19 August 2014

Buying Term Insurance Direct

Looks like the means to buy Term Insurance directly online will soon be a reality. Alf wondered why he should be feeling excited about this? He had started work not long ago and barely had enough savings left at the end of each month as it is. It was very hard for him to be thinking about paying money for something where there will not be any return if he didn't die! What's the point he wondered?

Over lunch, he bounced this subject off with his colleagues and gathered some interesting insights. The various views he gathered were as follows:

  • Waste of money, because no returns.
  • It's your beneficiary who will gain, not you.
  • The insurance is only to protect your dependents, in case anything happen to you; and only if they are dependent on you for the lost income.
  • It's best to start term insurance early, the rates are low, and will remain so.
  • It's best to start term insurance early, while you're healthy; else there will be exclusions or become more expensive due to loading.
  • You don't need the term insurance when you have sufficient retirement funds and income.
  • You would still need a hospitalisation and surgery insurance; term doesn't cover those. [Didn't die, was saved, but hospitalisation is expensive! Duh.]
  • You would still need complementary insurance for critical illnesses [Dying slowly, likely will eventually die! But meanwhile ... sheesh.]

One of his colleagues, Roy, met his insurance agent over lunch just a week ago and had asked his insurance friend, Melvin, this very same question. In particular, Roy had asked Melvin how this would affect his insurance sales?

Melvin was apparently not too perturbed. He recounted a recent experience. His client had bought a hospitalisation plan from him seven years ago. Unfortunately, the client suffered a stroke recently and was hospitalised. In the process, his doctor told him that his ECG showed that he had in fact suffered a stroke before, and this wasn't the first time. It came as quite a shock to his client. Unfortunately, the doctor would not be able to tell him when the last incident occurred. And this became the crux of a problem!

Because of this past history of a prior stroke, the insurance company rejected his client's claim for this latest hospitalisation! The issue was whether the prior stroke had occurred before he took up the policy, or after. Seems the onus was on the client to show proof. The client wasn't aware of any incident before and was very perplexed.

Melvin asked Roy how would he feel if this had happened to Roy. Roy felt that he would be very upset and would probably have terminated his policy there and then!

"Precisely!" said Melvin. He went on to relate that his client had not done any medical check-up throughout this time, and could not produce any evidence to show proof that he was healthy at the point that he took up the insurance policy.

Melvin said that as he probed further, he found out that his client had gone for his National Service medical check-up in the year after he took up the policy. The check-up included an ECG. Hope! He was able to help his client obtain his medical record from MINDEF which showed that he was totally healthy then. With that, Melvin was able to help his client secure approval from the insurance company. So it ended on a happy note. Or perhaps not, since his client still had to recover from the stroke anyway. But at least, the medical costs had been alleviated.

The point, as Melvin related to Roy, was that if one was to buy direct, the client would be very much on his own and would not have the benefit of an experienced insurance agent to advise him/her. Melvin felt that there was a role for the insurance agent to provide value add services. He feared that as the new scheme kicked in, there would be many people who would not realise the importance of making the necessary declarations, and ill equipped to deal with claims downstream. They would face frustration and disappointment when faced with difficulties like this.

Alf wondered very hard as he pondered this story that Roy had shared with him. In his head however, the phrase "buy term, invest the rest" was nonetheless rolling through his thoughts.

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