Can I get RICH buying Insurance?

By David Choo, PromiseLand Independent

“Can I get ‘rich’ by getting more money from my insurance policy than the money I put in?”

It depends on which type of insurance policy you buy. It depends also on when a claim is made which is allowed in the policy.

Let me explain.

Almost all the policies you buy from so-called “general insurance” companies won’t make you rich because they only reimburse what you lost or spent. For example, if you buy a fire insurance for your house and it is damaged by fire and you lost $50,000 which is within the amount you insure your house for, at most, you will be reimbursed $50,000. (You might get a lesser amount depending on whether the insured value is fair or under-insured.)

Another example. If your company takes a hospital and surgical insurance on her staff and you have to go for an operation and stay a few days. If the expenses are within the limits of the policy, all your expenses for surgery and hospital stay will be reimbursed. In other words, you will be restored back to a “no loss” situation. The word used in law is INDEMNITY.

If you have a daily hospital benefit of $100 a day, this will be paid depending on your number of days. This is a “benefit” of the policy and you will be “richer” for it.

MediShield is an example of a policy based on reimbursement of hospital and surgical expenses. (Whether you get full reimbursement or not depends on your policy terms like “deductible” and “co-insurance”.)

Generally, you won’t get richer if your policy is one that reimburses expenses. So if you insure your house with three insurers, you won’t get three times the value. The insurers will share in paying you the amount insured.

Life insurance policies, on the other hand, are almost all “benefit” kinds of insurance. In other words, you buy a benefit, e.g. death benefit or critical illness benefit or disability benefit. And you can buy for a short period of one year, or five years, or for the whole of your life. And you can choose to cover different causes, e.g. personal accident only or all causes. For every type of plan, there will be some exclusions or just one – suicide within a few years.

“Benefit” kind of insurance may make you richer depending on the amount you buy, which is agreed and accepted by the insurer after they assess (i.e. underwrite) your proposal to insure. Obviously, the insurer has to accept your proposal and receive your payment of the premium, or cost of insurance, before there is a contract of insurance.

You can get rich, or more correctly your “beneficiaries” who get your death proceeds will get rich, if you get a claim, the earlier the better.

The policies you get the most death benefit bang for your buck are personal accident policies and travel insurance. Insure for a few million, if you want, with a few insurers for personal accidents and all will pay on accidental death, if there is no fraud. Sad but frauds do occur.

The next policy which covers all causes of death, except suicide within the stated number of years, which gives you most bang for your buck is TERM insurance. Imagine, just paying one year of premium and claiming the death benefit.

On the other hand, if you take a TERM insurance for 30 years and do not claim, all the 30 years of premiums would go up in smoke, as they say. But you would have got what you bargained for which is “protection” for the 30 years to cover “what if”.

Basically, the bare necessity of life insurance is to protect against accidental causes and sicknesses. Other benefits which have been added are the money-back benefit and profits (bonuses) to sweeten the deal. Such “cash value” or “investment-linked” policies potentially can increase your benefits at no extra or varying risks but at a higher cost.

So, coming back to the question “Can I get rich buying insurance?”

You will not but your loved ones may, if not enriched, at least be kept from financial hardship. But it also depends on who is asking. There are people who try their best to profit from insurance by all kinds of tricks, hiding information or outright fraud. Fortunately for all good people there are few but they are the reason why insurance policies have so many pages of terms and conditions. And why insurance advisers are still much needed.

This article was prepared by David Choo in his personal capacity. The opinions expressed in this article are the author’s own and do not reflect the view or position of PromiseLand Independent Pte Ltd.

If you are reading this, you are already taking or have taken steps to seek wisdom in making good choices in your finances. At PromiseLand, our ethos is “Trusted Advice, Trusted Advisor”. It means that we will walk the journey with you to make those choices that protect what you value most.