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How To Correctly View Life Insurance

by Rajen Devadason

In the time we have it is surely our duty to do all the good we can to all the people we can in all the ways we can.

William Barclay

That truth resonates in the hearts of every decent human being because it succinctly explains why it is that the cornerstone of civilised living is aiming high, and helping others rise above their circumstances, even as we rise above ours! The core of correct community living is to operate on the principle of 'prosper thy neighbour' NOT 'beggar thy neighbour'!

Now, before we delve deeper into this, I'd like you to remember that 'charity begins at home'. Hold that thought as we consider what another wise man observed, before his assassination:

"The prudent, penniless beginner in the world labours for wages for a while, saves a surplus with which to buy tools or land for himself another while, and at length hires another new beginner to help him."

He, Abraham Lincoln, went on, "This is the just, and generous and prosperous system which opens the way to all, gives hope to all, and consequently energy, progress, and improvement of conditions to all."

As long as we are blessed with a full span of years, we can hope that most of us will succeed in our quest to improve our family's standard of living - step by step!

Of course, there will always be exceptions that fall into two categories:

First, those who happily make it big quickly. (I have no experience with that, so I can't offer any insights as to how to go down that road. Sorry! The basis of my own consulting practice revolves around trying to help some people make tiny incremental improvements over many years, ideally over one or two decades.)

And, second, those upon whom catastrophe falls, by way of death or total permanent disability! (Here, I have something to share with you on how to add a layer of protection for your family; if you're interested, keep reading...)

Even though collectively the average human lifespan is creeping upward, nothing is ever guaranteed for individuals. God alone controls when we swoop onto Planet Earth at birth and when we are carried off by death!

Unfortunately, if our 'Great Goodbye' should take place while we are still arduously ascending the wealth curve, we just might leave behind a spouse, parents, and children who are reliant upon us.

So, how will they cope with the vacuum of heart and emptiness of pocket that result from our sudden exit from life, or total loss of economic productivity?

Let me be brutally honest:

Only time can heal the first pain; and only money, the second.

Unless you've inherited a large sum of money or, more likely, have succeeded in building a healthy nest egg through sufficient decades of toil and sacrificial saving and investing, then, frankly, the most cost effective way of almost instantly generating a cash pile to help those you leave behind is through the wise use of a life insurance policy.

The biggest problem, however, with insurance products is the wide range of service levels extended by the gazillions of insurance agents around the world. Some are fine professionals who put their clients interests ahead of their own. Others aren't.

You know what I mean. After all, by my personal estimate, most people have at least two relatives or friends who sell insurance!

The best agents, in my opinion, are those who are fervently committed to the financial planning process and the well being of their clients.

But sadly, there is evidence of inappropriate, self-serving behaviour on the part of some others.

One example of the type of reprehensible conduct I am referring to is the use of manipulative sales tactics that play on a person's fear and ignorance to sell an endowment policy, say, with relatively little death cover to an individual who needs a lot more death cover. Such a person might thus be better served buying term insurance. (The same sum of premium dollars will buy far more term death cover than endowment death cover. But, historically at least in many countries, life insurance agents have tended to be better remunerated for selling non-term policies because the profit margins enjoyed by their life insurance principals are higher for non-term products.)

Please note that while I am a big fan of term insurance, I don't go to the extent my fellow Malaysian and millionaire friend Azizi Ali -  Chartered Financial Consultant, author of several great financial planning and real estate investing books, commercial pilot, professional speaker, and real estate investor - does when he drums home, in his writing, the wisdom of buying term and investing the difference.

Instead, I readily admit that a direct comparison of term insurance policies and endowment policies is inappropriate because endowment products also contain an investment element. But for people who buy insurance for the sole purpose of helping their dependants survive and even thrive in their absence, the primary initial consideration should be cost-effectiveness of death cover purchase.

And that brings us right back to the kernel of Lincoln's observation, "The prudent, penniless beginner in the world labours... and at length hires another new beginner to help him."

Nowadays, our 'helper' can also be money, since it is much more like a living entity in our day than it was during Lincoln's era. Money today, especially, moves faster (consider the economic term, 'velocity of money') and it multiplies quicker (money makes money through the wonder of compound interest).

But for those who are not rich enough, YET, to effectively self-insure themselves, life insurance becomes crucial if these individuals have any economic dependants. (Being self-insured means owning a nest egg or portfolio that's large and productive enough to meet all family needs without an external injection of cash through an insurance policy payout.)

In essence, the true role of insurance is to make a significant sum of money available to your dependants should you depart this mortal coil before you have succeeded in becoming self-insured. (For learning resources that might help you enhance your mental and economic capacities to earn more over time, you're welcome to visit my Resource Centre here.)

Please understand that your ideal insurance product (in terms of type and size) can only be determined by someone who takes the trouble to understand your situation and aspirations.

Needless to say, a truly ethical and competent life insurance agent will not make such recommendations based on which product lines his pockets the most!

Sadly, as I mentioned earlier, the other variety of agent also exists.

That's why many people I come across nowadays - at least among those over the age of 30 - tend to have insufficient death and total permanent disability cover, but, ironically, possess too many different insurance policies! These were perhaps sold to them by overly voracious commission-seeking relatives, colleagues, acquaintances or so-called friends.

My advice, therefore, is simple:

Take a long hard look at your insurance needs and decide whether your life insurance agents are primarily working to help you or to help themselves.

When you find one that clearly has your best interests at heart, cling to him or her!

Then take the time to work out your current insurance needs, with this extremely professional agent's help, and do what's necessary to buy sufficient additional cover to take care of your loved ones in case anything unexpectedly fatal happens to you. Be just as diligent and drop excess cover if it turns out you don't need it! (If you would like simple guidelines to begin carrying out those calculations yourself, read my article How Much Life Insurance Do You Really Need?)

Being responsible enough to go the extra mile to ensure you optimise your life insurance premium expenditure will fulfill Barclay's reminder of what our core duty should be - to do good to others. In my opinion, we should begin the process of doing good to others by looking out for those we love, and who love and depend upon us the most!

Never forget: Life is fragile; it sometimes is cut-off early... and unexpectedly!

That's what happened to Lincoln, and that's what might happen to any of us, any time. Ultimately, only God controls our ETD - exact time of departure.

However, we can control our FFSUD - family's financial state upon departure! We do so by taking the time, while we still have some, to research our insurance needs and to exert the minor effort needed to unearth the best life insurance professional to work with. (Please note that I do NOT sell life insurance; this article has been written to help you help yourself intelligently in this area of personal finance.)

I wish you all the best in your search.

In closing, if you are based in Malaysia, if what you've just read makes sense to you, if you are an English-speaking professional or business owner aged between 30 and 50, and if you genuinely believe you might benefit from my consulting services in the realm of financial planning and retirement planning, you're welcome to learn more about me here.

© Rajen Devadason