LOUISE FAIRSAVE: Wise spending on insurance

IN THE LAST ARTICLE, we looked at taking care in dealing with people who stand to benefit from our spending by way of a commission or a fee and who display shark-like behaviour. Such people tend to hurry the deal and to maximise their benefit.

The better approach takes time and care. Would-be sharks may be encouraged to alter their short-changing tactics by noting that the lengthier approach is more likely to create long-standing trust, reliance and commitment between the client and the agent – the basis of repeat business. 

For example, why should a client buy whole life or an endowment plan life insurance policy when a term insurance plan is adequate? The main reason may be that it is what the agent recommended, yet it may not be right for that situation. The agent tends to lean toward whole life insurance because it pays him a relatively higher commission. 

In another instance, ask yourself: why save additionally through your insurance policy when you can get a higher return saving elsewhere? Have you dealt with a financial shark in making such decisions? Did you ask an independent financial adviser? 

In making decisions on health insurance and pension schemes, there can be similar problems with advice. Agents can oversell some health insurance products and pension schemes. They may play on the emotive value of these types of decisions in order to close the transaction. 

Sometimes your employer’s group health scheme and pension schemes are quite adequate. So, as long as it is a relatively big group of employees, it is typically in your best financial interest to get in and stay in your company’s health insurance and pension schemes. 

More recently, though, employers have been changing the pension schemes offered to new employees such that the responsibility for the success of the investment returns falls more on the employee. 

This change requires that the employee monitors closely the growth of the funds invested over time. Unfortunately, the risks of investing are such that no amount of knowledge is perfect, so when it comes to pension planning, great care is needed in developing an overall plan that minimises the risks. 

It may be considered necessary to supplement your employer’s pension scheme by making additional contributions or establishing a separate personal investment/pension plan.

A person close to retirement may rush to buy life insurance in a panic to make up for the non-existence of an adequate pension or of a valuable legacy.Unfortunately, the older you are, the higher are the insurance rates. 

The costs versus the benefits of purchasing insurance after the age of 60 may not be worth it. You will need to assess the extent of your expected stream of income after you retire.

Similarly, parents may be encouraged by an agent to purchase life insurance on their children. However, insurance proceeds are aimed at providing the replacement of income, and the better approach may be to insure the income earner(s) in the family.

• Louise Fairsave is a personal financial management adviser, providing practical advice on money and estate matters. Her advice is general in nature; readers should seek advice about their specific circumstances. Email LouiseFairsave@nationnews.com.

This column is sponsored by the Barbados Workers’ Union Co-op Credit Union Ltd.