Purpose of Insurance

What is the meaning of insurance to you? To me, it is something that protects me against any unforeseeable risk of life, illness or accident. That is all.

I know many people will ask their insurance agents about how much they will get back by the end of policy term. Well, my question, why is everyone so concern about the “residual”?

As I highlighted in my post Insurance: Protection or Investment, insurance should be treated as a protection tool but not an investment tool. At the end of the day, you have to pay more in terms of insurance premium so that the insurance company can invest the “residual”, if any, and get a not so impressive return, after considering inflation.

I believe the correct mindset shall be like this. Treat insurance as a protection vehicle. Consider your insurance premium as expenses that will never come back. Do not aim for any return from insurance. This in turn will save you from paying unnecessary premium. While this extra money is in your hand, you have more options than without. Get the picture?

So, right now, what are the policies that meet these requirements? The best will be investment-linked policy. Please do refer back to my previous post on “Insurance: Whole-Life Policy or Investment-Linked Policy” Part 1 and Part 2. Next, we can consider Term Policy. The last resort will be non-participating whole life policy.

So, do check with your insurance about these policies and understand them before any final decision.

Happy searching.