An expert’s advice: He is a coach and consultant, Steve Tan has been coaching insurance planning and agency management for over 3 decades. We are blessed to have him on a special interview series to share on proper insurance planning.
He’ll cover these questions in Part 3 of this series
- Do we need to buy different insurance at different life stages?
- 10 facts of Life Insurance
- How much coverage is enough?
For those who love reading, here’s subtitles for you to read through if you don’t want to go through the whole video.
Do we need to buy different insurance at different life stages?
Q: Shifu, the next question would be in life, there are many stages. People go through different stage – Birth, Old age, Illness and Death. In different stages of life, do we need to buy different insurance?
A: When we talk about life stages, when we are born, we need to create something. Firstly, we need to create wealth.
In the next stage of life, we will want to manage our wealth. As we mentioned in Part 1 video, risk management is very important. After that, we will want to make our money work harder for us. To appreciate our wealth, we will involve investments.
Lastly, in life we will pass on one day. That is when wealth distribution is very important. Because there are different life stage. Your question, do we need different insurance in different life stage? Because insurance is something that we need to buy. We need to consider other factors, your budget.
To me, we need to advise our clients. Do not over purchase your insurance. As part of financial planning, we need to budget our money. We recommend not to commit more than 10% of your income, let’s say annual income is 100K,10% is 10K. Try to maintain this percentage. However, for those who can save a lot, he can increase budget on insurance.
10 facts of Life Insurance
A: Next, the type of insurance in different life stages. Here, I have 10 Facts on insurance. What people call the “10 Insurance Facts that You Must Know”. Whether we buy or don’t buy insurance, we will also regret. Just different situation only.
Fact No 1: Whether you buy insurance or not, you are already insured.
Fact No 1, whether you buy insurance or not, you are already insured. Either self insured or group insured. If self insured, your RM1 = RM1. If any risk occur, we take care of ourselves. If RM100 is not spent on insurance, RM100 is spent when risk occur. Using money from own pocket. RM 1 = RM 1. If this RM 1 is pool together with other people’s RM 1, then this will be different.
Fact No 2: We don’t sell insurance, we help people buy insurance.
Fact No 2, insurance agents are not selling insurance. I always teach my students this. If they are not selling insurance, what are they doing? They are helping people to buy insurance. They must identify their client’s need first, then recommend product. Like medicine prescription according to illness. This is Fact No 2.
Fact No 3: Know why you want to buy insurance.
Fact No 3 is we need to know why must we buy insurance? Why must we buy? Don’t buy for the sake of buying. You will need a professional agent to explain to you. That’s why I emphasize on professionalism in agents.
Fact No 4: Life insurance is not about the latest product.
Next fact, fact No 4. Life insurance is not about the latest product. It is a basic necessity kind of product. Everyone needs life insurance. You must have an insurance. Which financial instrument guarantees you RM 100 for every RM 2 you pay? Only insurance is able to do it. No other product can. Whether you like it or not, you need insurance.
Fact No 5: It would be unwise to buy a policy from any insurance company or to buy it inadequately.
Fact No 5, if you don’t buy insurance from any insurance company or if it is insufficient, it is not a smart move. Don’t buy life insurance which does not cover. This is because there are people who have insurance but insufficient. They end up regretting and wished they had bought more previously.
Fact No 6: There’s always regret whether we buy or not.
Fact no 6, as said earlier, we will regret whether we buy insurance or not. That’s why on a daily basis, there are people buying insurance. As I said, whether it’s unfortunate event or not, we will always regret not getting sufficient coverage.
Fact No 7: Life insurance guarantees that your plans will succeed.
Fact No 7, life insurance will ensure a good financial planning. Life insurance is an asset under certain circumstances, having debts is one of the circumstances. For example, borrowing a bank loan to buy a property and not having an insurance for the mortgage loan. When an unfortunate event occur, we need to have a plan to settle our debts. We call it Debts Cancellation. If there’s no insurance, how to settle our debts? Everyone wants to have their own property. If you take mortgage loan, you surely need an insurance. You need a professional agent to advise the type of insurance to buy. A neutral and sincere advice.
Fact No 8: There’s always the need for life insurance.
Fact No 8, the need to buy insurance is non-arguable. It is a need, regardless of any life stages. From birth to old age, illness to death and disability. We need it in all stages. As we will pass on one day, wealth distribution is vital. If we write a will to distribute our assets, we know that we need to clear our debts. This is because in every of our asset, in the financial statement, there is also liability. All liabilities will be transferred to our loved ones when we pass on. You will want to choose to clear the liabilities and leave the best for them. Therefore, buying insurance is not a burden. Instead, it is a burden to your loved ones if you don’t have insurance. Pass on without leaving debts, that is love.
Fact No 9: Paying premiums actually solves the problem.
Fact No 9, buying insurance is to solve problems, not an expense. People misunderstood that it is an expense, need to budget. You can budget anything, except insurance. For example, we have 10 fixed expenses – Electricity, water etc. In the event we loss the ability to earn money, we can only count on insurance payout. If we cancel the insurance, then we are in big trouble because we have nothing left.
Fact No 10: Life insurance is the only friend who”sends in charcoal in snowy weather”.
Fact No 10, life insurance is a friend with a helping hand. Not wealth creation, not gambling. Many people misunderstood this. They think that insurance creates wealth, deeming it as gambling. That is untrue. when there’s one million people and each contributes RM1, we will have RM1 million in insurance funds. That is helping each other and sharing the risks together. Its a Risk sharing plan.
How much coverage is enough?
Q: Shifu, you mentioned earlier not to regret and we will regret if we never buy insurance but how much is sufficient?
A: That is another question, how much is sufficient? I have taught agents on risk estimation. That’s why professional agent is important, you need to find the right one to help you plan properly. Calculated assumption is used to estimate on how big is your risk. This is what we call Financial Planning. With that, we are able to cover our risk. This needs calculation.
It’s obvious that we need insurance in our life. It is the most affordable product when there’s RM100 of payout for every RM2 that we had contributed. Best part of all, if we engage with a professional agent, he or she will advise based on our needs and budget so that we don’t over commit.
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