Wednesday, February 17, 2010

Insurance before everything else

When I just entered the workforce, one of the pleasant problems I faced when I received my first paycheck was what to do with the money. I chose to save it. Many would say that was prudent. However, on hindsight, I think that was wrong. I should have used it to buy insurance. In fact, I would go so far as to say that insurance should be the first item to spend on when one starts to have an income. Insurance before everything else.

Even if I had faithfully saved for the next five years, an accident or disastrous medical condition could have wiped out all my savings and plunge me into debt. Or worse still, drag the rest of my family members into debt. What is the point of saving all that money then? I should have used a small portion of the savings to buy some term insurance plan to protect against such disasters.

I used to have a colleague who does not believe in insurance because he thinks it is a waste of money. Most people do not gain from the insurance because the probability of the bad event happening is very low. While he was right about the probability, he completely missed the point. In insurance, one should not think in terms of probabilities. One should think in terms of consequences.

I would think of insurance as spending a small sum of money which I can afford to lose today to protect against disasters which I cannot afford to pay tomorrow.

I will not feel any sense of loss even if I shall never make any insurance claims. This is because I regard premiums spent on unclaimed insurance as charity. Insurance can be viewed as a tool that allows the lucky(no insurance claims) to help the unlucky (entitled to claims). In return, the lucky people of today will be assured of help should one day their luck turns.

Buying insurance is one of my favorite ways to do charity indirectly as I can help myself while helping others as well.


  1. It is this very reason that I continue paying yearly for insurance protection for nearly 2 decades. I have made no claims, thank God for good health; and I believe with the pool of money collected, insurance companies will not withhold payouts to the unfortunate ones.

    I regard it as "the best way" of doing charity to others who are truly in need.

  2. Wow this is a very refreshing way of looking at insurance.. thank you for your posts.. I enjoy reading them a lot and find them to be really informative!