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The Myths and Realities of Insurance


Introducing insurance by looking at some myths commonly associated with the industry

 How often do we receive annoying phone calls by people selling insurance products? The typical response we usually give is this.

“Oh, I know about all about the different aspects of insurance and no I’m not interested, I already have policies” *hangs up*.

The funny thing is that most Singaporeans don’t actually know much about insurance. Some of us who have bought a policy before may be able to parrot the sales pitch that we heard from our insurance advisor. Beyond that, most of us would be clueless.

So why is such an essential component of personal finance frequently overlooked, despite the presence of an aggressive insurances sales force? Are Singaporeans too busy with work in the office, or have the time spent playing Candy Crush overshadowed personal finance matters?

Whatever the reason, we hope to introduce you to the world of insurance today. We will look at two myths, and their corresponding reality.

 

Myth 1: You need to get all kinds of insurance to be ‘fully-covered’

Have you ever entered a ladies’ shoe shop? If you have, you would notice that there are endless different types of shoes to choose from. Flats, wedges, heels, high heels, boots, boots with heels, boots with high heels. It is a horrible place to be making rational decisions.

It is the same for insurance policies. There are many different types of products, all of which would provide different types of benefits. You have health insurance, life insurance, life insurance with critical illness, critical illness, disability income, home insurance, fire protection and a host of other products that we are probably missing out here. And then you have to also worry about the fine prints of insurance.

 

The Reality: Get only what you need, and not everything that you think is good

In an ideal world, we would love to have all of these policies. However when we take our budget into consideration, we recognise that we can’t possibly have everything, even if they are all “good to have”.

Set aside a budget based on your income, and assess and prioritise your needs before speaking to a trusted professional about it.  Always remember that insurance advisors are remunerated based on their sales performance and hence it is in their interest, (and not necessarily yours,) to sell you more.

 

Myth 2: Insurance is a rip-off.

 What is one similarity shared between insurance companies and casinos?

The answer. They are both in the business of profiteering from games with odds in their favour.

Those who are against the insurance industry would point out that the companies make a profit from charging high premiums in return for payout that does not commensurate with the odds.

But in this scenario, we stick up for our friends in the insurance industry, and say that insurance is not a rip-off.

 

The Reality: Insurance does provide a solution to an important need.

Insurance help fulfill an important needs that society has, and that is to provide important financial support in times of unexpected circumstances. Individuals can hedge their downside risk, in return by paying a small premium. Doing so allow individuals to be secured in the fact that should anything happen to their life or health, financial support would be provided to them or their families.

So while the payout provided will be lower relative to the premium paid, it does provide a solution to a need that people have.

Insurance encourages people to take less risk with their life. This is in contrast to gambling, which encourages people to risk with their money.

 

Now you can sound informed when asked about insurance…

Insurance is a huge topic, and difficult for anyone who isn’t working in the industry to be able to fully understand. We hope however that the two myths brought up have helped introduce you to the basic mechanisms of how the industry operates.

 

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