The Importance of Insurance
Blogged By: Low Hang Wei @ July 28th, 2009 - 11:33 pmI suddenly felt like blogging on this topic, because I felt that it’s really stupid that people have to be persuaded to buy insurance. Come on, buying insurance is probably one of the most important things that we can spend our money on. Some people says that they don’t need insurance, but they have got to realize that when they need insurance, they can no longer buy it. Another crap that people like to dish out is that they will just kill themselves if they are sick, but we know that not many people suffering from terminal diseases actually kill themselves.
I seriously don’t understand people who are not willing to spend their money on insurance, but are willing to waste it away on branded stuff or boozing their nights away. To me, not buying insurance is equilvalent to being irresponsible to your family members, including our parents that brought us up. I may be a bit extreme in penning it down, but it is the absolutely truth, most people realize they need insurance, but they would rather use the money for their own enjoyment. Afterall, if they are really sick, their family members will take care of them is how they truly think. Irresponsible is the best word to describe this thinking and it’s being irresponsible to the people who loves them most.
With that being said, I know that insurance is expensive and not everybody can afford to get themselves adequately covered, including myself. However, if you are struggling with paying for insurance, imagine how much worse it can be when you need insurance and do not have it. I am very certain that most people will experience a dramatic drop in income upon suffering from some illness, or incomes will simply drop to 0 in the event of death.
I just met someone who was a high-flyer and making 5 figures monthly, yet he did not purchase any insurance at all. He contracted cancer around 30, his income dropped close to ten times and I seriously can’t imagine how he is going to endure all that. I raised this example because I feel that affordability is sometimes not the issue. This guy definitely can afford insurance a few years back when he was making so much more than average. However, most people just seem to think that bad things don’t happen to them, or they are not so unlucky. The truth is the only certainty in this world is death and most people suffer from some illness at some point of their lives. I would say it’s safe to assume we would suffer from some illness and if we don’t, consider it as striking lottery.
Just some food for thought and if you haven’t purchased any insurance, it’s probably time to re-consider your options.
Blogged Under: Personal Finance
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August 2nd, 2009 at 9:37 pm
wats ur view on life insurance vs term insurance?
I am thinking of buying insurance (ya…i think all pple shd buy too..especially if ur parents are depending on u!)…
but….there is just too many..haha..can’t decide.
August 3rd, 2009 at 8:00 pm
To Qin,
Always buy term insurance. Save the extra for investments. Life policy has 20 cost components from admin fees, agent commissions, investment spreads etc. that suck up your money. Also, by keeping the premium small, should anything happen like job loss, you can still afford to pay for the coverage. Life insurance premiums are typically higher and harder to service.
Unfortunately I made the mistake to buy a life insurance many years ago…and worse still it is the company that starts with A. The return is completely pathetic!
August 7th, 2009 at 2:38 pm
To Qin,
It really depends on your budget & what you need. “Always buy term insurance” is not always a good choice. Term insurance is extremely cheap when young but gets really expensive when you get older… so much more than life policies.
People who buy term insurance usually expect themselves to get good investment returns from the extra $$ saved such that later on in life, when they pay the bigger premiums at old age, it’s sense…..
Look in the longer term rather than short term gains.
August 10th, 2009 at 6:15 pm
IC…thanks for the insights. Will compare more. I understand the idea of buying term + investment …but as mention by Hang wei, not all are able to invest with gain at the end of the day.
Didn’t notice the high premium at old age for term insurance.
Mmm….actually am thinking of buying life + term…not sure if thats a crap combination. As mention by Lucky Tan, taking job loss etc into consideration, do not want my monthly commitment for insurance to be high + don’t want to pay for insurance at old age.
So take e minimum life insurance + term for extra coverage during e period when i am responsible for my parents.
August 13th, 2009 at 8:53 am
Hey Hang Wei,
This blog is called 1st million dollar CHALLENGE….how are getting along with this ‘challenge’. The stock market is firing on all cylinders did you miss this ride up? What happened to your forex trading?
BTW, what (broker?) were you using to trade forex? I don’t recall…
August 27th, 2009 at 6:19 pm
In ard March 2009, for fun I opened a margin account with Philips Securities.
I traded a small amount of $30K into $350K from March 2009 to now. I simply bought more stocks as the market rose using a simple momentum indictor and sold nothing during the period. The account now has more than 50 stocks worth $1M…I simply pick those that rose the fastest over a 2 week period…every weekend I worked out a list in alphabetical order and bought according to the list everytime the margin a/c has buy limit.
It wasn’t rocket science and I’m so pleasntly surprised the market simply rocketed up without any significant correction. Most of it is just luck…I didn’t do anything I would consider smart.
August 28th, 2009 at 2:07 am
Hang Wei,
I used a margin account. You only need to pay for 30% of the stock purchased. With my initial $30K, I purchased $100K of stock at the start. But the trick was as the portforlio appreciate, I can buy more so long as amount loan was less than 70% of the total value of the portforlio of stocks.
Everytime, the total value appreciate by $4K, I was able to by $10K of stocks to keep the 70% ratio….and I did it everytime the market went up. To minimise risk since I was buying small caps, I try to buy a different stock each time - the portforlio now has 50 stocks - so that if one stock collapse, I can still survive.
You can try to simulate this for a market move of 100%, such an account using margin will produce, I think, roughly 800-1000% gain. My account now is $1M of stocks and $650K of loan - the net value is $350K. It is quite surprising that a simple leverage like that produces such results.
The issue for me now is how and when to unwind the whole thing.
August 29th, 2009 at 6:40 am
Actually the risk is rather contained to the $30K that was the initial sum. If anything goes wrong, it will just wipe this out….even then the $30K won’t be wiped out instantly.
I did some simulation before I did this using market data stretching as far back as 1980s. The only way to get into trouble is to leverage on very few stocks. For example if most of your money is concentrated on one stock, say ferrochina, when it collapse overnight, you will be in trouble. That is why I spread the investment over so many stocks.
Even in the worse market conditions, Lehman collapse, 911 attack, 1987 crash…the positions can be unwound without causing a loss more than the initial sum $30K.
When I close out the account, I will get the last 6 months record of my trades and file it for memory and posterity. This is one interesting episode in my life where I executed a research plan from start to finish. If you want I can give you a copy to show how it was done.
September 2nd, 2009 at 7:37 pm
The thing is you have to maintain the loan at 70% of the collateral. If the stock price drop, you either sell stock which is the collateral to trim the loan back to 70% or deposit cash. If you never deposit cash and just sell stock, you will not lose more than the initial amount you put into the account. For me that was $30K.
Say the market drops 20 days in a row. You have to keep selling stock to maintain the 70% ratio. In other words, you’re “forced” to cut loss.