Friday, June 05, 2015

Why Kim Jong-Un would approve of my insurance planning ?

I spend about $120 a month on AVIVA SAF group term life insurance which gives me about $1,000,000 of protection, this is the only insurance I have. Everything else is taken care by my passive income flow. This is the essence of buy term and invest the rest.

Today, I received a letter telling me that I have just received a $570 rebate. I have received this amount last year which has effectively reduced my insurance expenses by a further 40%.

Why is my insurance so cost effective ?

Simple.

I refuse to have an agent.

No one can advice me better than myself.

Compared to a commission-hungry advisor, I think that I can do better because there is no conflict of interest. If i am willing to pour my personal time into the study of money and investments, my own advice would be worth many times that of an agent as no cook would willingly poison his food when he is cooking for himself.

So a central part of my philosophy is that it's better to advise myself wrongly than to rely on someone else who gives me good advice.

This is not an easy philosophy to adopt in this modern world. I have spent 5 years combing through almost every single certification on investing. Worse, I have extended this philosophy into legal advice - no one can advise me legally better than myself, even if I do have to seek help from another legal expert, I would at least know how to use him.

This is not an easy road to walk. For one, you need to very curious and enjoy an academic life.

One other country which adopts this approach is North Korea. North Korea's philosophy of self-sufficiency is know as "Juche". I remind myself that if I misapply this philosophy, my family can starve like North Koreans during a drought.

As much as I would wish to, I have not extended this to seeking medical advice, unless my daughter gets into medical school.

If you are a financial planner, agent or a private banker, it might be tempting to write nasty stuff on this blog to question my approach.

First of all, I actually welcome interaction from insurance professionals, especially if it is hostile.

Second of all, you need to reflect upon the lack of trust in members of your profession. Having a code of ethics will not get anyone anywhere. Policy makers are doing the right thing with DIY portals but the next step is to eliminate sales commissions on your industry and toughen up penalties for fraud.

Third of all, my strategy got me out of the rat race at age 39 - I was an IT guy for 14 years, not some banker, lawyer or doctor. You need to propose something better for your clients before you second guess my approach. But we all know, that between you and your client, you are more likely to reach financial independence first.

So what can the industry do ?

The industry needs to disrupt itself aggressively and come to the realization that consumers are getting smarter. When an agent churns his client's account, consumers will know that the reason is not dishonesty, but the incentives built around the sales of particularly high-expense products.

Agents will have to abandon commissions and accept that the fixed fee is the way to move forward which leads to the next problem - Asians don't like to pay for advice.

Tough luck ! If there is low perceived value in your advice, you obviously need to up your game.

Perhaps paying customers can be allowed to attend seminars where my fellow bloggers would conduct, who knows ?





4 comments:

JH Ng said...

Not an insurance agent here, but I would think getting a plan for hospital/in-patient/ medical bills such would be a good idea too. Something like those shield plans from various provider (NTUC income, GE, AXA etc). Its like an extension of your medishield and they dont really cost much for folks before 55ish (ur more productive years)

Christopher Ng Wai Chung said...

I personally find it hard to support H&S insurance.

The insurance customer must justify its benefits beyond Medishield which all Singaporeans are entitled to.

The second issue is that it's priced at a low range during your 30s but ramps up aggressively after your 40s so you end up stuck with expensive premiums at a time when you are struggling with kids and a mortgage.

I would challenge someone to stick with with Medishield, invest their money in equities at a younger age, and stick with a healthy lifestyle as a possible alternative.

JH Ng said...

Actually, I feel the premium is still quite ok up to 55 as I awill be using medishield (a sort of hospitalization plan) to pay for an enhanced hospitalization plan instead of paying directly from my pocket. I buy it mainly becos of its higher coverage and lifetime cover (renewed every year).

I have such a "feel" for hospitalization plan becos I kept reading of ppl getting cancer/ other hardcore diseases and having to fork out high amt of $$$ for the surgery, hospitalization bill and medicine. Some of these illness can strike you even if you are healthy, which is very very frustrating when you are trying grow your wealth and enjoying the journey along the way.

Those small amt of bills (less then ~5K or so) is still ok, these plan for me is never to cover this kind of expenses but its those hard core medical bills, aliment which eat up a lot of of money and prevent u from earning an income that I am more worried about, esp during ur more productive years. Hence I feel a hospitalization plan and a term plan go hand in hand.

JH Ng said...

sry, by lifetime cover, I mean only up to 85 or 100 I think. Not very sure as I buy it quite sometime ago. I intended it to cover me for my working years. I may opted for a lower premium after 60