, it is too late to buy more policies.


On the other hand, you are healthy at present.
You are young now.
You are able to insure yourself well and at a lower price point.

The right thing to do is to start over-insuring today.


Just how much to insure for?  


We cannot foresee what we are having for dinner tomorrow, let alone the future inflation figures. Neither can you, but we can make an educated guess based on the past.

Based on the trend for the past 30 years, the percentage increase in inflation is 69.37%.
If you spend $100 in 1986, the same item would cost $169.37 in 2016.
The compounded inflation rate is at 1.77%


Source: MAS Inflation Calculator


To assume an inflation rate of 2% will be prudent. Factor that into your coverage needs and you will arrive at the magic numbers that you should over-insure at.

If you are having problems working out the arithmetic, you can simply input your financial numbers into our Discovery Bot and get your answers in just a minute.

How cool is that!


Rounding it up


It is usually harder to get back when you fall behind. Clearly, LIA Protection Gap 2017 has proven that point succinctly. In spite of having savings and better coverage, we are just running on the spot.

Instead of playing catch-up, we forecast our future protection needs today and put ourselves in the lead by over-insuring appropriately.
Over-insuring today is the perfect plan for the future.
Let our future insurance needs do the chasing for once!

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.

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