RISCARIO INSIDER: WHAT IF INSURANCE WERE FREE?

November 8, 2014

WHAT IF INSURANCE WERE FREE?

If insurance were free (and there were no catches), how much would you get?

You might

top up your current coverage (e.g., more life insurance)
protect against risks you’ve neglected (e.g., critical illness insurance)
explore types you don’t know much about (e.g., long-term care insurance)

You might be willing to go through the hassle of the buying process. You might encourage your family and friends to follow your path.

Maybe you wouldn’t do anything what’s free (e.g., air) doesn’t seem to be worth much.

Sale Prices

If insurance were on sale, how much would you get? Your answer might depend on the size of the discount. If large enough, you might even buy protection you’ve refused in the past.

What if there were a one day sale? Would you buy then? Insurers avoid discounts because insurance isn’t an impulse purchase. Instead, they tend to have competitive “every-day” pricing. That’s to encourage advisors to consider their products. They may have contests to motivate advisors but you’re unlikely to know.

You don’t gain by waiting to buy. Even if your health and gender don’t change, you’re getting older. Your age affects the price you pay. Also, newer products don’t mean better guarantees.

Reducing The Price

You can’t save money by buying half an iPhone. You can save on insurance by buying less coverage. Granted, you get less protection but is no coverage better? Since insurance requires ongoing maintenance, you can re-evaluate your situation during a future inspection.

Insurance costs more as you age and even more if your health deteriorates. You reduce the future price by acting today. When the asset being protected is a human life, the premiums can often be guaranteed for life.

The Limits

A billionaire bought a record $201 million of life insurance, which required 19 insurers and an annual premium in the millions of dollars. Why not more? There are limits on how much insurance you can get even if you can pay.

Underwriters determine what you’re worth. Let’s say that’s $5,000,000. You’ll have trouble replacing more than that. If you try to buy $2,000,000 from five companies, don’t count on getting $10,000,000 of protection. That’s because each company will ask about your other insurance you already have and are in the process of getting.

Real Life

Insurance isn’t free. There’s no Boxing Day, Black Friday or Cyber Monday sale either. Insurance may look like a luxury or waste until you need it. Unfortunately, you can’t buy insurance at moment before misfortune strikes --- at any price.

RISCARIO INSIDER