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The words ‘Insurance’ and “Assurance” are used in tandem by many while some prefer to differentiate as insurance is for non-life (General) and assurance is for life, yet some others use both terms in Life where anything with a definite term being called Insurance and schemes where the cover extends until death being called assurance.
When people purchase life insurance, they actually purchase financial protection in case of named eventualities. Usually dealt in the form of a contract known as the ‘policy’, an insurance providing entity promises to provide the policyholder a cover of protection by paying benefits to the insured person or to a third party on their behalf if the defined events occur. Thereby gradually insurance today has stepped into the lives of normal people as a pivotal tool of risk management.
Sitting with Daily FT to discuss the theories and conceptual applications of insurance in detail was Chief Business Officer, Kennedy J. Michael of leading Sri Lankan insurer and forerunner of the life insurance industry – Sanasa Life Insurance PLC.
Following are the excerpts of the discussion:
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| Sanasa Life Insurance Chief Business Officer Kennedy J. Michael |
A: Let me begin with the fact that ‘though times may have changed, a person’s commitment towards his/her family has remained the same. Be it a parent, a youngster, an elderly person –their needs for financial security might depend on their stages of life but the probability of perils to occur in their lives is common to all. Perils generally involved with a human being are dying too soon living too long, accident or sickness. Irrespective of the era we live in today, these perils still remain to loom. The role of insurance is to minimise the financial or economic loss due to the occurrence of any of the above.
Theoretically there is nothing such as traditional insurance or modern-day insurance. Broadly speaking there are only 3 types of insurance.
1. Whole life policies – The sum assured is paid to beneficiaries on the death of the insured
2. Term cover policies – The sum assured becomes payable if the defined peril occurs during the selected term of cover
3. Endowment policies – The sum assured is paid if the defined peril occurs during the selected term or if nothing happens the guaranteed maturity is paid at the end of the term
What insurers have done over the years is to match and mix these three types to give a new outlook for their insurance solutions though the original universal plans of insurance has never changed.
Q: Towards the end of the pandemic and the economic crisis situation that followed, the people are left with crippling financial situations. Can people reserve money for life insurance in these present inflating circumstances?
The short answer to this question is life insurance is more required now than it was ever before.
Let’s take an example. A person wants to send his kid to a private university for education.
If initially he was to pay Rs. 3 million, the economic recession and resultant inflation would have made the cost almost double the original estimate. This would be even more drastic if the goal was to educate the child overseas due the dollar fluctuation. Suppose the person was not to be around at all when this requirement came up, wouldn’t it be ideal if he did have some form of backup or pre-devised plan to mitigate such a situation where the required funds are at the disposal of the child (or guardians)? Life goes on smoothly as long as the person works and finds money needed or there is some money that yields a return when they are unable to so. Therefore, people should make sure to invest their assets wisely and apportion part of their income in stable financial plans, so that one day these assets would be put to good use by them or their dependents.
Q: Taking back the present circumstances, how can people purchase a suitable insurance plan in these times?
A: I’ll go back to the point I eluded to earlier – though times may have changed, the dependence on the main income earner to provide for the lifestyles of him and his dependents and the continuity of it after his or her demise has not changed. Though it’s clear as daylight that insurance is an absolutely non-negotiable human requirement not many amongst the general public are well-versed on the subject. This is why it’s imperative one consults a trusted, trained and ethical insurer and discusses the pros and cons of all financial planning options.
In insurance, the question of affordability often arises, the optimum point is when plans are designed to extend for longest possible term with the highest possible life cover. Also, the outlook of insurance is that you keep paying small amounts of money to cover a large payout in the eventuality of you not being around when that particular financial need is required by yourself or your dependents. Let’s take our previous example of a parent wanting to give his child higher education in a private university. If the person is alive at the time the requirement needs to be fulfilled he would have had the time to ensure his normal planned savings and investments are built in such a way to meet the need; this would not be the case if death happens before; it’s at critical times like this when the insurance cover needs to kick in to make good the void.
Life and death to a person is like the two sides of a coin, we face each day with this not so likable probability. Death is something that we humans live with. We know it can occur in any form, any time in any place. Therefore, it is well and good if we are able to reach the planned milestones but just in case it was not to be, all of us need that additional comfort of knowing our plans for our loved ones will come to pass.
Modern-day reality is that everyone needs money to achieve most goals in life. The required funds need to be provided through a combination of smart choices of savings and investments that accumulate value over a period of time; it needs to be complimented with a sensible life insurance plan to create instant value if death or disability was to happen in between. As far as I know there is no scheme in the world that works better than insurance at death or disability.
Q: What are key factors to think about when we purchase an insurance plan?
A: Before we begin considering the factors, a person needs to understand what his/her current stage of life and his/her current situation is. A good agent or a good financial planner would always take these points into consideration. The stables the agent is coming from, the track record of the company, the vision, mission and the purpose of these organisations and their owners are few factors to look for.
Coming back to stages in life, as stated earlier, accidents, sicknesses, and death are common perils that can occur at any point in life, but the probability of the risk and the level of impact by them varies according to the stages of life. The impact of a middle-aged married person falling sick might be significantly higher than the impact of a retired elderly person being sick as the amount of money at their disposal might vary. In order to refrain from facing major changes in our lifestyles, a proper insurance plan which looks at the person’s present lifestyle and structures the cover in a way the lifestyle is enjoyed by the person and that person’s family continues at death or during disability.
