Friday, October 05, 2007

Do you really need the insurance?

A very wealthy person told me that all the members of her family has just bought a Shield plan. She was very glad that they are insured.

I told her that this is not really necessary. They are able to pay for the medical expenses out of pocket. They do not really need insurance.

She was surprised. She never thought about it in this perspective.

Here are my reasons.

The chance of incurring a very big hospital bill is quite small. Only a few people are likely to likely to be hit. Even if the bill is $100,000, it should not pose a big problem to a person who has several million dollars of assets.

There is a choice to go for treatment in the restructured hospitals in Singapore. The charges are modest, even in the class A wards.

Buying insurance requires a rational decision.

Do I need it?
What does it pay?
What is the chance of making a claim of this magnitured?
How much does it cost?
Can I afford to self-insure?


Edwin said...

Your comments are a little strange. Are you indicating that rich people do not need insurance?

Anonymous said...

Who needs REvosave? What kind of needs does revosave serve?
Are they people who have no needs at all and buy for fun only? Are they people who are rich and have no where to spend their money?
Or are they people who are blur, confused, conned, drowsy or have no financial planning needs? or are they women "who want to see cash asap", a cliched reason by aunty agents?
These are some of the questions that went through my mind. If people buy revosave for those reasons I hope the POOR are not among the buyers. The rich, they can waste their money anyhow and they are still rich.For the poor, the hope of a decent retirement vanished into the pockets of the agents.
An Income agent shared with me that this product is sold as a life style product which has no other value. It uses FMCG strategies by associating with certain life style appeal, like Coke, Coffee Bean,Starbuck ( to quote the CEO)etc. Any added value?
The difference of having coffee in a coffee shop or in Starbuck is the ambience and the PRICE(commission).
Revosave tries to emulate this strategy by giving that feel good feeling and association.Result is more expensive and no added financial value.
I don't know what has happened to insurance marketing . This is what Income is attempting to reposition itself , and also to wean off its old image as the insurer of the masses, the ordinary folks.It is still ok to have a image make over but the products should give value, as we all know the concerns of an aging population.But with product like revosave it is still ok so long the poor is left alone because down the road when novelty wears off the poor poor will be saddled with a huge burden.
If Income agents propose such product to the poor they must be the most unscrupulous agents in the world. But alas, the poor can't escape the snare of insurance agents.They make up the bulk of the business agents get. They are the 80% of the Parito ratio.They are inevitable victims. How to help them except by mass education.

Tan Kin Lian said...

Here is my reply to Edwin.

Most people do not need insurance for small payments that they can afford to bear out of pocket.

You must buy insurance for the right reason - to avoid a large bill that you cannot afford to bear on your own.

Anonymous said...

That is right and who needs insurance most? The poor people!!!!!and they can't afford much insurance let alone those participating policies and limited premium plans which cost a lot of money and at the expense of coverage.Insurance agents should care for this group of poor people.They need your help badly . If it is protection, make sure they are adequately covered. If is wealth accumulation make sure they are recommended the best product to give the best return and to make their hard earned money work hardest. This does not mean exposure to unnecessary high risk but risk that is in accordance with their appetite and circumstances. This also does not mean safe product for them and for you, this is taking too little risk.
The rich, what do they need? With or without the difference is small. They would not suffer; their dependants would not suffer; worry about paying more taxes, maybe this is the worry?
They still can buy this insurance called self insurance, like Mr. Tan said

Anonymous said...

mr. tan,

i heard before a saying "health is wealth". if you have no health, your wealth may be affected adversely.

insurance is about transferring risk, about leveraging a small premium to shoulder a bigger burden.

since the shield plans offered a lifetime coverage between 5 million to unlimited amount, isn't the rich better off buy paying fixed amount to insure against an unknown amount?

instead of self-insure, the balance after taking away the premiums can be used for other worthwhile purposes, for e.g., save for oneself, charity, investment etc.

I don't understand your reasoning. If I am rich, I will would rather minimize my exposure to unknown risk, since I have "arrived".

Unknown said...

Yep, even e rich need a gd cover plan,thats for sure! Otherwise a huge catastrophe will significantly reduce their sense of financial 'richness'...


Anonymous said...

To the rich, catastrophic may not mean very much. It is relative. $50K may mean a lot to a lot of people but to the rich it is nano nano. If it is millions then perhaps it makes some sense.
Health is wealth; wealth is also health and is better than health without wealth.Wealth can reduce poor health.
Insurance does not insure against ill health but insures against your wealth. That is why it is often called wealth protector. Health insurance is a wealth protector but if it protects little wealth than it is not necessary, it can be borne by self insured.
Don't waste money unnecessary because insurance is not free.
There are 4 ways to manage risks.
To avoid ;to reduce; to transfer; to self insure. Very often it is mixture of them. When you take up a health insurance you transfer some or most of your risk and the rest is by reduction of risk and self insurance.
A critical illness insurance CANNOT guarantee you that you will not contract any of the diseases.It has to be accompanied by dietary or health program and again self insurance takes care of the rest.
This how a financial planner should look at risk management.

Thomas Phua's Blog said...

I think it is a matter of prudence.

I have one of my client who is a billionaire's daughter, quite senior now, also took Incomeshield Plan.

She can well afford the bills if it happens, but then it is stewardship and prudence.

And she did not believe in goind to private hospital as she believes the best medical care is in government hospital.

She herself is an eye surgeon.

But you will be sure that she only took up Incomeshield and she need no other insurance plan.

- Thomas Phua

Anonymous said...

Thomas, your billioniare client's daughter doesn't need the cover because she is not needy ,it is not prudence either, neither there is stewardship. It is cover for the sake of cover, perhaps to help you.

Thomas Phua's Blog said...

My principle is don't help me as a friend.

It is stupidity to spend $2000 a year on insurance to help a friend who may not be in the business whole life.

Take insurance only if my friend need it, has been always my message to them.

Do not insult the prudence of my friend.

- Thomas Phua

Anonymous said...

The point is your "friend" does not need it. Perhaps you had manipulated her perception from want to need?

Anonymous said...

Dear Mr. Tan I find your views little strange on this one. There are rags to riches stories as well as riches to rags. what happens then???

Also for a small insurance price, bigger hospital bill can be avoided. And that money can be given for charity. 100k can be a huge life saving / changing amount for a needy.


Anonymous said...

I believe Mr Tan had in mind Eldershield when he talked about self-insurance but somehow, somewhere it got mixed up with medi and other health, Incomeshields. Chances and amount of payout on these are definitely more common and substantial.
Besides there is no guarantee on wealth.

Tan Kin Lian said...

I believe that a person who has a million dollars or more, does not need any medical insurance.

He can afford to pay the expenses out of pocket. He can find the most appropriate doctor and treatment, according to his needs.

If he wants to be insured, it is a different matter.

Jeow Li Huan said...

Not to forget that insurance is economically inefficient in itself.

When insurance reduce the cost of additional day of hospital stay, one will tend to stay longer, even when there is no/little benefit out of it. This causes premiums to be unnecessary high and disadvantage those who didn't take a claim.

Dead weight lost can be eliminated if one self insure, and the rich are able to and should do that.

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