Fallacy of insurance

TS,Sunday December 19, 2010 

Insurance has been misunderstood for a long time and even today, many people still have the wrong notion. 

A lot of pain and frustration can be avoided if more people have a clearer understanding of it. 

To begin with, insurance does not offer any protection although the word is popularly used to sell insurance. It can only pay compensation to the unfortunate insured party. 

It works by getting a large number of people to participate in a huge fund managed by an insurance company. 

For most of the contributors, there is no monetary return as they are fortunate not to suffer any harm to themselves or their properties. 

For the minority who are not so lucky, the compensation paid out to them is much more than the premiums they have paid. It is an ‘odd’ case of the winners losing their money and the losers gaining it. 

However, compensation can never replace what was lost and very often the claimants would receive less than they hoped for. 

The insured must always bear in mind that it is not practical for insurers to provide full and total coverage to keep the premiums at an affordable level. 

Life insurance policies with just the basic cover popularly known as term assurance have proven to be unpopular, other than for mortgage cover. 

As such, the majority of life insurance policies are those with loaded premiums, which allow insurance companies to invest and eventually return to the insured, more than what they have paid. 

It is important to note that insurance companies must remain profitable; otherwise their operation is not sustainable. 

The public should not be lured by low premiums or high returns as everything would be lost should an insurance company collapse. 

From time to time, we come across complaints by senior citizens that they are not eligible to buy insurance and have their life savings wiped out by expensive medical care. 

We must realise that life and medical insurance can only be bought with our health and paid by our wealth. 

For those who continue to scorn at the quality of our public hospitals or find queuing unbearable; get your insurance cover now before it gets too expensive or beyond reach. 

However, having an insurance company to underwrite your risks does not necessarily mean there are no further monetary risks to worry about. 

It would be wise to read and adhere to the fine print as the insured may not be fully covered for all types of contingencies. 

The best form of protection is to be careful, lead a healthy lifestyle and contribute to make this world a safer place. 

YS Chan 

Kuala Lumpur