Tuesday, November 27, 2012

Insurance - Needs vs Wants

Here's a truth.

You don't need insurance. Yes, you heard me right, you do not need insurance. However, before we discuss further on this topic, let us make sure our definition of "need" is the same.

To me, my needs are something that is essential to keep me alive. For instance, food, drinks, clothing, shelter and etc. I came across the Maslow Hierarchy which illustrates the classifications of human needs.

The Maslow Hierarchy

According to the hierarchy, you don't need insurance to survive. Rather, the decision to insure one's life or a loved one's is purely an act of love (Class No 3 in The Maslow Hierarchy). 

What happens when you don't have a single insurance protection?
It simply means that when you pass away, there isn't any compensation of money for that event. Sounds pretty crude huh? It's the fact!

So let's get back to the initial question: how would the act of love affect the way you choose your insurance coverage?

In the insurance industry, there's a term called "insurable interest". To illustrate this term, let's just say everyone is considered to have an insurable interest on their own lives, the lives of their spouse and dependents. And for your extra knowledge, insurable interest for life insurance needs only to exist at the time the policy is purchased. 

For example, after you sack one of your employees at work, the insurance policy that you bought for that employee would still be considered valid even after he is no longer under your employment. The insurance industry seems to take the term “true love never dies” pretty seriously.

Therefore, the insurance protection that you should have in your risk management portfolio should ideally shows the "amount" of love you have for the "insurable interest". Put it in another context, the coverage amount compensated should be adequate to protect you and your loved ones from a sudden financial crisis. The coverage amount should also be adequate to buy you and your family enough time to recover from the financial loss during the crisis.

If you are having problems finding out how much and what type of insurance you already have, you should seek out professional advice as soon as possible.


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