Insurance and You
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From Johor Bahru Insurance
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| "The actual value of life insurance comes, not just from an actual claim event, but more from the 'peace of mind' experienced by the policyholder." — Wikipedia |
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What is insurance? Instead of giving a terse definition, perhaps it is easier to understand what insurance is by telling how insurance can benefit you.
Everyone's life is filled with ups and downs and moments of crisis. Despite efforts to stay healthy, illnesses can strike suddenly. No matter how careful you are, accidents can happen at any time. No one is exempted, be they paupers or kings. And as if this is not enough, Murphy's Law says that "anything that can go wrong, will go wrong".
And when crisis hits, a person not only suffers emotional and psychological distress, but also financial burden. When someone meets with a car accident, for example, or is diagnosed by a doctor as suffering from a critical illness, there is always a financial impact, apart from the obvious emotional and psychological distress. In short, problems come in pairs.
While no one can transfer his or her emotional and psychological distress to someone else and ask them to bear it for him or her, they can transfer their financial impact to someone else, as many have done. This then is what insurance is all about. Insurance can be defined as the transfer of the risk of a loss from one party to another, in exchange for payment called the "insurance premium". It is a form of risk management that is used primarily to hedge against the risk of a contingent, uncertain loss, and is an essential component of all personal financial planning.
When you buy an insurance policy, the insurance company will pay you or your beneficiaries a certain agreed sum of money, say RM100,000, upon the occurrence of a certain event such as theft, fire, critical illnesses or death, whether premature or otherwise, in return for payment of premiums at regular intervals.
Is insurance worthwhile buying?
When intending to buy insurance, most people will logically think, "Is it worthwhile to buy insurance, rather than bear the financial impact of a crisis myself?"
Well, actually, it all depends. At the end of the day, if you don't suffer any crisis at all (which is possible, but who can guarantee that?), you will find that it is cheaper to 'bear' the financial impact yourself. However, if you do suffer a crisis, you may sometimes find that you have received much, much more than what you have paid out in premiums. Does that then mean that insurance companies lose money? No, absolutely not. They will no longer be in business if they do.
However, there is a big difference in the way insurance companies handle risk, as compared to individuals who either bear:
- 100% of the financial impact of a crisis; or
- none at all, if there is no crisis (but see proverb above).
Insurance companies work on the basis of statistical probability and the law of large numbers. The lesser the number of customers they have, the more risk they face, in the event of a claim. Does that then mean that smaller insurance companies are more likely to default on payment in the event of a claim, as compared to a large insurance company? In theory, yes, but in practice, no.
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This is because all insurance companies, whether big or small, reinsure the policies that they have sold by 'reselling' them to reinsurance companies, thereby reducing the risk that they themselves have to bear. And if insurance companies have to do that, rather than keeping the full insurance premium received all to themselves, does that not mean that living without a life insurance cover is pretty risky? As Wikipedia says, "the actual value of life insurance comes, not just from an actual claim event, but more from the 'peace of mind' experienced by the policyholder." |
| And how much value do you put on your peace of mind before you can consider life insurance worthwhile to you? |
An HSBC insurance survey showed that two of the most specific long-term wealth aspirations for Malaysians are: (1) financial security in retirement; and (2) education funding for children.[1]
 I am a registered life and general insurance agent for Hong Leong Assurance and MSIG respectively. The purpose of an agent is to provide a personal service, otherwise why would anyone need an agent for, when he or she can deal directly with the insurance company concerned. And to provide a good and efficient service, an agent's scope of geographical coverage needs to be limited within a certain distance. As I am living in Johor Bahru, I can only service customers who are within a radius of 30 kilometers, covering Gelang Patah, Kota Tinggi, Kulai, Masai, Pasir Gudang, and Ulu Tiram, apart from Johor Bahru itself. To find out more about me, see About me. I create this website to share my knowledge of Malaysian life and general insurance with my existing customers and potential customers. However, since this website can potentially reach a worldwide audience, I also extend my warmest welcome to all visitors, both locally and internationally. And I hope you will find this website informative and useful to you. |
