Sunday, May 07, 2006

More about reducing coverage

When we buy life insurance, there is one important reason why most of us should go for reducing coverage: most of us have limited budget in paying for insurance, reducing coverage gives us higher value of protection as compare to level coverage, at least for the first few years. This makes all the difference if anything happen to us now.

We begin with a simple example. You and your insurance agent calculated that you will need a coverage of RM400,000. But you can only afford to pay for premium of either
a. RM300,000 protection in a reducing coverage term life, or
b. RM200,000 level coverage protection term life, or
c. RM100,000 level coverage protection with RM100,000 savings/ investment (full life/ investment linked)

The logical choice is to buy the term life insurance RM300,000. Anything happen to you now or the next three years, you and/or family will get RM300,000 or close to RM300,000.

What about ten years later when your coverage reduces half to RM150,000?

Risk management is a process to review periodically. Just three years later your financial position would have changed, i.e. you have a higher salary, you have more kids, you have saved more money, you have more investment, you have more ownership in your home, etc. You can decide three years later whether to increase your coverage or to reduce your coverage. You can decide then whether to dump your current policies and buy a completely new plan for your entire protection need or just to buy new policies to top up your current coverage.

Just like corporate risk management, personal risk management requires periodic review. Personal risk management is something you can never do once and say enough.

Using the above method you are going to pay higher insurance premiums through out your life time. Some of the plan you add in your older age may be more expensive. However, you and your family protection are maximized based on your limited budget. You increase your insurance premium and protection when your financial situation improves and when your family grows.

If there is no financial constraint that you are rich enough to buy sufficient protection at level coverage, then you should buy level coverage. However, most of us probably cannot afford the premiums. (Insurance agent would say, "Therefore you should buy more now...since it will be more expensive in the future..." They are blind to say such things. Driven by peers pressure, targets to acheive and group commitments, most insurance agents refuse to recognise our financial limitation.)

Read more about reducing your life insurance premium without compromising protection.


  1. In all your artical you never really address the issue of medical card? how to sellect a good one?

  2. Hi yeoh,

    Thanks. Good idea for future write up. I wish I am like ATM, just press a few buttons and I can come out with articles... :-)

  3. Hi!

    Hahaha, wont that be good. Because i work in an ins. comp. your idea and artical helps me advise my client on these issue. It well be tremendous help i get your second opinion since your so well verse in financial planning in all area. When i get my unit trust license, be sure you spend time in explaining question i am going to ask. You really been a great help to me.

  4. Hi Yeoh,

    This is what I hope I can achieve.

    When I started this section, I suspect I am going to attract jeers from insurance agents. However, it is not my intention to hurt insurance agents' business and their livings. Insurance agents are the key part of our personal risk management. Many of my good friends are insurance agents. I am grateful of their after sales services. They are important in helping me in my personal risk management process.

    Due to unrealistic expectation of general public in insurance products, I suspect for an agent, sometime honesty means losing business or with less trailing commission. But I just believe there must be a way for insurance agents to help individual in personal risks management, recommending proper and affordable insurance coverage and yet the agents can make a decent living without profiting from buyer ignorance.

    Personal risk management is a continuous process that one must do at least three years once or life major events like marriage or child born. Good after sales services can maintain a long term client-agent friendship. It is not only a viable business model but also for the agents to find fulfilment in helping others. (You can only get rich happily and ethically by providing what people really needs, isn’t it?)

    Right Livelihood is the key.

    And thanks for the attention you give to this blog.

  5. I also think insurance is important. But i personally know many many agents, and most of them are scums and are much more concerned about comission and going on free holidays. Anyway you rock Chen Tong!!

  6. This is not an ideal policy to purchase but if you owned one it is advisable to convert it into another policy as soon as possible, but before you do this you are advised to consult your reliable life insurance agent. life insurance australia

  7. Hi Chen Tong,

    Thanks for writing this blog. You wrote during 2005-2006, but still it is useful for me during 2013. Fundamentals never change.

    Thank you once again.

    I need a clarification, I am an expat been here during last one year and now planning to have a insurance plan for security purpose. Can you suggest me any of your friends for planning my investments.
    Thank you.


What is your opinion? We are keen to know.