Why we need to buy life insurance

Why we need to buy Insurance

Buy insurance is buy its multiple effect

For an example today I buy life insurance, unfortunately accident happen to me the next day, the life insurance companies  will pay me a large amount of cash that equivalent to many multiple amounts of insurance premium I have pay for the life insurance like 20 times of insurance premium. It is a great evidence to justify the important and benefits of life insurance in multiple effects.

Insurance protection is financial risk management  to divert the risk of unpredicted tomorrow

My friend told me that if today he buys a 1 million life insurance policies and every year he pay 50k of insurance premium, total premiums he paid for 20 years will also amounted to 1 million. If this is the case, why not he just saves the money monthly by himself and flexible to use the money? To answer his question, it needs to go back to the basic definition of risk management in insurance nature. Risk means that we don't know what will happen to us tomorrow. Tomorrow or accident, which will come first? Who know when accident will knock the door? Insurance protection is to protect for unpredicted condition. If risk is predictable, then there are no existences of life insurance companies. No company will want to make a loss business.

Insurance is for financial planning, not an investment

We always saw people calculating on how much he can earned if he bought life insurance policies now. The insurance agent also always emphasis on how much principal the policy holder can take back and interest earned after end of life insurance period. It is although correct and accurate, but it is not intended for investment purpose and you wouldn't gain the return as like investment in other financial products. Fundamentally, there is cost of protection an insurance company provides to you.

Let us consider a simple question: You have bought  1 million life insurance policies. Unfortunately accident knocks the door the next year, insurance company need to pay you 1 million dollar compensation. Do life insurance companies really pay for the compensation itself? Where the money come from? Frankly speaking it takes the insurance premium from other policy holders to pay for this compensation. This is the life insurance cost policy holders undertake when nothing happens to them. So if you want to make money from investment, don't buy life insurance. The only way you earn money through buy insurance is accident occurs to you during protection period.

Insurance is not a product that you can buy anytime you like

Many people have mindset that they are still young, always exercises, cautious in diet and drive slowly on the road. For the time being there should be nothing happen to him, buy insurance for protection can be waiting first until older age. 

I have one friend have such mindset and not bought any insurance. One day I received his call said that he has sudden stomach ache and conduct medical checkup. Doctor told him that the symptom is caused by myocardial infarction and he needs to place 2 frames inside. The medical fee cost him 70k. He is so regret for not bought medical insurance; otherwise he can claim from medical insurance company. He should even more regret because he is unable to buy health insurance in his whole life. 

Medical insurance only sell to people who are in healthy condition at the time he buy insurance.

Life insurance is writing a will

Chinese is not like westerners to have the habit of writing a will when they are young. Will writing by frankly speaking should not be a taboo. A person who already writting a will might face uncertainty and accident calmly and at ease because he know that he has already realize his love to his family through financial panning and financial support. His families wouldn’t facing economic difficulty although he is no longer alive or lose of working capability.

Life Insurance