A Lesson In Buying Insurance Policy

This article has nothing to do with internet marketing. It’s about personal financing and I think it’s worth sharing with you.

Recently, a senior of mine, a 60+ year old savvy businessman, showed me his insurance policy that is about to mature…..

To cut the story short, on maturity, instead of getting about $300,000 as he thought, he can only receive about $150,000, which is lesser than the total premium he has paid!

What he had purchased was an endowment life insurance. It’s a common insurance product, where one pays certain premium every year and after 20 years, that person can possibly get back a lot more if he is still alive, or if he passes away during the insured period, his family will get a sum of money.

For my senior, his policy is about to reach the 20th year. But instead of getting $300,000, as told by his insurance agent many years ago, he can only get back about half of that amount.

Has he been cheated?

Definitely not.

For those of you who knows about endowment life insurance, there are two components to the return. One component is the guaranteed return (which is always lesser than the premium you’ve paid). The other component is the bonus return (which is the ‘extra’ money the insurance company will give you IF they make money with YOUR MONEY).

Because of this economic crisis, the bonus component has dropped significantly, so low that after adding on to the guaranteed component, the sum is still less than the premium that he has paid.

Ok, let’s get to the moral of the story……

1. Let insurance BE insurance

Many people buy insurance for investment purposes. Have you heard of insurance agent saying things like “After 15 years, you will break even. After 20 years, you will make X amount of dollars!”

What if on the 20th year, exactly the 20th year, there is an economic crisis, so serious that the stock market indexes retrace back to the level 20 years ago, as what we experience in March this year?

This is what is happening to my senior.

I’m not saying Don’t Buy Insurance. I’m saying Let Insurance BE Insurance. That means if you were to buy an insurance, just buy the insurance component, not the investment component.

There are insurance packages that only cover death, critical illnesses and accidents. They are much cheaper in premium because there’s no investment return. If you do not make any claim this year, the money will become profit to the insurance company. To you, you’re buying an insurance for any possible misfortune.

If you want to invest, you should learn to invest yourself instead of leaving the money to the so-call ‘professionals’, thinking that they will take good care of your money.

2. You Don’t Need A Life Insurance If You Start Planning Early

A ‘no-frill’ life insurance is one that will give your family a sum of money if you pass away. The reason why you need a life insurance is because if you are the financial support for your family, the money will be useful to help your family to get through the difficult period.

Such insurance is good, but there is a better alternative – rental property.

Imagine if you own one or a few rental properties. If anything were to happen to you, your family can still live on the rental income. Isn’t that better than life insurance?

Of course, it may cost a lot more to buy a property than a life insurance. But if you plan and work on it, it will happen.

Linking today’s discussion back to internet marketing, there is a cheaper form of rental property I can think of – the virtual real estate, VRE.

You probably know what I’m going to say by now. Yes, create an estate of content websites and monetize them with Adsense. Assuming that Google advertising is going to continue working for the next 100 years, your Adsense income can be a good form of passive income even if you are not around.

To tell you the truth, I bought all kinds of insurance in the past. But if I were to re-start buying insurance today, I’ll only buy one that covers me against accidents and critical illnesses. I’ll not buy any life insurance or any investment-linked insurance, as what we’ve discuss in this article.

10 thoughts to “A Lesson In Buying Insurance Policy”

  1. I completely agree with you. Join a life insurance only if you have someone to support. Do not mix insurance and investment. You will suprise when you find out how much money your insurance agent gets from your regular instalment.

  2. Great Blog! Taking something that interests you and turning it into a blog. Use your marketing knowledge can really be a great way to get your message out there.

    check out my blog ken, and see how I am promoting my interests into blogging. Using the knowledge, and trainig through online Marketing.

  3. This is a great post. I can only think of one way insurance could be used as an investment, but with you controlling where it is invested. This can be done through a special kind of whole life policy which you can utilize as your own private bank. You can borrow against it and use it to finance your purchases and pay yourself back all the interest you would normally pay to a loan company or bank. This is one of the safest investments on the planet because you are in control. But I totally agree that using an insurance policy as an investment in the sense you described is not a good idea.

  4. HI, IT’S very good idear. If write a article about that will be much helpful I think. People says: Google and Yahoo! results tell the story best. Article marketing works for real people, submits your articles to 67,000 Publishers and drive new exposure , visitors to your website. http://tinyurl.com/d2hnlh

  5. Basicaly insurance is alternative way to protect our future earnings if anything happen to us, say die or permanent disability. I agree 100% with Koh that insurance is insurance and should not mix up with investment. If you prefer investment, go and buy mutual fund, buy properties or buy fixed deposit from the bank. When you buy insurance for protection, the cost of insurance is much cheaper…

  6. This post is very much helpful to learn how to buy an insurance policy. Actually this post helped to select the type of policies that gives more benefits to me. This post is really informative and also very much helpful!

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