Ever thought about buying a medical insurance investment plan?

A few years ago, I considered buying insurance to cover any medical procedures should anything happen. I do believe basic medical insurance is necessary should anything go wrong. For example if I didn’t have insurance, should I require some minor surgery and hospitalization; a huge chunk of my savings would be gone. Why? I would have requested the best of everything.

The best hospitals…..

The best doctors……….

The best nurses……….

Need I say again that I want the best! I’m going under the knife here. Especially the best nurses…..

With insurance, the hospital cost is minimal, perhaps even nothing at all. This is how I justify the yearly insurance premiums.

So recently I realized that I wanted to buy insurance as I’m on my own now. Thus I contacted my local insurance agent, my mum’s friend. Well actually she contacted me. It’s amazing how quickly top insurance agents can track a potential new customer.

She worked out a “ insurance/investment plan” for me. Note that this is different from buying insurance and renewing it yearly. To sum it up, starting at age of 26,I would be paying RM1950 per year for about 20 years. After that 20 years, I wouldn’t need to pay any more (in theory) and I would be insured until 70. The total cost would be RM39000 over my lifetime. I also enquired about the normal type of insurance which would be close to around RM80000. The coverage would start from age 26 until age 70 and the features were almost exactly the same. Hmm…well, I feel any “plan” warrants a bit of investigation. Should I pay for the plan or the normal insurance? Heck, this is a big amount.

On the surface, it seems like the plan was the best way to go since it seemed half the price of the normal insurance. But to check I ran some computations in excel with the GH350 health one premium rates at the Pan Global Insurance. First I added the total premiums I would be paying until I was 70. Second I calculated how much I would earn after saving RM1950 per year for 20 years with an interest rate of 3% (hypothetical rate. FD is 4% right now) until the age of 70. Finally, I compared the total premiums (RM79000) versus the amount of money I would have in FD (RM117,000).

As you can see, subtract RM79,000 from RM117,000 and RM38,000 is what you get left in the account allocated for insurance. Seems like not a bad return doing things yourself, but wait. Now, using the previous as a model, let's look at a more thorough analysis. I only save the balance left after paying premiums (RM1950-premium costs) yearly and varied the interest rate between 2% and 4.5%. There is a large discrepancy. At 2%, I would be under funded by RM29000 and at 4.5% I’d be over funded by RM12000 by the age of 70. When I say underfunded, it means that I've got to top up the account. For over funded, it means I've got an extra amount in there. Let me point out, although this is a better analysis than the original model; there is only so much one can do. In real life, a lot of things can happen differently.

The one thing I don’t like about these “investment/insurance plans”, is that the insurance companies have a way out. Say a policy is under funded. Then I’ve got to pay the insurance company to make up the difference or I’m off the plan. Also by the time I hit age 70, a big chunk of the extra money will be used to pay other “fees” such as administration, commissions, etc.

On the other hand, paid professionals do manage the insurance and take care of all the hassle. And most probably will do a good job – keeping my fingers crossed. Putting money in others’ hands always involves a certain degree of risk as you trust this person not to screw it up.

One more thing to mention, paying normal medical insurance versus the “investment/insurance” plans seem a lot more expensive, but over time and depending on the annual return rate it’s different. For my "investment/insurance" plan, a poor rate of 2% will under fund my insurance policy by RM29,000, while an excellent return rate of 8% will still under fund my policy RM9449. To reiterate, using my detailed model (basically a do it yourself plan), at 2% I get a RM29000 underfunding, but at 4.5%, I over fund my policy by RM12000. Using this comparison, the do it yourself method and buy the normal yearly insurance sounds a lot better than going for the "investment/insurance" plan. Of course this is theory, and doing the money management is harder than it looks.

Looking at how insurance is such an expensive purchase; I hope someone finds my post useful. In ending, I’ve got to put a disclaimer. These are my own findings and others might have different conclusions. Use this information at your own risk. If there are any questions, email me at leonsllt@yahoo.com or feel free to post comments on this article.