Tuesday, August 26, 2008

Financial Planning Talk (7): Is Insurance Important?

Earlier, I have mentioned that before we start to invest, we need to have sufficient emergency fund. Actually, beside this emergency fund, we still need to protect our wealth before we start to invest. Saving money and invest is to accumulate our wealth and gain more wealth. In order to make sure we are able to accumulate and gain more wealth, we need to protect our wealth in the first place.

Why do we need to protect our wealth? During our wealth accumulation, if there is any accident or we are so unfortunate and get illnesses, we may spend all our wealth for our living expenses or medical fees after the accident or illnesses. If we have no any wealth protection, all the money which are accumulated over few tens year may be spent finish in a short while.

How to protect our wealth? When we talk about wealth protection, it is insurances. Insurances can pay for us when we need to be admitted into hospital. Insurances can provide some money when we get serious sicknesses. Insurances can leave some money for our family when we are not around anymore. So, insurance is the tool for us to protect our wealth.

When we are considering buying insurance, we need to understand our ability. There are a lot of insurance plans. We need to understand the coverage, premiums, terms and conditions when we decide to buy a particular plan. We need to consider our ability, do not buy a high premium policy which makes us stress when saving money to pay the premium.

Besides, buying insurance does not need to buy much. Just buy whatever you need, just buy whatever you can, then it is good enough. Personally, I prefer to buy traditional policy instead of investment-linked policy or some saving plans. Life insurance, medical card, 36 critical illnesses, and personal accident policies should be sufficient for normal individuals. Insurance is to protect our wealth, it is not to earn money. It is advisable that we invest in other investment tools to gain return instead of signing up investment-linked policy.

Maybe you can look for a good agent to explain to you in details about all these policies and try to figure out the best combination of policies you should buy. I feel that most of the policies out there are almost same, so I would choose a good agent and buy from him or her. A good insurance agent is very important, as he or she can always review the policy together with you according to your dependants and income. When you need some advice about insurance, he or she can be always available to help you. Try to emphasize more on the quality of the agent, but not only the premium and policy.

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