'NOW' is the time to buy life insurance

No one wakes up and suddenly decides to buy life insurance. Life insurance is a ‘sold’ product and not a ‘bought’ one. Insurance agents are still a key contributor in driving the industry forward, though there are other alternative channels such as ‘Bancassurance’ and ‘online e-commerce’ platforms.

The following phrases may sound familiar to you as you may have used them on your insurance agent as an excuse when you wanted to politely decline the offer to purchase a life insurance policy.  

‘This isn’t the right time’, ‘let’s talk about it later', ‘I don’t have the money for it’, ‘let me think about it’. It’s a cultural phenomenon that we don’t like to say ‘no’ to a person directly.

When you say NO to a life insurance agent the agent may move to the next potential customer on the list. Meaning the agent and the company will move on and will find ways to stay in business; but what have you achieved by saying no to life insurance? what have you gained by postponing the proposed life insurance policy?

I am of the view that we don't gain anything by rejecting or postponing the purchase of life insurance. Instead, we lose in this process. Simply put, there's a cost attached to the rejection or postponement of purchasing life insurance; financially or otherwise.

let's understand why and how. So, the next time you think of giving your favorite excuse to a life insurance agent, you're conscious of what you may be losing out on.

life insurance is the business of accepting people’s risks. The business revolves around probability to a large extent. Life insurance companies employ a special set of experts called actuaries to calculate the risk they accept when underwriting a life insurance policy. Of course, the calculation is complex, where they work with multiple factors that affect the risks they accept. These experts have advanced statistical capabilities. They evaluate the likelihood of future events using statistics.

One of the key factors that determine risk is the age of a person. Let's see how delaying or rejecting the purchase of life insurance affects us? For ease of understanding, I have explained them under 5 different areas.  

1.     It is easy when you are Young

When you plan to buy life insurance at a young age, the conversation and the process are straightforward. Because you are considered less risky as an individual. You agree to the level of the covers and the premium and that’s it. But when you are old, especially if you are above 40 years of age, the process becomes cumbersome. The insurers are likely to ask more questions, you may need to go for a medical check-up to verify your health condition etc. At times you may have to pay out of pocket for the cost of the medical check-up.

2.     Loadings make it heavy on your pocket

‘Loading’ is a term used in insurance. It is the additional cost baked into the policy based on the anticipated risk of individuals. It’s based on the thinking that high risk equals high premium. The loadings may differ from one insurer to another. But all companies have aligned themselves to the guidelines set up by the reinsurer on how the loadings should be calculated. An insurance company has 3 key options of loading. These are medical loadings, occupational loadings, and residentials loadings. Medical loadings are the most commonly applied of the 3.

• Medical loadings

Medial loadings are charged based on the ‘health’ of the individual. A person with a good health index will get a lesser premium compared to one with health complications. Diabetes (10% of the Sri Lankan population is suffering from pre-diabetic conditions) high cholesterol levels and hypertension; fatty liver, thyroid- gland related complications are some of the common aspects where loading can be charged for. The probability is high for us to have these complications as we age, hence a high premium on our policies.

• Occupational loadings

These are based on the occupation we do. Our risk levels will vary based on our occupation. For example, a person who is working in a factory where they produce hazardous chemicals or a person who works in a mine will have a higher occupation loading compared to one who works in an office. Though this is not related to age, I decided to share this for your understanding of the term.

• Residential loadings

Residential loadings are additional charges based on your area of residence, If you reside in an area where there is civil unrest or if you reside in a country where there is political instability, these loadings may be applicable.

Some sophisticated markets even do the loadings based on gender where they use advanced statistical models other than life expectancy rates.

3.     Higher cost of insurance premium

The probability of mortality increases with age. Aging is inevitable. The universal truth is that as we age, we decay physically and mentally. As we age, we are prone to many illnesses and that increases our risk levels. The reality of aging means that we become closer to that final day. The life expectancy at birth in Sri Lanka for females is 80.26 years and for males it’s 73.59. One of the key benefits of life insurance is the death benefit. This benefit goes to the dependents or nominated beneficiaries in the unfortunate of your death. As you get older the risk of your life becomes higher and the cost of your life insurance premium will go up. Thus, when you delay buying life insurance, the chances are high that you will pay a higher premium when you do decide to. To validate this, I looked at a few quotations from all the key life insurance companies in the country. I looked at the pricing for 30-year-olds and 40-year-olds. All the insurers charge a higher premium amount from 40-year olds which is about a 13% increment in premium value. 

On the other hand, if you buy life insurance when you are young, you enjoy a lot of benefits such as lower premiums, the possibility of having access to more longer-term products, the ability to build a substantial fund, etc.

4.  Limits your options

At times, the options you can add to your life insurance policy will be limited restricting you from enjoy the full benefits of the product. These could be due to age and conditions that arise due to aging. At times you may not be in a position to take a ‘critical illness’ cover due to such conditions. It could also be the inability to take options such as waiver of premium (WOP) or total permanent disability (TPD).

5. Prevents from buying life insurance.

Life insurance is all about financial planning for unseen future events financially. There are lots of individuals diagnosed with terminal illnesses daily. Cancer is one main illness while there are others such as autoimmunity disease etc. There have been 29,604 cancer patients diagnosed and 16,691 deaths in Sri Lanka in 2020. That means nearly 1% of the total population die of cancer annually.  

If diagnosed with a terminal illness, no life insurance company will insure such an individual since the risk is certain to a large extent. Hence it is always wiser to consider buying a life insurance policy that adequately covers you and your loved ones sooner than later. There is a saying that ‘You can’t buy life insurance when you need it’.

In such an unfortunate situation you will have to exhaust all of your savings to treat the illness. For example, approximately a minimum of LKR 2 million is required to treat early-stage cancer. Research shows that 90% of people fund unplanned medical expenses through their savings. That could be a fund that you built for your child’s higher education or daughter’s wedding etc. No matter the intention, your savings will be your first option during a financial crisis. That may put the family in a difficult position, financially. We may even need to ask, borrow or, plead with others. Research shows that 29% of us borrow money from others for unplanned medical expenses. About 10% of us will pawn jewelry.

In conclusion, one must not delay purchasing life insurance for their own protection and for the protection of their loved ones. As the saying goes ‘it’s best to buy life insurance 10 years early than one minute late’, buy your life insurance now. If you have got one already, buy another to top up your protection levels and cover any gaps. Incidentally, September is life insurance awareness month, and your decision to purchase a life insurance policy couldn’t have come at a better time.