Pyramid of Insurance Needs

By The Boy Who Procrastinates - March 10, 2018

To kick start the series of financial blog posts, we have to first address the elephant in the room: Insurance. This also came as a request from my girlfriend (also my loyal reader) who is in the midst of finding the right insurance products for herself. I can understand that this is not an exciting topic as compared to investment, and probably due to the taboo ingrained in Chinese culture to avoid talking about death. Furthermore, there seems to be pervasive public mistrust surrounding the insurance sector, especially with the backlash on certain insurance products (*ahem ILP*), potential mis-selling or churning of policies by agents under pressure to meet sales targets, as well as misdemeanour of a few black sheep. Nevertheless, one should still have the necessary insurance in place to protect you and your dependents financially in the event of unexpected illnesses. 

Let's take a step back and understand the purpose of insurance. It is not meant to profit the policy holder/insured/beneficiary but rather it is intended to protect people from financial risk by transferring to a third party in the event of mishap. The word "Insurance" translates to "保险" in Chinesewhich literally refers to protecting the risk. The classes of insurance products are as follows:

  • Life/Term Insurance: Pays a lump sum to the dependants upon death of insured which can be used to pay for final expense and outstanding debts, etc. 
  • Hospitalization: Pays for hospital bills and outpatient treatments
  • Critical Illness: Pays a lump sum should you be diagnosed with the covered critical illness
  • Disability: Pays a fixed amount periodically to replace the lost income in the event that you are unable to work due to disability 
As a start, I would like to present the pyramid of insurance protection, which lists the hierarchy of key products according to its priority order. Kindly note that this is the order based on my personal view and others might have a different arrangement. For each level of the pyramid, I will elaborate them in details in my future posts.

The reason that i have placed Hospitalization at the base of the pyramid is because almost any critical illness or medical condition that leads to hospitalization and long-term treatments, often incur hefty medical expense.

Over time, we may go through different stages of life, take on more responsibilities and commitment, as well as having dependents to take care of (e.g. children or elderly parents). Therefore, insurance is a dynamic domain in which we should review our coverage periodically to better reflect our current circumstances and needs. 

It can never be emphasized enough that we should never take our health for granted. It is the biggest asset that we can have. Without a reasonably good health, there are many moments that one is unable to enjoy with with a mass fortune, therefore this should be the fundamental concern one should have. 

If you are unable to build a healthy and strong body, what can you build in life? 

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