Q: Do insurance covers change or are they subjected to adjustments according to the circumstance?
A: An insurance policy is a contract that you enter with the insurer. The covers that are given in writing i.e. the policy document don’t generally change. But there are instances where you can increase or reduce the sum assured or drop selected covers of the insurance contract. These adjustments can generally be affected on the day of the ‘Policy Anniversary’. By and large, the insurance policy continues as contracted to by both parties unless changed with the explicit agreement of both parties in exceptional cases.
Q: Do you believe that insurance plans are the only solution for future financial needs?
A: This is a myth among people that needs to be broken at the onset. A person needs to pre-plan his funding sources in order to meet his future financial requirements. It’s actually incorrect to assume that a single solution such as insurance will fit all these needs. A sound financial plan will ensure the right amount of money is available at the right time in the right person’s hands.
For instance, a good financial planner considers the amount of money his client sets aside for immediate consumption purposes and those he sets aside as savings. I like to break the savings component into two parts; sometimes we save in order to consume in the future and there are instances where we save in order to accumulate a lump sum for future investments. He then looks at the future commitments that might have to be met by the client for himself and for his loved ones. Finally the financial planner will look at the immediate gap between the funds at hand and the sum of all the future commitments and structure a suitable Life insurance plan to match the shortfall. The meeting of future financial needs with the total funds available generally are planned through one of the following methods:
1. Capital consumption method – Where both capital as well the returns are used towards fulfilling the needs
2. Capital conserving method – Only the returns of the investment is used to service the need and the capital is kept in tact
One must understand ones earning ability is like a money making machine it’s all good when it works at full capacity but an alternate source is required if this machine was to stop functioning totally or its capacity is compromised at any point, therefore, I would not say that insurance plans are the only solution, but are an important component in the a comprehensive financial solution. As I see it Insurance will always remain a vital component as long there is the uncertainty of death or disability associated with humans
Q: What is your opinion regarding insurance as a saving method? What is the advice you would give to policyholders regarding this component?
A: I would like to begin by agreeing insurance does force you to be disciplined with one’s spending. Some insurance plans are inbuilt with a plan of return after the maturity which one might even consider as an investment. But the fact the insurance benefits kick in from day one as opposed to the maturity return, you would realise it is more of a protection option as opposed to planned saving.
Take an individual who is 21 years of age and who is planning to retire by the age of 55; he might earn and save money very prudently in different ways. But this would only be applicable if he or she is guaranteed to live until the day they think they might die.
Somewhere down the line, there is a huge chance of this saving and investment journey being violently disrupted due to various unpredictable reasons. Therefore insurance, is more than a savings method, it acts as a protective mechanism in such instances. The saving component is an additional benefit for the policyholder and insurance provides the peace of mind no other financial instrument offers.
When we talk about savings, some people allocate an amount of money from their earnings regularly as a saving practice to build a fund that’s used in the case of an emergency. Targeting these people insurance companies now have single premium policies. These single premium policies have a guaranteed bonus rate and the single premium entails you to a life cover as well as the return of your single premium and the guaranteed bonus at the end of the period.
Sanasa Life Insurance PLC too provides this facility together with an exciting twist to it.
We have added a critical illness cover and an accidental disability cover on top of the regular life insurance cover for these single premium policies. I would advise people who have saved money for emergency requirements to consider these single premium life insurance policies. They can rest assured that their capital is not affected under any circumstances. If their savings are kept in a regular saving account the entire thing will have to be used in sickness, disability or death. Everyone should make use of these viable alternatives and avail such extremely beneficial additional facilities.
Q: With over 30 years of existence, Sanasa Life Insurance PLC is a leading insurance provider in Sri Lanka established with the bold aim of providing assistance and the benefits of insurance to the people beginning from the grassroot level. Tell us what is unique in Sanasa Life Insurance PLC?
A: The uniqueness in Sanasa Life Insurance PLC roots back to its legacy. Sanasa is primarily a collective investment of many Sanasa societies. These societies are built up based on 7 cooperatives principles:
1. Voluntary and Open Membership
2. Democratic Member Control
3. Member Economic Participation
4. Autonomy and Independence
5. Education, Training, and Information
6. Co-operation among Co-operatives
7. Concern for Community
Therefore, the uniqueness at Sanasa Life Insurance PLC is that the prime objective of the company is the benefits it offers its policyholders and community at large. The company relentlessly strives to serve its target audience – the neglected and underserved segments in the market to the best of its capabilities. Sanasa Life is an active participant in serving the community at grassroots levels true to beliefs of the Sanasa movement so deeply embedded in its DNA and inspired by the ideals of its founding Chairman and founder of the Sanasa Movement Dr. P.A. Kiriwandeniya. The ethos of Sanasa Life resonates the visionary thinking of Dr. Kiriwandeniya which envisions a financially inclusive nation that brings a new social order. If one follows the activity of Sanasa Life closely they would easily understand that the company works in a realm that goes beyond common profit orientation and offers to the nation an Insurance Plus service.
