A while back, there was a cute little post about Covid – 19 [otherwise known as the Wuhan Virus].
A fairly positive one, trying to look at the upsides of us basically being kept in total fear over this global virus.
It went something like how it’s quelled protests in Hong Kong, and we’re generally fighting less, etc.
…We could use a lot more positivity.
I don’t approve of using the virus to incite fear unnecessarily – I’m not going to use it as part of my broadcasts about my ability to serve you.
But much like there’s a group of people whose fear shouldn’t be exploited, there’s also a group of people who are too buried in their fear and putting themselves at Financial Risk.
This is on top of the reasons why insurance is sold, not bought – and they’re fair reasons. We need to have an open conversation about it; especially so that the ones with Financial Risks will understand – and assess their needs in the face of what we’re currently experiencing. Disclaimer: The following is the author’s personal opinion as to why the culture of insurance is ‘sold, not bought’. This was written during the initial outbreak of Covid-19.
Reason 1: It is hard to appreciate the value of a human life, and uncomfortable to make attempts to gauge it.
For the most part – human beings tend to behave like we are not likely to die tomorrow.
We make extensive long-term plans, compromise our health on a regular basis for productivity or pleasure.
Because the true nature of life after death is unknown to us, it is REALLY UNCOMFORTABLE to make plans for our own death – let alone hear the idea that it could happen to us overnight, or the next minute.
Even if you were to get past the hurdle of embracing your own mortality and planning for it – placing a value on your life is also fairly uncomfortable.
Not only would you have confronted your life after death, but now you actually have to confront your life – and recognize that it could be narrowed down to a specific value. Imagine if you’re a man in his 30s with large liabilities, wife and two young children. Would their lives be better if they had a million dollars - instead of you?
…Pretty sucky question, isn’t it?
Throwing in the element of human subjectivity – that we typically value ourselves more than society does (e.g. we typically believe we should be paid more at our jobs etc) and that there are variable values from complex relationships…
Few bold people will say, ‘I want to buy life insurance’ rather than someone who is sold.
Reason 2: Poor History of Moral Hazards
There could be a reasonably unfavorable opinion of insurance companies in Singapore – plans are complex, agents are unreliable and we’re all out to get your money. Ha, ha. But if you look at the history of insurance, it wasn’t always the high-profile financial business that it is today.
In practice, way back in the 1800s you could take out a life insurance policy on someone with yourself as the beneficiary, and murder that person. Pretty crazy stuff happens when people are worth more dead than alive.
That made it hell on the business end, and gave insurance a pretty bad name [or what insurance advocates would consider a ‘necessary lesser evil’]
As referenced by the History of Insurance:
There was little effective regulation, and rate making was difficult in the absence of cooperative development of sound statistics. In the era following the U.S. Civil War, bad practices developed: dividends were declared that had not been earned, reserves were inadequate, advertising claims were exaggerated, and office buildings were erected that sometimes cost more than the total assets of the companies. Thirty-three life insurance companies failed between 1870 and 1872, and another 48 between 1873 and 1877.
Reason 3: It may be expensive across a long period of time, where there may NEVER be a tangible result
Most things we purchase in life are for instant gratification. The most prominent example is food, but generally – it’s most things.
As a result, it’s hard for a purchaser, or someone who enjoys buying things, or shopping – to consider that far ahead. Most consumer behavior revolves around instant gratification, which is completely different from purchasing something that you can’t see, touch or use before it’s purpose comes up.
Reasonably, most people will not see or understand the value of it.
There are other reasonable arguments even for people who practice delayed gratification, to avoid insurance. For example, a purchase in using money for insurance could also be used into savings funds, such as education and retirement needs.
Reason 4: Done too MUCH to resist claims in the event that fraud is suspected, which would result in a lack of payout despite having paid premiums accordingly
Any online search, particularly Reddit-like, will suggest to you that even with all the premiums you pay for years and years, you end up being pitted against your insurance company when it comes to a claim.
The unideal scenario is that your insurance claim is denied after years of paying premiums. It would not be too difficult to Google Search a high profile case as described.
After all, it’s no secret that the insurance companies’ profits are reduced by paying out claims, isn’t it? They try not to pay you out, and you try to get a payout – putting you at odds with the very company you are paying.
That tends to be the impression that is conveyed, particularly by insurance cynics.
Reason 5: Done too LITTLE to resist claims in the event that fraud is suspected, which would result in escalating premium charges.
The less common reason, but the more notorious one amongst the wealthy and intellectual.
Critics of the life insurance industry have also suggested, quite REASONABLY TOO, that since insurers typically pass costs onto the consumers - insurers may have one too little to resist claims in the event that fraud is suspected, which dramatically cause increases in prices to the consumers.
Insurance premiums could continue to go up unreasonably – and there wouldn’t be very much you could do about it.
Conclusions
The life insurance industry continues to be quite imperfect.
That being said, uncomfortable things are part and parcel of life. Catastrophic events happen all the time, and without insurance there is no mitigation.
Countless stories of gratitude can be found tied to agents or insurance companies for coming through financially when they were needed the most.
State and public usually react very negatively when insurers are slow, or refuse to pay claims (regardless of truth) and the regulators will also typically receive a wave of complaints about the insurer’s practices.
Many insurers thus pay claims promptly to maintain public good will and maintain good standings with insurance regulators.
The reasons for not purchasing life insurance – while understandable, are reasonably addressed.
For example, Reason 5 is typically mitigated by competition and regulation, since unreasonable practices never last too long before someone else offers you, the consumer – a better option. Do seek out a licensed Financial Consultant to review your current situation if you have doubts, or for pursuing the insurance that you’ve long since neglected.
Money Maverick
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