Seth’s Blog on Finance

Under-Insured Insurance Agent?

Sunday’s edition of TODAY carried an interesting article which described the story of an insurance agent who battled and won various health catastrophes. The article is available online.

There is no doubt that she, along with many other insurance agents, would be using her story as an example to highlight the importance of insurance, which I agree – her experience certainly tells us the importance of insurance. What they would not say is that this is likely an ironic case of an insurance agent being under-insured.

I think the importance of insurance is obvious enough from Ms. Jessie Tan’s experience. All credit to her tenacity for pulling through her medical ordeals, but as an insurance consultant herself I am sure she would be first to agree with me that her insurance was absolutely crucial for her to have bounced back. Not only was the bulk of her medical expenses taken care of, her critical illness payout also took care of some family expenses.

Why then do I deduce that this is likely to be a case of under-insurance? There are a few tell-tale signs from the article:

1. Her husband had to continue working. This may have been a choice he made, but the fact that he had so many things to do between his children and his ill wife that he sometimes could not even bring in enough money to cover his taxi rental, and yet continued working suggests to me that the insurance payout was insufficient.
2. Her daughter could not afford items she needed for her education, again suggesting to me that they had to be very careful with their money as the insurance payout was not enough. It could be them just being overly cautious with money at that point of time, but again, forgoing things that she needed further suggests that the insurance payout was simply not enough.
3. She qualified for Medifund assistance, which is subjected to approval based not only on bill size, but also financial circumstances of the patient, again suggesting that the insurance payout was small.
4. Last but not least, I have a good inkling of which insurance company she represents which incidentally has one of the more expensive policies around, making it difficult to get adequate coverage at a reasonable cost. Moreover, the company till now still lacks essential forms of coverage, making it impossible to obtain a proper insurance portfolio at all. Of course, this is assuming that she does not purchase policies from other companies (which is usually the case since one gets a substantial “discount” in form of the commissions received for buying policies from one’s own company).

Proper coverage would have allowed a family to have a much easier time in such a scenario by solving Points 1 and 2, allowing the working couple to both stop work so that the healthy spouse can take care of the ill one who rests, and ensure that important things such as a child’s education is not compromised. In Ms. Tan’s case, it is fortunate that she pulled through the worst, and thus the under-insurance was not very apparent. It would have been a lot more pronounced if the recovery was not as quick or did not happen at all.

Adequate insurance protection along with proper financial planning would also prevent Point 3 as one would then be unlikely to depend on social assistance or welfare, both of which places one’s fate into the hands of bureaucratic decision makers.

Lastly, this story highlights Point 4, a fact that many insurance agents are blithely unaware of – they are themselves under-insured! Relying on a single company’s insurance policies usually results in lack of certain forms of essential coverage as well as pricier premiums. In my own experience at my previous company, I found that I could not insure myself at an affordable cost, even with my commissions factored in. How can one get adequate coverage when the policies are expensive even for the agent?

While insurance agents can still self-insure eventually after earning fabulous commissions from selling policies that under-insure their clients (and themselves), consumers pay full price for such policies that leave them ill-prepared for contingencies. Insurance agents have a deep vested interest in seeing you under-insured, so that they can constantly meet you every year and every pay raise to increase your inadequate cover with yet another expensive policy. My advice would be to do yourself a favour and get properly insured with an adviser that actually has the ability to properly insure himself first.