Have you ever come out of a financial review, feeling that you cannot afford insurance?
You lay the blame on your adviser for scaring the hell out of you during the financial planning and thus, end up biting off more than you can chew.
Or have you dropped some of your policies after a few months as you find them as a huge financial burden?
Stop looking around for scapegoats and take ownership of the problem.
You may just be the reason why you have made insurance too expensive for your own self.
Inflated Sense of Worth
My friend approached me for a second opinion on her adviser’s recommendations.
A quick glance on the proposed policies had me zooming into the term insurance coverage.
It was a cool million dollars of cover.
Way too much for someone whose dependents are really only her parents.
When queried, she laughed and admitted that it was her idea.
She did not know why.
It felt awesome to say that she was worth a million dollars.
It turned out that even using term insurance, the high coverage amount took up a large portion of her budget.
She took my advice and lowered her term cover. (to a more down to earth 300k)
This was a classic example of how an unnecessarily high insurance coverage will cost you.
If you have no dependents, you may not need an elevated amount of death cover.
Likewise, you probably do not need a half a million Personal Accident cover even though it is cheap.
Using the money to get a proper hospitalization plan will be much more worthwhile.
I know, I know.
If you have only 200k death cover, you may feel cheap.
How dare you think a smart, good-looking fellow like me is only worth so little?!
Chill, my friend.
Insurance does not equate to your value in life.
Your unique personality and awesome character defines you much more than your coverage.
Buy the right amount of insurance to fit your budget.
Having unrealistic expectations
You are earning a decent $5,000 per month.
Your financial planner asks you how much income replacement you will need, in the event you are disabled or sick.
“Nothing less than $4,000” was your reply.
Of course, you want to maintain your current lifestyle.
You want to be able to have the most amount of money possible to make your life comfortable when you are not well.
However, it is going to cost you a bomb now.
When you give an over-the-top figure, your agent has no option but to cater to your needs.
In fact, he/she will be happy to do so as it does not hurt their bottom-line.
You, however, are going to complain about how much premium that is payable.
Don’t overstate an amount just because you think it sounds impressive
You don’t have to impress your financial adviser even if he/she is a looker.
Besides, if you can keep your premium reasonable and continue paying for your policy, it is actually more beneficial to both the adviser and yourself.
The harsh fact is that if you are disabled or sick, lifestyle changes are going to happen.
You may need to spend more due to the increased medical cost or mobility devices.
However, one will reduce their expenditure on leisure and luxury goods tremendously.
You may not spend any more on Gucci bags or Rolex watches.
Exercising can be done without expensive gym memberships.
Your annual shopping trips to Europe could no longer viable due to your health conditions.
Remember how you survived your schooling years on meager allowances.
It is something like that.
Obviously, it will be a pain but nothing that you have not experienced before.
It is always better to have a small income replacement than none at all.
The latter is what will happen when you overstate your need and end up surrendering the policies.
Think carefully on both ends – the cover and the budget.
Be honest about it and your adviser can give you a far better recomendation.
Not knowing what you need
You have no idea what you need.
Your agent tells you all sort of information but you don’t quite comprehend.
The financial plan seems solid and well-prepared though.
You ask if it covers basically everything.
The answer is positive.
Hurray, you are able to insure everything.
Except the price tag.
It is more than 70% of your take-home income.
Either you walk away without buying.
Or you cringe and scrimp for a few months before giving up some of the policies.
Both actions leave you or/and your family defenseless in some way.
You need to know what you require.
It is always wonderful to be able to insure life’s most painful events but it may not be affordable.
You should read up about insurance and know what are necessary and what are good-to-have.
Not having a hospitalization cover will expose you to huge debts due to medical expenses.
Giving up a hospital cash policy should not affect you adversely that much.
You gotta know your insurance before knowing which items are critical.
There is also an addition benefit that you shall not be a victim of any mis-selling from the salesperson.
Having the prerequisite knowledge also facilitates a more meaningful discussion with your financial planner.
You can even get insurance at the lowest rates by going direct!
One good place to start is obviously our Learn page.
Read insurance articles and chat with others online on different viewpoints.
Summing it up
We understand the rationale behind wanting the best coverage.
It is also colloquially known as Kiasu.
Being kiasu in insurance is a great thing when in isolation.
You get more assurance.
However, you also do not want to spend 70% of your income on insurance.
You want to strike a balance between having the money to spend now with having the right protection later.
Evaluating your true worth, giving up quixotic (impractical) expectations and knowing what exactly you need will enable you to strike up a right balance between the two.
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.