Sunday 21st August, 2005


Insurance creates future wealth

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Light travels at the speed of 2.99 X 10, to the power of nine metres per second, in a vacuum, and information on the Internet travels just a little bit slower. We can know what happened at midday in China today, even before day dawns on our horizon.

So in China, where there is exponential economic growth, there is a phenomenal savings rate of 40 per cent per household and China’s life insurance market is the fastest growing market in the world. The affluent and the “mass affluent” in China live in coastal cities such as Beijing, Dalian, Shanghai, Guangzhou, and Tianjin (Mc KinseyQuarterly, 2004 Special Edition).

But China’s social security and public health systems are deteriorating at a significant rate and these are reflected in the spiralling increase in purchases of individual retirement savings and income protection insurance.

Last week we spoke about the foundation blocks of the savings pyramid, and noted that they comprised just these assets: pension plans and income protection plans. The most recent Central Statistical Office report on the leading causes of death in T&T shows that heart disease, diabetes and cancer are the winners, in that order, for all ages and for the age group 15-34 it is HIV/Aids.

Further, the report revealed that some 1,632 people died within the age group of 25 to 49. That is, in the prime of their lives. The most common response to this statistic, in my experiences, is: I will not be in that statistic!

However, in an information age, we must move with the times and move away from such foolhardy risk taking and, for a few dollars a day, we can establish an income replacement plan to the tune of projected income for ten years.

Let us assume an income of $60,000 per year: projected for ten years, that equates to $600,000.00. We live our lives assuming that the income will pay our food bills, rent/mortgage, vehicle loans, and send our children to school.

In an ideal social system, with ideal social security, there would be no worry if you should become disabled and unable to earn. Either the community will provide you with enough charity to live out your dreams, or the government social security payments will certainly realise your dreams.

But that is not the reality!

So, here’s the plan: $600,000 of permanent life insurance with protection for heart disease, diabetes related disease (renal failure, blindness, etc) and cancer for the same amount of $600,000, for a 31-year-old, non-smoker, female, requires an investment in your future security of a mere $25 per day, at average market prices.

Or, you can get term insurance to age 60 (different from permanent insurance in that, term expires at age 60), for $600,000 to cover both death and those same dread diseases for an average market price of $12 per day.

For the price of a lunch per day, you can buy the foundation blocks of financial security for a lifetime.

Not only would you buy income protection and disease funding but you would contribute to your own household savings rate if you purchase the permanent insurance option.

You see insurance premium payments are not consumed, like a box lunch, but they create wealth for you and your estate!

If you do not die too young or become diagnosed with heart disease, cancer, etc, with permanent insurance you will leave an estate valued at $600,000—another estate!

So when information flows are almost at the speed of light, why do we continue to move so slowly?



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Designed by: Randall Rajkumar-Maharaj · Updated daily by: Sheahan Farrell