Quora Answer: How Would I Know if My Life Insurance Policy is Good?

The following is my answer to a Quora question: “How do I know if I have a good life insurance policy?”

Before getting a policy, it is important to know the status of the insurer, and their financial soundness.  This is not a problem in Singapore, since the laws are very strict and the reserve requirements are very high.  It may be a problem elsewhere.  Your insurance policy is a financial instrument, and the value of that instrument is dependent on the strength of the underwriting insurer.

Secondly, calculate the total regular premium paid, in relation to the coverage.  The total premiums of a considered policy should not be between 60 to 70% of the base payout, assuming you got a policy mid-career. The younger you are, the cheaper it should be relative.  If you get a policy early enough, the annual premium should be 0.01% or less, unless there is significant loading.  Otherwise, your policy may be expensive.  You need to relook the policy document to see why it is so, or avail yourself to your financial advisor.

Finally, consider the payout history and period of the insurer.  A cheaper policy may be more expensive because when you make a claim, the claim process is onerous.  An example would be an insurer hat has outsourced the claims call centre to reduce cost.  This means that when you speak to them, they are a third party, and it would take time for the information to be passed on, and there are also concerns about the verification process.

Considering the competitiveness of the insurance industry, it is unlikely that a specific product is bad.  They are all good enough for their target demographic and market segment.  That does not mean they are suitable for you.  Most people overlook the value of a good financial advisor.