InvestAble

Tag: Insurance

  • Why You Shouldn’t Rely Solely On Company-Provided Health Insurance

    Why You Shouldn’t Rely Solely On Company-Provided Health Insurance

    Why You Shouldn’t Rely Solely On Company-Provided Health Insurance

    To exercise caution, it is advisable not to solely rely on health insurance provided by your employer. For safety and comprehensive coverage, it is prudent to secure personal health insurance independently and not solely depend on corporate offerings.

    Here are the reasons why this approach is encouraged:

    Limited Benefits with Sub-Limits:

    Company-provided health insurance plans may come with limitations that can affect the scope of coverage. These limitations often manifest as sub-limits on specific medical expenses. For example, a policy might set a cap on the maximum amount it will cover for certain procedures or treatments. This can result in out-of-pocket expenses for employees, especially in the case of significant medical events.

    Dependence on Continuous Employment:

    The viability of company-provided health insurance is contingent on uninterrupted employment with the organisation. While job security is a valuable aspect of employment, it is not always guaranteed. Various factors such as corporate restructuring, mergers, or downsizing can lead to changes in employment status. If you were to leave the company, voluntarily or involuntarily, you would likely lose access to your employer’s insurance plan, leaving you without coverage.

    Vulnerability to Policy Changes:

    Insurance plans are subject to renewal and adjustments, often on an annual basis. Companies may decide to alter the terms and conditions of their insurance policies during these renewal periods. This could include reducing coverage, increasing premiums, or even discontinuing the plan altogether. Such changes are often made for budgetary reasons or to adapt to shifting industry dynamics. As a result, employees who depend solely on their company’s insurance may find themselves facing reduced or inadequate coverage due to these policy alterations.

    Potential for Being Underinsured:

    Relying exclusively on company-provided insurance can leave individuals vulnerable to being underinsured. When a company modifies or eliminates its insurance offerings, employees may find themselves without adequate protection in the event of a medical emergency or a significant healthcare expense. This situation could lead to financial strain, as individuals would need to cover medical costs out of their own pockets.

    Even in the best-case scenario where you enjoy uninterrupted employment until retirement, it is likely that by that time, you may be dealing with some chronic health conditions, which could render you uninsurable.

  • Why are we not advocates of ILPs?

    Why are we not advocates of ILPs?

    Why are we not advocates of ILPs?

    What is an Investment-Linked Policy?

    An Investment-Linked Policy (ILP) is a financial product that combines life insurance coverage with investment opportunities. When an individual purchases an ILP, a portion of the premiums goes towards covering life insurance and related fees, while the remainder is allocated to investment funds.

    These investment funds typically encompass a range of assets like equities, bonds, or other securities. Policyholders have the flexibility to select and switch between different funds, allowing them to tailor their investment strategy.

    Here are 4 reasons why we are not advocates of ILPs:

    Complexity:

    ILPs can be intricate and challenging to understand for the average investor. The insurance component, investment component, and various charges can create a convoluted financial product. Investors may find it challenging to determine the true cost and benefits of ILPs. We prefer investments that are simpler for the average person to understand and transparent enough for them to know the costs.

    High Costs:

    ILPs are notorious for their high costs, including sales charges, fund management fees, and insurance charges. These costs can erode your investment returns over time, reducing the growth of your wealth. Over the long term, someone who invests directly into the underlying investment fund will outperform someone who invests through an ILP.

    Lack of Flexibility:

    ILPs often come with a lock-in period during which investors cannot withdraw or surrender their policies without incurring substantial penalties. Exiting an ILP prematurely may result in a loss of capital and any potential gains. This lack of flexibility can be a drawback, particularly for those who need to access their funds for unexpected expenses or other investment opportunities.

    Insurance and Investment Separation:

    We generally recommend keeping insurance and investments separate. By doing so, individuals can tailor each aspect to their specific needs and goals. Separating insurance and investments allows for greater flexibility in choosing the most efficient and suitable options for coverage and wealth accumulation. ILPs bundle these two elements together, potentially resulting in higher costs and less customisation.

    How do ILP upfront bonus units work?

    Many of us have seen investment ads on social media shouting about 80% bonus units once you start investing. It is tempting to many as that would mean you get 80% gross returns right from the start. From the reasons highlighted earlier, you know that there are many costs embedded into an ILP and they have a “lock-in” period. If you think a little deeper, you will understand why insurers can afford to do that. The bonus units you get upfront will eventually go back to the insurers through their fees and they do not need to worry about not being able to get it back as you are locked in during this period. You will notice the longer the lock-in period, the more bonus units you tend to get upfront.

    For those who are looking for insurance coverage and investment, it is recommended to go with a term insurance policy and a separate investment fund. Keeping this separate allows for more transparency and flexibility to cancel one without affecting the other.