Our Mothers' Teaching and Life Insurance

When I was young, my mother taught me to buy an item only when I need it. Any disobedience would be met by a cane, no question asked. I guess your experience is similar to mine, except that the mode of punishment could be different. This has shaped our purchasing behavior generally in Singapore. This is the basis why life insurance is a product that is so difficult to sell.

You can only buy life insurance WHEN you DON'T NEED it. That is to say your health is reasonably good, and you are of reasonable age. Assuming you are 45 years old, statistically we know that for every 1,000 45 years old men, 1 will die in a year. We know 1 will die, but we don't know who this 1 is. The expected number of death increases with age. This randomness of data forms the basis of actuarial science, which in turn provide the foundation to design the sum assured and premium of a life insurance policy.

When you do need the life insurance policy, i.e. when the doctor says you are going to die tomorrow and you have bills unpaid, you will NOT be qualified for a life insurance policy. Any deviation from this principle will cause the collapse of the entire life insurance industry. This is known as ADVERSE-SELECTION in life insurance term. And to further protect against manipulation of life, most life insurance contracts contain a suicide clause that shield the life insurance company from paying out the sum assured if the life assured commits suicide within 1 year of taking up the policy.

I agree with our mothers' teaching: "Don't buy the things when you don't need it", but when it comes to life insurance please change your mindset for a while. And when you allocate some of the sum assured to your mother, she will be happy with you. (I guarantee this!)