When it comes to buying insurance policies, most people are worried about overspending on insurance policies. There are many ways and calculations on how not to overspend, you can just google it. I agree that our hard-earned money should be spent wisely and too much of anything is not good. Despite that, I still choose to spend more on my insurance and I find it necessary. Here are my thoughts.
To me, it is all about reducing risk. All insurances are about risk reduction. When I buy an insurance policy, I effectively transfer my risk to the insurance company for a price.
Regardless of how we perceive our life and the world, it all comes with a considerable amount of risk. Since we can never know for certain what can go wrong, and how much it will cost, we purchase insurance for as many eventualities as we can imagine.
These are a few kinds I can think of:
- Medical insurance covers medical expenses incurred in event of injuries and illnesses.
- Disability insurance replaces income in case of inability to work due to injury of illnesses.
- Business insurance protects risks that are inherent in owning and running a business
- Life insurance provides our loved ones with financial support if we are no longer around to provide for them
This list is not meant to be comprehensive and I am sure there are many more types.
It is not just life and health I am concerned with. According dictionary.cambridge.org, the definition of consumerism refers to the situation in which too much attention is given to buying and owning things.
I know myself the best when it comes to spending. I tell myself all the time that my guilt-free spending budget is $500 every month, but, I also tell myself it is ok if I spend more this month, because (I will spend lesser next month/I am getting bonus soon/this bag is on sale!) etc etc. I just cannot resist it!
I realised some years ago that I need to hedge my own consumerism risk! That is why I choose to buy endowment plans to prevent me from spending unnecessarily. I choose to transfer my money to other “accounts” so I can have evergreen spending.
You can call me kiasu, but I feel this is about what my aspirations in life are. I can hedge these risks of my life and still have a comfortable lifestyle; buying my dream home, owning my dream car and still achieve my financial independence; receive best medical treatment and not having to worry about my medical expenses or burden my children with huge medical bills.
As such, it is about buying the right insurance policies and investing to achieve my goals and aspirations. I know what financial goals I want to achieve; however I do not know what type of insurance policies and how to invest to achieve my goals. Hence, I get a financial consultant to recommend suitable products for me.
In conclusion, it is not about overspending on insurance policies. It is about seeing the purpose of each policy, how each can help me reduce the risks in my life and achieve my life goals. I have 1 term plan, 3 whole life plans, 2 investment-linked plans, 5 endowment plans, 1 disability income insurance and a hospitalization plan. And I will continue to hedge the risks of my life.
This article is written in hope to help readers understand financial planning is not about long term planning. It is about understanding the future consequences of today’s decision.
Up next.. ‘Meeting Mr or Mr Right.. I mean a Financial Consultant’
Pang Sze Hui