Purpose-driven Insurance

I got my first insurance when I was 28 (I’m 34 now). I was still single back then and the only reason I got insurance was because I knew the agent and I thought it’d be a good investment. I never really understood the value of insurance and why I needed one until I took the RFP course and eventually got married. Many of us probably had the same reasons for getting insurance – they knew the agent and didn’t want to reject them because they’re good friends or it was sold as an investment that would give high returns. In personal finance planning, understanding why you’re getting insurance is a key step in knowing what type of insurance you’d have to get.

There are a lot of considerations that go with picking the right insurance for you. Why would I need one? How much insurance do I need? What type of insurance would I get and why that type is best for me? What other insurance options do I have other than the one the insurance agent is presenting?

Why would I need/want insurance? The main objective of insurance is to protect a dream or a goal, goals such as ensuring my children graduates from college to a gracious retirement for me and my family or to some it may be a tax-free inheritance to their beneficiary. The purpose of insurance varies as well on the life stage you are in. Someone who’s single and is not a breadwinner for example would need life insurance for income continuation in case of accidental disability or dismemberment. Couples with kids would probably need both life and health insurance to protect their kids’ education while an older couple nearing retirement should’ve had health insurance while they were younger and may need life insurance to protect their estate.

How much insurance do I need? Without having answered the first question, it will be difficult to determine the amount of insurance coverage one would need. As an example, to protect the education of their kids, a couple would need about 2M-4M insurance for each kid to ensure that their education will be covered. You don’t want to be having too little insurance that it won’t be enough for your family to reach their dreams.

What type of insurance should I get and why? Much like buying a car, a bag or any other consumer items, there is also a thing called compatibility when getting insurance. One should ensure that the product has addressed the need.  Again, it will be difficult to find the right insurance product without knowing what it is for. Do you get a variable unit linked insurance, where living benefits are not guaranteed but could give higher returns, thus eventually giving you higher protection or an ordinary life insurance, where living benefits are guaranteed but death benefit is fixed.

What are the different insurance options for my need? If you’re talking to an insurance agent from one company, make sure you ask for other options for your insurance needs. A term insurance for example may be a good solution to address insurance needs for your kids’ education as it is the cheapest of all insurance products and you’ll be covered for a certain period (during the education years) only. You may also shop around a bit from different insurance companies and see which product suits you best.

Will my advisor support my needs after the sale is made? Regardless of which reputable insurance company you choose, one major factor people consider in getting insurance is the financial advisor. Products usually are similar among companies, but traits of advisors vary. It is important to know the reason your financial advisor is doing what he/she does. At the same time, to ensure that after sale support is given, it is also important to know if the advisor is in the industry for the long run.

*Published in Business Mirror – April, 2015


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