By Cedric E. Stephens, Contributor
QUESTION: I work with a government agency. Two of my benefits include health and life insurance. I am thinking about changing jobs. One company has offered me a position without any insurance benefits. Can I privately replace my current benefits at a fair price? Are there any products out there that will meet my needs? I have heard that life insurance is really a waste of time unless it is cheap, that is term insurance and that life insurance with investment features does not pay real rates of return in the long run. Friends have suggested that I buy a policy that covers long-term illness. What, if any, choices do I have?
C. D. M., Kingston 7.
Answer: I am very glad to see that you are looking beyond take-home pay. In the present economic climate that is fraught with so many risks and such uncertainty, your bid to get information before you decide is laudable. Many persons do not behave this way. They look only at take-home pay. As result, they end up with more dollars in their pockets and more risk. Whether they are better off in the long run is debatable. I hope that I can help you to manage some of the hazards you and your family will face, even if you decide to stay in your present job. Exercise the conversion option:
Persons who have group life insurance can convert it to individual life when they change jobs. Of course, they pay more for the same level of coverage. Group life premiums are usually paid by the employer. Premiums are heavily discounted because coverage is bought in bulk. Conversion has at least two pluses. Individual coverage takes time to arrange. This could cause you to be without coverage for several weeks or months. Also, the policyholder's health could have worsened since the group coverage was bought. This would, of course, lead to problems when a new coverage was being arranged. Conversion can usually be done without a break in protection. Sums assured in group life policies are not based on the needs of the persons in the scheme. The amount of coverage depends on how much the employer is willing to spend. Benefits are expressed as multiples of salary. Because of this, if you needed more coverage than the employer bought, your dependents would be 'salt' when you died. This could happen in a case where group coverage was the only protection that was available. An inadequate group life sum assured is like a sow's ear. Conversion cannot make it into something better than it actually was.
Life assurance is not waste of time. It will not be possible in this short article to give you details of all the products in the market, help you to compare them and to make a choice. What I can do, however, is to share some comments from my favourite life insurance guru, Professor Joseph M. Belth. They are from the second edition of his book, Life Assurance: a Consumer's Handbook.
The main purpose of life assurance is to provide death protection. Therefore the primary method of evaluating a life policy is to measure the price of protection.
Life insurance needs vary from person to person. Many persons own little or no insurance. Others own substantial amounts that are less than their needs and some have large amounts of coverage that bear a reasonable relationship to their needs.
You can use the following formula to calculate your life insurance needs: Life Insurance Requirements equals Financial Requirements on death minus total financial resources. The financial requirements would include items such as final or funeral expenses, outstanding debts and the income needs of your family. Total financial resources would include life assurance plus all of your other assets.
A 'good agent' can help you to properly evaluate your life insurance needs, make recommendations in light of your particular circumstances and assist you and your family to use insurance effectively.
Do not rely exclusively on the agent you have selected. You will also need to do a lot of homework if you are to make wise decisions.
Health insurance is far more problematic than life assurance. Firstly, there are currently only three companies writing this class of business locally. I have it on very reliable information that the number will be down to only two in a very short while. This will provide even less choice for consumers. Not to worry. The Insurance Act 2001 allows consumers to access overseas markets. Give me a few weeks to surf the Internet. I will tell you what is available in the outside world. Maybe I will be lucky and source a health plan for you similar to what it is alleged our political masters enjoy.
Cedric E. Stephens provides impartial advice on risks and insurance. If you need free information or advice to
solve a problem, write to The Financial Editor or contact Mr. Stephens directly at aegis@cwjamaica.com
