A Pragmatic Perspective of Insurance From Someone That Is Not Trying to Sell You One

Having an elementary schoolmate that you barely knew suddenly reach out to you and ask how you’re doing is I think a part of everyone’s “adulting” process. It’s a telltale sign that you are now an eligible customer of whatever product or services that they have in store. Or sometimes it just reveals that what people want from you matters more than who you are and what you do for a living, but that’s a topic for another time.

For me, it gets to the point where when I left home to meet an “old” friend my mom has never heard of before she’d say, “Why you suddenly meet them, ah? They want to sell you insurance, is it?”.

I think it’s a shame that all the information about insurance usually only comes from people that are trying to “net” you in as their client. Some people that hate the upsell and dislike being persuaded and led to purchase a product ended up having only negative views of the whole industry and product.

Moreover, because the education itself comes from people that are selling the product, the opinion that you hear from these industry professionals is highly skewed to “why you need to have this” and rarely on “why you probably don’t”. Even though it doesn’t necessarily mean that most of these people are lying. This product that they’re selling is part of their career and is what drives them to succeed. Of course, it makes sense that they really mean it when they say that it is good for you. It makes sense to believe wholeheartedly in something if it’s good for your career, doesn’t it?

Just like it helps to believe that crypto is the future when you work for a cryptocurrency company, for example. Doing the job will be much harder if you have a contrasting opinion.

In this blog post, I’d like to try sharing my personal views of personal insurance. I’m not trying to sell you one, I promise.

Disclaimer: I’m not a professional in the industry nor do I have any related professional experiences. I have insurance myself. If you’re trying to convince yourself not to get yourself insured, this might not be a post for you. If you’re trying to convince yourself that you made the best choice of getting yourself insured, this also might not be the post for you. This personal view might be wrong and skewed, and I may change my stance in the future. Reader’s own discretion is advised.

Buying insurance is part of your personal financial risk management

I personally do not like when agents try to influence people to get themselves insured by using one of human’s greatest sources of folly: fear.

They will drive your emotion by telling a story about how their family members or one of their clients unexpectedly got hospitalized and had to pay a really expensive bill. Or maybe you’re the one with the story yourself of how one of your loved ones recently had to go through unfortunate events that took a toll on their finances.

People use this strategy a.k.a trick because it works. I personally like it better if it’s laid out in a way that is less emotion-inducing: having insurance is part of managing risk.

Let’s see an example of a hypothetical financial goal:

1. Down payment for a house at 25 - $20,000

2. Getting married at 28 - $50,000 (marriage + startup cost)

3. Having a child at 30 - $XX,XXX

4. Child education at X - $XXX,XXX

5. …

6. …

7. Retirement at 65 - $1,000,000

You have your goal laid out and a step-by-step of how you can reach these goals with your current and future income. But often we only think in best-case scenarios or sometimes we think we’ll stay the same person for the years to come.

“Oh I’m not getting married and I don’t want to have kids, I won’t have any dependents. If I die then I die”

“I eat and exercise very well, my chance of getting hospitalized should be very slim”

“I’m very good at what I do, I’ll only go up the ladder and I will reach 7 figures income in 10 years”

But what if these assumptions are incorrect?

1 in 2 women and 1 in 3 men in the US will develop cancer within their lifetime. If you think about it, it’s a pretty high chance. With more probability calculations, you’ll find it’s more likely to develop cancer before someone reaches their retirement with $1 million in savings (only 6.71% of households in the US reach millionaire status). Not all cancer is deadly and nowadays there are more available treatments than ever. But if it happens, what is the fallback plan for your financial goals?

Managing risk is about firstly asking yourself the question: What if X or Y happens at some point? How would you ensure that when unfortunate and unwanted things happen, it affects your finances the least, or so that you can manage through it with the least pain? What is the plan so that you’ll not go broke?

If you’re in the stock market, you manage your risk by diversifying your investment and not putting all your eggs in one basket. With personal financial goals, insurance is one of the things you can utilize to manage risk so that if things go awry, you can still move on to the next step of your goals. It’s one (highly emphasized here because I’m not saying that it’s the only one) of the things that you can consider having so that you don’t have to take a step back or worse, fall into the trap of debt.

This is what my mom always says about insurance:

“What you’re actually buying is peace of mind. When you don’t have to constantly worry about what would happen if you get hospitalized or die, you’ll have a clearer mental state and do your best at work and life”

If you have a diversified portfolio in the stock market, you don’t have to constantly worry about that one company going bankrupt or caught up in issues. When you have that peace of mind, navigating through an economic downturn can be easier. It’s probably not a very good analogy, but I hope you get what I mean.

What you pay is more than the cost of its premium

$50 dollar/month might not look like a big amount. If you pay that amount per month for a period of 30 years the total that you’ll spend would be $10,800.

That doesn’t sound too bad, right?

However, if you instead invest $50 dollar per month for the next 30 years and earn 8% interest per year, that initial investment can grow up to $67,969 at the end of that 30 years (I used this tool to calculate that if you’re curious). After 30 years, if you stop any monthly contribution and just let that money sit for another 20 years, it can grow to $316,800 at the end of the 50th year. If you’re not familiar with the power of compounding interest yet, you should look it up.

A health or life insurance premium is usually paid in the course of many years. You’re not only spending the amount you pay for its premium. It’s also costing you the opportunity to grow that money into something bigger than you can imagine. This is something you should always consider before getting into any type of long-term financial commitment.

For me, the importance of this lays in choosing between cheaper and more expensive coverage. If the difference is $50 and the coverage difference is between having to stay in a 2-bed room or in a VIP room when you’re hospitalized, is it worth the $316,800 difference it could make in the long run? Many, if not all, insurance agents will push its client toward buying more expensive coverage when they know that they can afford it. More expensive premium means more commissions for them anyway. Always have your own calculations and choose your coverage wisely.

Insurance companies are profit-making businesses

If you ever wonder how it is possible to receive a payout of $200,000 if you die when you’re only paying $50 per month, it is because you’re not very likely to die until the coverage period ends.

Let that sink in.

“With only $50 dollar a month, if something happens to you, you will leave your loved ones with $200,000!”

Insurance promoters will steer you to believe that it is a really good deal, even when you end up dying in the process. I’m inviting you to be more critical of that idea, with your best interest in mind.

Here’s a quite exhaustive list of the probability of dying between the age of 15-60. In 2016, females in Indonesia have the probability of 14.5% of dying between the age of 15-60. In Singapore, that number drops to 3.81%. If you live in Indonesia but have a decent level of income, access to education, access to healthy food and lifestyle, your probability of dying is probably more similar to those that live in Singapore. Let’s take an arbitrary number in between: 10%.

If the coverage ends when you turn 60, what it means is that there is 10% chance that you will die and your family gets $200k after. Depending on the type of insurance policy you commit to, you might get back the premium you pay or lose it otherwise. Just like what I’ve described in the second section, there is 90% chance of losing the opportunity for your money that you pay for its premium to grow in other investment vehicles.

Either way, you will never really own that $200,000. Either you die and your beneficiary receive it, or you don’t. It’s never part of your asset and don’t let other people make you think otherwise.

Insurance companies have highly-paid actuaries working for them, creating formulas that are used to calculate premiums. They use data that are probably not publicly available and more accurate than the one that are available to you and I. They are profit-making businesses and they have their best interest in mind. Before coming up with the number $50 or $200,000, they already analyzed and decided that this number will still make them run their business and generate revenues.

My point is not about that these companies are ripping off other people. What I’m trying to say is getting an insurance coverage should never be about having a good deal or not. It’s about whether you need the protection it offers and whether it can help you and your loved ones during unexpected tough times. Unfortunately, to make this protection appeals to as much people as possible, they have to package it in a way that makes it look lucrative, and it can be misleading.

In the end, you are the only person that have your best interest in mind when choosing to get yourself insured or not and when choosing which coverage you truly need. I hope this perspective can help you be more open minded and make a wiser decision for you and your loved ones.

I create this little space on the internet to write my thoughts and reflections on being a human, a woman, and a software developer. I don't have Instagram/Twitter but I can be found on LinkedIn. Feel free to contact/give feedback/tell me your story through my email: ivanaairenee@gmail.com