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Insurance

Are you really covered?


Here at DollarsAndSense.sg, we often reiterate the need to look at the bigger picture and question commonly held assumptions – not because the assumptions are completely off the mark, but to understand where they start and stop applying. Today, we will do so again! Okay, we hear your groans, but stick with us, you’ll be glad you did.

In today’s insurance marketplace, corporations and individuals can get insured for a mind-bogglingly wide-range of things such as accidents, bad weather, bad debts, and even one’s bucktooth!

All insurance (previously covered in an excellent article by Shawn) in essence is a form of risk management. And because life is uncertain, we understand that it is prudent to sweat a little more when times are good (i.e. pay premiums) so that we bleed a little less when times are bad (i.e. receive compensation).

If you’re like us at DollarsAndSense.sg, you would regularly examine at your insurance policies over a cup of coffee – comforted in the knowledge that you are ‘protected’ for a large majority of scenarios. However, the concept of ‘protection’ is just an insurance industry marketing gimmick. You are not really ‘protected’ from anything. When you get hurt, if the insurance company is able and willing to honour your insurance policy, you get compensated financially. That’s it.

The Limitations of Insurance

There are many plausible scenarios in which conventional insurance would be almost utterly useless Remember that we live in Singapore, an island that is still hugely dependent on imports for water, fresh and processed foods, oil, medical supplies, etc. Our economy is also tightly bound to regional and global financial markets, which is ever-changing and in some aspects, highly volatile.

When goods are scarce and dollars are plentiful, drastic inflation occurs. Singapore has the largest percentage of millionaires in the world – no shortage of dollar-loaded folk here. Today, the ‘free market’ has kept the cost of owning a car in Singapore unreachable (or unwise) for a large portion of Singaporeans. Why? COE scarce, dollars plentiful. The only reason the situation is tenable is because the car is still a luxury. But what if essentials for life become scare?

In recent years, Singapore went through outbreaks of SARS, H1N1 and HFM. Responses included school closures and quarantine plans. Should another contagious epidemic break out and sustain over a prolonged period of time, supermarkets could get swamped with panicky citizens rushing to get as much supplies as their arms can carry – and wallets can pay for.

$10 for a can of tuna? Perhaps $20 for the same can of tuna tomorrow? Please, take $30, my family is starving. And if you think this can never happen, as recently as 2008, Zimbabwe went through a tragic hyperinflation of their dollar, where prices for goods doubled every day due to the falling value of their currency.We are not saying this is likely to happen in Singapore but rather that it isn’t an impossible scenario.

In such situations, daily essentials and practical equipment become really valuable, while paper promises such as insurance policies pale in comparison. Good luck reaching someone on the insurance hotline or queuing outside their closed offices in an epidemic or large-scale disaster. You have thousands of dollars in bonds, stocks and equities? Good luck getting them cashed out in a financial crash. You have passive income from properties you own? Good luck finding tenants who will pay up when there is disorder and chaos in society. And we know how counting on good luck is definitely not a viable strategy.

We hope this article gives you something to think about: namely, the limitations of promises of payouts (insurance) in a large-scale or prolonged disaster. More importantly, we hope to get you started thinking about the small ‘premiums’ you can pay to better protect yourself and your loved ones. Having a stash of food, water, and emergency supplies as recommended by the SCDF would pay huge dividends even during temporary water and power stoppages. Add a physical dimension to your risk management strategy today!

 

 

Royalty-free photo from Getty Images. Used with appreciation.

 

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