Monday, November 18, 2013

First Post on Insurance

Well, here we go. Insurance.

I never thought I'd be blogging about insurance, but then again, blogging about things is a useful tool for me to help me review the things that I ought to be thinking about, while also reminding me how I logically came to whichever conclusion I ended up at.

I suppose now that I'm a young working adult, it is my personal responsibility to ensure that I can look after myself. That doesn't only mean making sure that I can operate independently on a daily basis. It also means that I am able to provide for myself should there be any unfortunate incident.

I guess the way that I look at insurance is a sort of negative investment. While investments requires capital and generate returns for the future, insurance sorts of does the opposite. It still requires capital, but instead of generating returns for the future, it prevents drawdowns in the future.

So I guess it basically is what it says it is, it is an insurance. It protects you from unforeseen large expenses. You're just gambling against the odds of life that something shitty might actually happen to you.

Now I guess the most logical way to look at insurance from a expected value viewpoint, which is probability and value. Are the premiums being paid costing equal or more to the likelihood and the cost of an incident occurring? I suppose the best case in point is the whole Obamacare debate that they have going on in the US. From what I understand, it is heaps and worlds cheaper for younger and healthier people to just wing it without health insurance and pay directly out of pocket if something happens. Now, in Singapore, this isn't the case because comparing healthcare plans, it seems that the healthcare costs are much much lower and probably even more comprehensive.

Anyway, deviating a bit back there. So, now I am trying to figure out the world of insurance. What sort of insurance products are out there? What sort of insurance should I have now? What sort of insurance should I eventually have? When is the best time for me to get insurance? All these things cross my mind now and then, but I suppose now would be a good time for me to sort of plan these things and get them out of the way. Just like how I'm trying to figure out the best long term strategy to manage my finances and do it in a very passive and mechanical way.

A lot of my understanding comes from reading articles on the net, especially from people in the financial world, as well as browsing through insurance websites themselves. I really like the write up by InvestmentMoats here and here. He even managed to speak to Aleph Blog writer David Merkel who I also follow diligently!

My theory on insurance so far is that people have different needs at different points of their lives, and therefore there should be different focuses on insurance at different point of times, and for different duration. I've also long known that ILP's are a scam, and it is basically only useful for people with bad saving habits to force them to save a bit. I also know that term insurance is heaps cheaper than whole life insurance, especially if you're talking about rate of return. However, I did not know that actuaries actually feel quite strongly against ILP's and whole life insurance. From this, I'll definitely have to take a better look and review what sort of insurance I want, and why.

So, the main factor actually pushing me to review and maybe get insurance now is the fact that I am still young and healthy. For some types of insurance, especially ones that are concerns life, starting the insurance younger locks in a lower premium rate throughout the course of the insurance, which may be forever. So I'm still 23, turning 24 frighteningly soon, but I am quite sure that the age step-up is 25 and above. I am shy of less than a year to quickly know what I'm doing!

Like I said, the main reason for me to start with insurance now is so that I review the whole arena and understand the playing field and the game that I'm in, before any golden opportunity slowly sneaks pass me, which is time itself. If I can make a fair conclusion that locking in lower premiums because of younger age makes sense at this point of time, I will most definitely make a strong consideration in doing that, as well as follow-up plans concerning other areas of being insured.

Anyway, just wanted to have a quick write up to puke out all the information that I had floating around in my mind regarding insurance. I'll follow up on this topic in my next post hopefully!

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