Should you get your insurance now or later?

Should I get myself insured now? or should I do it next year? That’s the most common question that I’ve encountered over my years of financial advisory practice and I get it.

The thought of having to set aside thousands of dollars a year for your insurance premiums doesn’t seem that attractive as compared to the countless other things we could potentially spend it on.

And hey, while we’re still young, we don’t see a need for insurance today…maybe…just maybe we should get it at a later date when the need for insurance becomes apparent…say when we settle down and have a kid?

To insure or not to insure, that is the question. While there are no right or wrong answers, I think it is important for you to understand the outcome of your decision should you choose to get yourself insured today or in the future.

Here are the four possible scenarios and their respective outcome based on your decision today.

Insure now and something happens afterwards
Insure now and nothing happens afterwards
Insure later and something happens beforehand
Insure later and nothing happens beforehand

Let’s walk through each of the scenarios.

You get insured now and something happens afterward

Supposed that you get yourself insured now and something happens to you later in the future resulting in your death, disability or critical illness, you will be able to receive lump sum pay-out from your life insurance while your hospital insurances will take care of any hospital-related expenses.

As a result of the insurance payout, you and your family’s lifestyle remains unchanged and your savings will not be depleted by your hospital expenses or family bills while you are recovering and unable to work. That way you can focus on recovery and not worry about not having enough money for you and your family members who may be dependent on you.

You get insured now and nothing happens afterward

Supposed that you get yourself insured and nothing happened during your critical years (25-65 years old) if you have purchased…

whole-life insurance, you are still covered for life and your policy would have broken even.
term life insurance, the cost incurred is non-recoverable

In short, you have exchanged money for the sense of security that you and your family’s lifestyle and savings will be protected should anything happen to you.

You want to get insurance later and something happens beforehand

Supposed that you want to get your insurances at a later date, but something happens to you beforehand. Unfortunately, in this case, chances are that your insurance application may be rejected or if you are lucky, it may come with:

an exclusion clause that excludes all pre-existing conditions
loading which increases your annual premiums payable
or both

Without insurance that helps you transfer the risk to the insurance company, you are now left to fend for yourself and face the financial consequences of your unfortunate circumstances.

Depending on the financial severity of your death, disability, or critical illness, you may find yourself depleting through your life savings to foot the hospital expenses and family bills. Eventually, you and your family members may run out of savings from which is not a desirable situation to be in.

Even if you were to be able to recover before depleting your life savings, you are now stuck in a situation where you will have to restart your wealth accumulation from scratch for your financial plans such as your children’s education and your retirement.

Imagine having to worry about not having enough money for you and your family while fighting a chronic illness or disability. Thank you but no thank you, I will pass on that and I think you would too.

You want to get insurance later and nothing happens beforehand

Supposed you want to get your insurances later, and nothing happened beforehand. The good thing would be that you have saved on the premiums between now and then. The bad news is that your insurance will be more expensive on a yearly and therefore lifetime cost basis.

How much more expensive you may ask, to help you answer that question you can refer to this

Bottom Line – Is the risk worth the reward?

The answer for this is a definite no as the risk and reward just do not make sense.

Based on the above, the best-case scenario would be if you were to insure later and nothing happens to you beforehand. Under that scenario, your net savings is negligible as compared to the potential cost – both monetary and mentally - of not having insurance when something happens to you.

Is it worth putting you, your family, or future family at risk just to save that few hundred dollars year by delaying your purchasing decision to a later date? You decide.

If you would like to do something today and protect your downside risk in the future, the next step will be to look at how you should structure your insurance portfolio to provide you with the coverage that you need at the lowest possible cost.

To do so, you will have to invest the time to understand the different type of instruments available and how they would meet your needs. You will also have to spend the time to compare the product offerings of each company to derive the most cost-efficient product among the different categories (i.e. health/term/whole-life/personal accident insurance).

If you do not have the time to plan, research and compare the insurances for your insurance portfolio, you can reach out to me and we’ll work something out together: