Pay the right price for insurance

If you are offered an insurance product and there is no comparable products to compare the cost quoted to you, you can take the following approach:

a) Ask the adviser to get the insurer to disclose the claim to premium ratio for the product
b) If the ratio is 60% or higher, the product is fairly priced

In the competitive product for motor and health insurance, the claim ratio is usually 70% or higher. However, some health insurance products have a claim ratio less than 50%, as they are designed to make it difficult for customers to compare the price.

The insurer is able to disclose this information based on the past claim experience for that product. For a new product, they can state the assumptions used in the calculation. Ask for the information to be stated in writing.

If the insurer refuses to disclose the information, you should not buy the product - as the product is likely to be highly priced to generate a high profit margin.

This approach applies for an insurance product that offers pure protection, i.e. without any savings.

In the case of a savings product, a good method is to calculate the reduction in yield. If the reduction is 1% or lower, it is fairly priced. The cost of insurance can be computed separately. If the reduction is higher than 1%, the product is not fairly priced and should be avoided.

Tan Kin Lian