Alfred Toh, who shared with us the importance of partial disability previously, wants to remind us the real role of insurance. There are many methods to do insurance planning, and his approach is to protect a person’s potential earning in his lifetime. Briefly, here is the method he adopts:
Eg: A person’s earning propensity.
25, male, plans to retire at age 65.
$3000 gross a month, 13th month bonus
$3000 X 13 X 40 = $1,560,000
We can see that even when calculating at a base level, (No increment), the person can earn $1.56 million in his lifetime. Putting an estate or a legacy aside, the function of protection plans is to replace one’s potential income. Insurance is the only tool in the whole financial market that can do instant creation of a lump sum for estate or as living expenses within a very short period when a trigger event happens.
It is rarely the case we see people insuring themselves for their full earning potential at 1 time due to affordability. As such, it is very important to understand that planning is progressive and never 1-time.
One could choose to insure themselves for an amount lesser than their full earning potential as long as they understand and acknowledge that anyone who have a vested interest in the income earned such as oneself, parents and other family members will be “short-changed” of the amount they ought to received if any 1 of the 3 economic risk happened.
3 economic risk:
1) Live too short
2) Live too long
3) Accident, critical illness, disability etc.
If you are interested in this way of planning, you may find out more by contacting him at alfred@haroldng-associates.com
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