September 13, 2009

When Do You Review Your Insurance Coverage?

Like most of the young and innocent fresh university graduates, we were approached by many insurance agents and bombarded with tons of insurance jargons. And most of us obliged by buying insurance without knowing in details what we bought. To make it worse, most of us would just buy and never look at it ever since. Many don't realize that once you've purchased an insurance, it is like a life contract, i.e. hard to get out of the contract if you make the wrong decision initially.

Over the years, with more financial literacy, I've picked up quite some knowledge on investments and in particular, insurance. From my personal experience, one should proactively review their protection needs based on these two factors:
  1. Significant turn of events in your life, e.g. marriage, birth of your children, death of your spouse etc.
  2. 5-year review
Every time there's a change of one's lifestyle/condition/environment, one should start looking at their insurance needs. For example, when you buy an insurance when you are single, the policy might fulfill your insurance needs. But, when you get married, you should relook at the insurance coverage for you and your spouse. If you have higher earning power than your spouse, preferably you should have higher insurance coverage to protect against adversities.

Even when you change your job to a new company, you should also review your insurance coverage to see whether the combination of your companies group insurance coverage and your personal insurance coverage are better off than the combination of insurance coverage of your previous company.

Another circumstances that warrant an insurance review is if there's a five year lapse since you last looked at your insurance coverage. Why 5 years? It's a guesstimate from me as your earnings would have grown a fair bit in 5 years and your lifestyle could have changed by then. For me, the most important aspects of insurance to review is your critical illness plan and medical card. These two aspects would be taking a huge chunk off your life savings should there be insufficient insurance coverage.

After the review, you should talk to your dearest agent (which i hope doesn't go MIA after you've purchased your policy). If you have bought whole life insurance policy, it's pretty hard to alter the coverage. You might need to buy new policies to make up for the gaps after the review. If you have bough investment-linked policy, then the possibilities of upgrading coverage within the same policy is good, provided that you have sufficient units to support the upgrade. If not, you might have to top up your premium.

In the next article, I will try to talk about what to buy in an insurance and how much to buy. Please bear in mind that this is just an expression of opinion from an insurance consumer.


Peter said...

Jutamind, you are one of the few that knows the importance of insurance review. When I approach people, most of them tell me they don't need anymore insurance as they have bought one as far as 10 years ago. They are not even bother whether they have the right insurance eg. when you are hospitalised, life insurance cannot be used to claim for medical bills.

I sincerely hope more people will become aware of the importance of insurance protection.

jutamind said...

thanks peter for dropping a comment here...

i guess it's all depends on the consumers themselves, i.e. whether to take proactive vs reactive approach to your financial matters.

i think most of the malaysian consumers are still relying too much on the agents and i believe 90% of them are just pushing products, rather than taking holistic view on your financial needs.

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