Ever since I entered the workforce, insurance agents have been selling me their products. They have been showing me this hybrid life insurance/investment policies. But whenever I look at the numbers, it just didn’t make sense to me. The annual payments are hefty and the returns are small. You’ll only hit paydirt when you die! But then what good is that for? They just seemed like bad use for my money.
So for the past few years now, whenever someone would suggest insurance to me, I’d just shrug it off.
But a few weeks ago – during holy week, actually – I was browsing around the web and came upon the topic of insurance. I started reading about it. And I finally got it. Insurance looks like a bad investment because, well, its not an investment … its insurance!
You see, when I used to think of financial risks, I ask the following questions:
What are the risks in my investment portfolio? What happens when the market goes down? How should I balance my money between equities and bonds? How much cash should I hold? Etc, etc.
But this is a classic case of not seeing the forest from the trees. I was missing the bigger picture. I should be asking the broader question of:
What are the biggest risks to my finances?
And this is where it hit me. If my investments for some reason crashes tomorrow to zero value, that would be terrible. Absolutely dreadful. But you know what? I’ll be just fine. It will have no impact whatsoever on my lifestyle now and in the near future. I am actively employed, with good career prospects – this is where I derive my daily comforts. So when I think about it, the answer to this question is pretty obvious. The absolute biggest risk to my finances right now is, if for some reason, I find myself unable or hampered in my ability to work!
After this revelation, it just made a lot of sense to me to use insurance. Use insurance to give me a cushion if ever something like that would happen. In fact, after it hit me, it felt so urgent, like I had to get it that very minute. I wanted to contact my agent asap. Fortunately, it was a holiday and so I just did my research first. Finally, after two weeks, I bought myself a healthy dose of accident and health insurance.
p.s. Now, even life insurance makes sense to me. I wouldn’t buy it yet, though, because it does not fit my circumstances yet.