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Is Insurance a sucker’s bet? Navigating Risk in Personal Finance.

This picture is what we all wish our financial journey to resemble; a journey in calm waters with the destination dictated by our actions.

However, more often than not, life throws us a wave or two and despite our best efforts. We end up “off-course” by no fault of our own.

So what can we do about it?

Universally we can either take on the risk ourselves via Self-Insurance or transfer the risk to a third party via Insurance if we’re unwilling or unable to take on the risk.

There is a strong case to be made for Self-Insurance as Insurance is always priced by actuaries, it ensures the risk taken by the insurance company is commensurate with the reward.

In short, as everything is priced in, there is no “edge” to be had for the consumer for taking the other side of the bet.

However, I believe there are factors that make Insurance an attractive proposition regardless.

Risk Asymmetry and Uncertainty of Costs.

What do I mean?

There is an aspect of Risk Asymmetry that drives the need for Insurance. In the case of our imaginary sole breadwinner Eric, he is faced with a conundrum.

Should he pay $340.90 a year over the course of 35 years, or a total of $11,931.50 for $1,000,000 in death benefit and total disability benefit or Self-Insure for the difference?

If Eric reaches the age of 65 safely he has an additional 12 thousand dollars to his name. However, if he is one of the improbable cases, his family is exposed to a humungous downside. The lives of his dependants will be thrown “off-course”.

This is the Risk Asymmetry where consumers are exposed to a large risk that is not commensurate with the savings.

What about the Uncertainty of Costs?

Uncertainty of Costs comes into the picture when we are talking about individuals with the ability to Self-Insure, the question is, should they?

Assuming Eric is 30 and plans to retire at 65 here are the comparisons.

  1. Insurance – $50,000 compounding at 6.5%. With a $1,200 annual premium, he will have $294,596 at 65.
  2. Self-Insured – $50,000 compounding at 6.5%. To have an amount between $293,000 and $294,000 at retirement he cannot spend more than, $17,500 by 30, $33,000 by 40, $62,000 by 50, and $116,000 by 60.

Should Eric have a need for funds due to unfortunate events he would definitely prefer to have it happen between his 50s and 60s. After he has built a suitable reserve to combat uncertainty without risking his nest egg.

With the help of Insurance, we are able to smooth out the cost side of the equation and focus solely on the returns side of the equation.

If you are interested in hedging out risks in your financial journey, compareFIRST is a great way to get an idea of the cost involved in getting coverage for Life Insurance.

For individuals that prefer a guided and personalized approach to avoid over or under-insuring themselves with the various types of insurance, I welcome your engagement.

Important: The information and opinions in this article are for general information purposes only. They should not be relied on as professional financial advice. Readers should seek independent financial advice that is customised to their specific financial objectives, situations & needs. This advertisement or publication has not been reviewed by the Monetary Authority of Singapore.

Published By:

Thomas Pang Chi Teck

I grew up loving finance and economics as a keyhole into understanding how the world works, being a Financial Services Consultant provides me with a platform to apply my knowledge by designing a plan that fits and enables my clients to accelerate through life knowing their financial well-being is taken care of.

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根据《个人数据保护法》，鑫盟理财私人有限公司征求您的同意向您收集并使用您的个人信息。鑫盟理财将根据公司的个人数据保护政策所阐述的用途使用您的个人资料（例如姓名，证件号码，联系电话，邮寄地址，电邮地址和照片）。 该政策可在本公司网站上查寻，网址为 https://fa.com.sg/data-protection-policy/.

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  • 我已阅读并理解鑫盟理财私人有限公司的个人数据保护政策，并同意鑫盟理财私人有限公司根据个人数据保护政策所阐述的用途使用我的个人资料。
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  • Financial Alliance Pte Ltd ( “FAPL”) is licensed by the Monetary Authority of Singapore (“MAS”) and allowed to conduct financial advisory activities in accordance with the Financial Advisers Act (Cap. 110) (“FAA”) and the Securities & Futures Act (Cap. 289) (“SFA”) within the jurisdiction of the Republic of Singapore and in accordance with the licenses granted by MAS
  • 鑫盟理财私人有限公司( “鑫盟理财”)持有由新加坡金融管理局(“MAS”)所颁发的牌照，并许可在新加坡共和国境内依据财务顾问法（第110章）和证券与期货交易法（第289章）进行财务咨询等相关业务
  • Any services provided by FAPL to persons not ordinarily resident in Singapore are provided solely on an offshore basis from Singapore, resulting from direct enquiry on the part of the foreign residents.
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  • As an integral part of the provision of such services, FAPL may from time to time make available to such residents, documents and information making reference to capital markets products (for example, in connection with the provision of fund management or investment advisory services outside of the foreign jurisdiction).
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  • Such documents and information are provided by Financial Alliance Pte Ltd (“FAPL”) is for general information only and is not intended for anyone other than the recipient.
  • 此类由鑫盟理财所提供的文件和信息仅供收件人做一般信息参考。
  • It does not take into account the specific investment objectives, financial situation or particular needs of any particular person.
  • 此类文件和信息不会把-个人投资目标，财务状况或其特定需求等考虑在内。
  • It does not constitute the making available of, or an offer or solicitation by FAPL to buy or sell or subscribe for any such capital markets product or to enter into a transaction or to participate in any particular trading or investment strategy nor an advice or a recommendation with respect to such financial products.
  • 鑫盟理财向该人士提供此类文件和信息将不构成要约或招揽购买或出售或认购任何此类资本市场产品，或达成交易或参与任何特定的投资策略，也不构成有关此类金融产品的建议或推荐。
  • These documents may not be published, circulated, reproduced or distributed in whole or in part to any other person without FAPL’s prior written consent.
  • 未经鑫盟理财的事先书面同意，不得将这些文件全文或部分发布，传播，复制或分发给其他人。
  • This document is not intended for distribution to, publication or use by any person in any jurisdiction, where such distribution, publication or use would be contrary to applicable law or would subject FAPL and its related corporations, connected persons, associated persons and/or affiliates to any registration, licensing or other requirements within such jurisdiction.
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  • You shall ensure that you have and will continue to be fully compliant with all applicable laws in your home country when entering into discussion or contracts with FAPL.
  • 在与鑫盟理财进行讨论或签订合约时，您应确保您已完全遵守并将继续遵守您所在原居住国的所有适用法律及条规。

In compliance with the Personal Data Protection Act, Financial Alliance Pte Ltd (“FAPL”) seek your consent to collect and use your personal data (e.g. name, NRIC, contact numbers, mailing addresses, email addresses and photograph) for the purposes of and in accordance with FAPL’s Data Protection Policy, which can be found on FAPL’s website at https://fa.com.sg/data-protection-policy/.

根据《个人数据保护法》，鑫盟理财私人有限公司征求您的同意向您收集并使用您的个人信息。鑫盟理财将根据公司的个人数据保护政策所阐述的用途使用您的个人资料（例如姓名，证件号码，联系电话，邮寄地址，电邮地址和照片）。 该政策可在本公司网站上查寻，网址为 https://fa.com.sg/data-protection-policy/.

By submitting this form, you are deemed to have read and understood FAPL’s Personal Data Policy.

提交此表格，即表示您已阅读并理解鑫盟理财私人有限公司的个人数据政策