Many people think that a good insurance policy provides the widest cover. This is not the correct approach.
A good insurance policy meets the following criteria:
a) Provides cover that is relevant to the needs
b) The cover is clearly defined (i.e. not ambigious)
c) The premium is computed fairly.
The consumer should avoid a policy that provides wide cover that is irrelevant to the needs, have a negligible chance of occurence, and are ambigiously defined. Many of the coverages provided under a critical illness policy fall into this category.
To ensure that the premium is computed fairly, the ratio of claims to premium should be at least 60% in the case of a policy that covers the risk and does not accummulate any savings. If the ratio is less than 60%, the premium is overcharged, and gives poor value to the consumer.
Many travel insurance policies have a claim ratio of less than 30%. A large part of the premium goes to commission, expenses and profit to the insurance company. Many Shield plans also have claims ratio of less than 50%.
Motor insurance has a claim ratio of more than 70%, due to intensive competition. It gives good value to the consumer, except that the claims are inflated due to incompetency in claims control.
When you buy an insurance policy, make sure that the coverage is clearly defined and that the claim ratio is more than 60% of the premiums.
Tan Kin Lian
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