Tan Kin Lian's Blog: Principle of insurance

Sunday, July 24, 2005

Principle of insurance - share the loss

A policyholder wrote to ask my advise about a dread disease plan for his other who is 55 years old. He said that the premium is high. Term insurance is cheaper, but he will "lose money" on the insurance.

My advice to him is:

- the dread disease plan is not essential for your mother. If she falls ill, the hospital bill can be met by the hospital insurance (which she is already covered)

- if the premium is a burden on your cash flow, you can probably use it better elsewhere, e.g. to save for your own retirement needs.

You should not refer to "losing money" when you buy insurance. You are paying for the cost of insurance, and not "losing money".

Similarly, when we pay a premium to insure our vehicle or home, we are paying for the cost of insuring the risk. In fact, we are happy that we do not make any claim.

The premium that we pay is "not lost". It is used to pay the claim suffered by other people who meet with an accident or loss. We are helping other people.

If we suffer the loss, other people are helping us. This is the principle of insurance - to share the loss.

7 comments:

Anonymous said...: Dear Mr Tan, I was given this link in one of the investing forum. from the recent post 23/07 , I agree too that premium for insurance is isuring the risk and not a "loss of money" thought can be considered a "cost". Having said that, most of my friends ( graduates too look at prenium as losing money and comparing between projected return for their life policies which I constantly reminded them it is all just projection.)

I wish this blogging effort will continue so that I can learn from the thoughts of a competent and successful person/ people who contribute to the blogg (exlude non-constructive comments)

Ending note: Although NTUC offer the very competitive rates, i also find that from my limited interaction with NTUC, the processing time is very slow. An example, when I buy my policy, I took 1 month+ to process. Most people appericated fast processing, within 2 weeks would be ideal( from payment of fees and submitted application form at one of the ntuc branch. I got limited experinces with other insurers, so maybe 4~8 weeks processing time is common, but I do wish our singapore organisation works towards greater efficiency.; July 24, 2005 9:02 PM
Tan Kin Lian said...: We are now able to issue most of our life insurnce policies within 7 days of submission.

This is the standard that is set for the straight forward cases.

I hope that your future experience with us will be better.; July 25, 2005 5:35 PM
Anonymous said...: Good explanation of Insurance by CEO. I try but I cant explain better.

Medical expense (Hospital) insurance is more important and crucial.

You may want to review your medical expense insurance coverage with a qualified insurance professional.

For example, you can consider getting a Rider (eg. Income shield rider) that pays for the deductible and co-insurance, if you can afford it. etc.

=

Insurance works on risk pooling and loss sharing. The insurance company cant insure you alone. There has to be sufficient people buying the insurance for the insurance principle of law of large numbers to work. Out of 100000 people who buy the particular insurance, maybe 10% will make a claim. If you didnt suffer any claim good for you. Your money will go towards paying for other people's claim. And next time, if you claim, other people's money will go towards paying your claim. The money is not "lost". For the small amount of money you paid, you are sure that a certain sum of money will be there for you when you make a claim. Some people call it "peace of mind".

I, myself, have life insurance. I don't think I will die so young but just in case I do, my family will have that sum of money for them after if die unexpectedly.; July 26, 2005 12:53 AM
Anonymous said...: Hi Mr Tan

Can NTUC income have saver policy back. Its a good policy. Save 2 years and insured at the same time.; August 04, 2005 9:47 AM
Tan Kin Lian said...: We are introducing a new plan that allows you to buy a low cost life insurance, eg an DTA and to make saving.

We will pay interest on the saving at 2% or 2.5% per annum.

This is more flexible and better than the saver's plan. It should be ready in 3 month's time.; August 04, 2005 10:30 PM
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