• Daniel Lee

Case Study: How you can save money by getting a second opinion on your insurances

For the same client, a different financial planner will plan differently based on their knowledge, experience, and planning methodology.


For the same type of product, the different company offers different benefits and costs based on their business focus, overheads, investment performances and desired operation margins.


In this article, I will be sharing with you a case study on how a client of mine managed to save money on her insurances by receiving an independent second opinion before deciding.


Background of the client

Having worked for 1 year, Janice (not her real name) decided to start planning for her finances starting with her insurances.


Before meeting me, Janice had met an insurance agent who proposed that she should consider getting.

  1. whole-life insurance to act as the foundation of her coverage needs

  2. a multi-pay stand-alone critical illness to supplement her critical coverage

After listening to the insurance agent’s pitch, Janice has decided to approach me for a second opinion.


Having gone through the financial planning process with her, here is what we found:


Same needs but different planning approach

Given Janice’s insurance needs, there are a few approaches that we can consider addressing the same insurance gaps identified.


Given the same budget, we have narrowed down to two options that Janice may consider:

Immediately, we can draw comparisons between the two distinct approaches that Janice could have considered.


It is evident that option 1, while sounds good on paper – with the multiple claim features – may not be the most ideal strategy for Janice to adopt as…


Firstly, to match the benefits provided by option 2, Janice will have to make a total of four separate claims on option 1 - representing four separate conditions, be it unique, relapse, or worsening conditions.


Whereas for option 2, Janice will only need to suffer from one late-stage critical illness to be able to withdraw the full benefit of $600,000 despite not having a multiple-pay feature.


Secondly, in terms of the benefits behavior, especially after the age of 70, option 2 provides a higher critical illness coverage. This is because, for option 1, the bulk of the critical illness coverage is provided by term insurance – which is temporary of nature – while option 2’s provides coverage for a lifetime.


Thirdly, in terms of cost behavior, while option 2 is slightly more expensive during the earlier years, it is significantly cheaper over time. Once again, this highlights the difference between the use of whole-life and term-life insurance.


Long story short:

Different financial planners plan very differently for their clients. Depending on your priority, budget, and comfort, what was presented to you by one financial advisor, while sounds good on paper, may not be suitable to you as opposed to the recommendations by other advisors.


Same product but different form of features

In addition to the difference in planning approach, I have also shared with Janice the difference in benefits and cost for the category of stand-alone multi-pay critical illness term plans.


Here is what we found:


Product Features of Insurance Company A – recommended by Agent

The key benefits of the policy are as follows:

  • Early, Intermediate, and late-stage critical illness: 100% claim per condition (up to 5 claims)

  • Relapse and recurrence benefit: 100% claim per relapse (up to 2 claims)

  • Maximum claimable amount: 500% of the insured amount


Product Features of Insurance Company T

The key benefits of the policy are as follows:

  • Early & intermediate critical illness: 100% claim per condition (up to 2 claims)

  • Late-stage critical illness: 300% claim per condition (up to 2 claims)

  • Relapse and recurrence benefit: 100% claim per condition (up to 2 claims)

  • Maximum claimable amount: 900% of the insured amount

By doing a simple comparison, we realize that for the same type of policy – standalone multi-pay critical illness term plan – the features are drastically different.


This is very important as depending on how the insurance contract is structured, it will significantly affect your ability to claim and the claim amount.


Going back to the above example, if Janice were interested in including a multi-pay CI policy into her insurance portfolio, she would have been better off considering Company T over Company A based on the difference in payout features.


This is because, while company A provides her with the benefit of claiming up to 5 times. The sum-assured per claim is considerably lower as compared to company T which focuses on a higher payout per claim over the number of claims.


A bird in the hand is better than two in the bush. While it sounds good on paper that you are covered for up to 5 times, effectively the probability of you making 5 separate claims is considerably lower.


As such, under normal circumstances, we would be better off receiving the total benefits upfront as opposed to hoping that we suffer from multiple conditions to fully utilize the policy.


Long story short:

To compete in the industry, companies will structure their policies differently – be it having more benefits, lowering their cost, or both. As such, as a consumer, it will be foolish for you to not compare and weigh the different options available to you before making a decision.


Key take away from the case study

It pays – literally – to do your due diligence.


As I have said earlier: For the same client, a different financial planner will plan differently based on their knowledge, experience, and planning methodology.


For the same type of product, the different company offers different benefits and costs based on their business focus, overheads, investment performances and desired operation margins.


Buying insurance is a long-term commitment. To truly understand what you’re purchasing, you need to take the time to understand and evaluate the options available to you at any given moment.


Unfortunately, as humans, we do not know what we do not know. As such, you need to make an effort to talk to more advisors to understand if

  1. The planning style and methodology of the advisor is suitable for you

  2. The advisor is someone you would like to work with

It is also vital that you seek to understand if the advisor has done his due diligence in helping you weigh your options in the market and the considerations that he took when it comes to filtering and comparing the insurance policies.


Read more: Things you must know before you engage a financial advisor!


And here comes the self-plug

If you’re looking to tailor an implementable financial plan or to improve your existing financial plans here’s why you should engage me to be your financial planner:


As your Independent Financial planner, I will provide you with a blueprint that spells out the steps that you will need to take and I’ll personally guide you along the journey to ensure that you are on track to meeting your financial goals.


So drop me a WhatsApp or Telegram message to set up an introductory session and discover how you can leverage my services to accelerate your growth and achieve your goals earlier.

Like what you've read? You can also join my telegram channel to receive first-hand updates. I blog weekly on financial planning topics, market analysis, and updates:

Daniel is a Licensed Independent Financial Consultant with MAS and a certified Associate Wealth Planner that provides advice in the following areas:

for investment planning advice - find out more here

for insurance planning advice – find out more here

for retirement planning advice– find out more here

Disclaimer:

This article is meant to be the opinion of the author and is for information purposes only.

This article should not be seen as financial advice

This advertisement has not been reviewed by the Monetary Authority of Singapore

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