Case Study: How you can save money by reviewing and restructuring your insurances

Have you ever felt like you are paying too much for your insurances? Or perhaps it has been a while since you last reviewed your insurances and since then your situation may have changed?

If you could relate to the above statement, read on as there is a chance that you are overpaying for your existing insurances and it is time to do a review.

Allow me to show you what I mean by that by looking at a real-life example.

Background of the client

Kevin (not his real name), 49, is a senior manager at an SME engineering company.

Kevin is married to a homemaker and they have three children (age 8 to 12) and currently, the family is expecting a fourth baby boy at the end of October.

Kevin earns about $8,000 (before CPF contribution and Taxes) and stays in a fully paid 4 room HDB at Bishan.

Apart from the day-to-day expenses of his family, Kevin’s financial commitment includes

cars loan repayment
cost of hiring a domestic helper
children’s university fund (estimated to cost $215,831 in 12 to 17 years).

Over the years, the family had bought several insurance policies sold to them by insurance agents. Some of these agents are friends and family whom they found hard to refuse.

As Kevin is expecting his fourth child, he realizes that he has the need to review his insurance portfolio to ensure that the coverage is adequate to provide for his family.

Instead of speaking to another insurance agent who based on his experience, tend to be product-focused, he has decided to approach me – an independent financial planner – to help review his insurance portfolio.

Identifying the problems/gaps

In the process, we uncovered the following problem

He is underinsured as his coverage only provides 3 years of his expenses
He is overpaying for the level of coverage he is receiving
His insurances are payable for a lifetime which is not ideal during retirement
His children’s insurances consist largely of traditional Investment-Linked Policy which is inefficient

After doing a thorough analysis of his insurance portfolio, we’ve derived the optimal coverage that he should have today, which is:

Death & Disability: $550,000 (11 years of expenses)
Critical Illness: $250,000 (5 years of expenses)

The coverage is recommended so that in an event of death and disability or critical illness, the payout is sufficient to provide for the family until the first three children become independent.

After deriving the optimal coverage, we then compared the products available in the market today. We came up with plans that could help him acquire the coverage that he needs whilst balancing between his budget constraint and financial commitments.

Implementing the solutions

After our discussion, here is what we have done:

We replaced his current life insurance with term insurance.
We replaced his children’s investment-linked policies with whole life policies.
We used the cash value from the policies surrendered to pay the costs for the first 8 years.

By doing so, Kevin is able to

Be adequately covered for his family
Lock in” the insurance cost for his children at their age of entry
Reduce the payment period to 25 years instead of a lifetime.
Free-up cash flow for the next 8 years and use it to prepare for his children’s education fund

Here’s a quick look at the before and after:

By reviewing and restructuring Kevin’s insurance portfolio, we achieved the following results:

Tripled his coverage for Death and Disability from $150,000 to $550,000.
Increased his coverage for critical illness from $50,000 to $250,000.
Significantly reduced the total insurance cost payable over his lifetime
Reduced the number of years payable for his insurance expenses.

Overall, Kevin now receives the insurance coverage that he needs with a shorter payment period as compared to what his previous insurance portfolio provides.

Here’s a quick look at the before and after for his insurance portfolio:

Before Portfolio Restructuring

After Portfolio Restructuring

Key take away from the case study

As the insurance industry develops…

As the cost of insurance decreases…

As your life circumstances changes…

It does not make economic sense for you to continue paying for what you have today without knowing if you still need the coverage or if there is a better option available to you in the market today.

It pays - literally - to review your insurance portfolio from time to time and adapt your insurance portfolio to meet your insurance needs rather than blindly paying for your insurance without knowing if it is still relevant to you.

Here comes the self pug

If you’re looking to tailor an implementable financial plan or to improve your existing financial plans here’s why you should engage me to be your financial planner:

As your Independent Financial planner, I will provide you with a blueprint that spells out the steps that you will need to take and I’ll personally guide you along the journey to ensure that you are on track to meeting your financial goals.

So drop me a WhatsApp or Telegram message to set up an introductory session and discover how you can leverage my services to accelerate your growth and achieve your goals earlier.

Like what you've read? You can also join my telegram channel to receive first-hand updates. I blog weekly on financial planning topics, market analysis and updates: