2 Insurance Planning Mistakes You Should Avoid (DON'T DO THIS)
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In today’s video, I want to talk about the two mistakes you should AVOID when planning for your insurance unless you want to flush your money down the toilet.
The first mistake is when you copy and paste your friends/family insurance portfolio and the second mistake is when you continue to blindly pay and service your existing policies.
Without further ado, let's get started
1. Copy pasting portfolio
How it may have happened
The thing about this is that it often happens as a result of a conversation with your friends or family.
During the conversation, chances are is that your friends or family members spoke about the topic of insurance and you casually ask them about their portfolio and recommendation.
Before you know it, you end up purchasing the insurances that your friends or family members had purchased without giving much thought to it as you felt that you need to get yourself insure and you had social proof from your friends and family.
There are two implications of copy-pasting your friends or family’s portfolio.
The first implication is that you run the risk of paying for things that may not be suitable for you.
You see, planning for your insurance should be the same as tailoring clothes. Everything should be measured in fine detail based on your unique measurements and your situation.
Copying the insurance that your friends and family had bought is kind of like buying the same size shirt as them even though you may have a very different body proportion.
The second implication is that you may end up paying a higher price for things you do not need or worst for no good apparent reason as you completely skip the process of comparing the products available today.
Competition exists for a reason. While the insurances available in the market are similar, they are by no means identical.
Different companies will have different strengths and weaknesses and most companies will compete by either differentiating themselves by having more benefits while others may compete by being the lowest-cost provider.
At the end of the day, what matters most is that you know and understand what you are paying for.
What your friends or family members had bought may not be something that you want to be paying for.
2. Blindly servicing your existing policies
How it may have happened:
The next thing that you should never do when it comes to your insurance is to blindly pay and service your existing policy.
This often happens to people who blindly take over the policies that their parents had bought for them for 20-30 years. It also happens to people who do not have a habit to do policy reviews.
So, what are the implications of blindly paying and servicing your existing policies?
The first implication is that you may be paying for coverage that may no longer be aligned with what you need at that given point in time.
Things change, and situations change.
As we progress and as we age, the type of lifestyle, responsibilities and liabilities that we are dealing with change as well. As a result, the type of risks and economic consequences that we have to deal with tomorrow might be different from what we are dealing with today.
This is especially so when you experience significant life-changing events like settling down, getting your property and having your first kid.
If you were to just blindly pay and service for your existing policy without taking a look at whether or not it is still suitable to your current situation, you will never know if what you are paying for today is what you need.
This creates unknown gaps or inefficiencies that will cause problems down the road.
If you need more coverage than what you have today, you will face a risk of depleting your savings should anything happen to you in the future.
If you have more coverage than you need today, you are wasting money by paying for unnecessary coverage when that money could have been channelled to accelerate your retirement
The second implication of this is that you may miss out on promotions and innovations in the industry that may have created a situation or opportunity where the newer insurance provides either better benefits at the same price or the same benefits at a lower price as compared to your existing insurance.
Let me provide you with two examples based on my experience.
The first example is a situation of a policy that was handed down by one of my client’s parents which would have cost him a total of $69k over his lifetime as compared to a policy that he could have gotten today would have cost him a total of $42k all for the same amount of coverage.
All of this had happened because the newer policy payments are limited to a certain number of years which is rare or non-existence in the past.
The second example is a situation of a policy that was bought with and without discount simply in a short span of one year.
It is clear that while the age of my client had increased over the years, the cost of insurance for the policy with the discount is still lower than the policy that he had bought a year ago simply because of the perpetual premium discount promotion that was ongoing then.
So, there you have it.
As much as we don’t like to talk about insurance, we need them in our lives to protect ourselves and our family from financial peril should anything happen to us.
And like it or not these insurances are not exactly cheap since the risks that we are transferring aren’t exactly small – easily go up to half a million to a million in coverage.
To make sure that you are not flushing your money down the toilet on unnecessary or uncompetitive insurances, you need to know what you are paying for to avoid buying things that may not be suitable for you or paying for features that you may not need.
You should also be on your toes when it comes to reviewing your insurance portfolio to ensure that what you are paying for today is still relevant to you and you are not missing out on any current opportunity that can help you make your insurance portfolio more cost-efficient.
Daniel is a Licensed Independent Financial Consultant with MAS and a certified Associate Wealth Planner that provides:
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This article is meant to be the opinion of the author
This article is for information purposes only
This article should not be seen as financial advice
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