Should I Cut It And Buy A New One?

When someone suggests we CUT our existing insurance policies, what should we consider?

One day, I did a policy review with a person, age late 40. He told me recently an insurance agent suggests cutting all his SIX existing insurance policies (some policies started 24 years ago), and replaced with new insurance with about the same premium, the slightly lesser sum insured, but higher medical coverage.

I say: “Paying LESS doesn’t mean we are getting MORE.”

We should consider this:

1. New insurance CANNOT cover pre-existing illness anymore.

2. When we start a new insurance policy, allocation of premium start all over again. It means, in the first year, every RM100 we contribute, about RM40 goes to policy’s investment fund(s), the rest is the cost. The premium allocation will increase year by year to every RM100 we contribute, RM100 goes to policy’s investment fund(s) on 7th year and above. In short, old insurance COST IS LESSER than new insurance.

3. Therefore, don’t just look at what you can see on the surface. (LOW premium, HIGH coverage) Paying a lesser premium not necessary means that we save more cost. Paying a higher premium on old insurance not necessary means that we get lesser value. In fact, old insurance can sustain longer than new insurance because of its higher allocation of premium.

4. The policy review’s purpose is not to find out how to pay lesser and cover more. A useful policy review should ensure that all our current insurance policies are COMPLEMENTING each other to form an excellent financial planning foundation.

5. Good financial planning should take care of our CURRENT NEEDS and bring us MORE VALUES for our long term future. Instead of cutting policies, we can top up the area of coverage that we need, with that it brings us more values and makes our financial planning complete.

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Stanley Gan
Financial Consultant,
EVOL Consultancy