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Tuesday, August 26, 2025

To insure, or not to insure

A case for life in­sur­ance

by

20140608

The con­cept of in­sur­ance is as old as civil­i­sa­tion it­self. The fi­nan­cial Web site In­vesto­pe­dia sets the be­gin­nings of what we un­der­stand as "in­sur­ance" in Baby­lon, where it was lit­er­al­ly writ­ten in stone in the Code of Ham­mura­bi. The code made pro­vi­sions for any­one who had tak­en out loans, but was un­able to re­pay be­cause of some un­ex­pect­ed event, name­ly, an ac­ci­dent, nat­ur­al dis­as­ter or death.

El­e­ments of the code would trav­el and evolve in Eu­rope's Mid­dle Age, but the con­cept would on­ly reach full ma­tu­ri­ty in the 1600s when trade and trav­el ex­tend­ed to the New World. Then, in­sur­ance was for the rel­a­tive­ly wealthy who could af­ford it. To­day, the av­er­age cit­i­zen can ac­cess a va­ri­ety of in­sur­ance prod­ucts, from those cov­er­ing their lives, to those de­signed to re­place items as mun­dane as lap­tops and tele­vi­sions in the event of a bur­glary.

At its ba­sis, in­sur­ance is sup­posed to guard against the fu­ture's un­cer­tain­ties. It has been the cor­ner­stone of many gen­er­a­tions of cit­i­zens' fi­nan­cial plan­ning. The most re­cent­ly avail­able Cen­tral Bank fig­ures ap­pear to sup­port this as the num­ber of poli­cies bought in­creas­es from year to year.In 2010, to­tal num­ber of poli­cies in force (life and an­nu­ities) was 670,421. In 2011, the fig­ure was 668,149. In 2012, to­tal life and an­nu­ity sales equalled 702,925.

In some cas­es, in­sur­ance is un­avoid­able. The laws of this coun­try man­date that dri­vers must at least have third-par­ty in­sur­ance. But is there a sub­tle shift hap­pen­ing?

On­ly last week, the Cen­tral Bank Gov­er­nor Jwala Ram­bar­ran, re­ferred the on­go­ing eco­nom­ic cri­sis as "con­stant­ly mu­tat­ing." In this new fi­nan­cial re­al­i­ty of in­sta­bil­i­ty and col­lapse, are peo­ple choos­ing to forego what may be termed "tra­di­tion­al" meth­ods of se­cur­ing their fi­nan­cial fu­ture, with in­sur­ance be­ing one of them? And, are there al­ter­na­tives to the prod­ucts that in­sur­ance com­pa­nies pro­vide and are peo­ple ac­cess­ing or cre­at­ing them?

The Sun­day BG set out to have these ques­tions an­swered.

Just a reg­u­lar, av­er­age fam­i­ly

*Mario holds a ju­nior man­age­r­i­al po­si­tion at a fi­nan­cial ser­vices firm. He has been at the com­pa­ny for 14 years since leav­ing uni­ver­si­ty. Head­ing in­to his for­ties, his ex­pens­es and re­spon­si­bil­i­ties have ex­pand­ed sig­nif­i­cant­ly over time. They now in­clude a wife and two young chil­dren and a small house that Mario is hop­ing to ren­o­vate. Theirs is a two-car house­hold, since their re­spec­tive sched­ules do not per­mit Mario and his wife to share a ve­hi­cle. They do share the bills, chores and the par­ent­ing of their chil­dren. How­ev­er, Mario con­sid­ers him­self "old school." Even though his wife works, he thinks he is ul­ti­mate­ly re­spon­si­ble for his fam­i­ly's fi­nan­cial well-be­ing and the main­te­nance of their lifestyle, which in­cludes ex­tra-cir­cu­lar ac­tiv­i­ties for the chil­dren, reg­u­lar out­ings and an­nu­al va­ca­tions.

"This was the way I saw my fa­ther do it and my grand­fa­ther do it. I couldn't see my­self not do­ing it. This is what fam­i­ly is and we are just a reg­u­lar, av­er­age fam­i­ly."

His up­bring­ing led him to pur­chase life in­sur­ance for him­self. He re­lat­ed a sto­ry to the Sun­day BG, an in­ci­dent he said would stay with him for the rest of his life. He wit­nessed the death of a neigh­bour in an ac­ci­dent one morn­ing as he was dri­ving to work.

"I re­mem­ber think­ing that I had on­ly seen him 15 min­utes ago as he was com­ing out of his dri­ve­way. I told him good morn­ing. On­ly to dri­ve down the high­way min­utes af­ter and see his ve­hi­cle to­tal­ly writ­ten off. I re­alised it was him be­cause I saw the li­cense plate. I called his wife to tell her."

The most chill­ing thing about the ex­pe­ri­ence to Mario was that it could have just as eas­i­ly been him. Hav­ing life in­sur­ance gives him a sense of se­cu­ri­ty. His feel­ings are that if some­thing like that were to hap­pen to him, his fam­i­ly would be at least be cov­ered.

Un­der­stand­ing risk and the need for in­sur­ance

Lloyd Ince, pres­i­dent of the Caribbean Fi­nan­cial Plan­ners As­so­ci­a­tion and a fi­nan­cial con­sul­tant, said, ac­knowl­edg­ing the dan­gers one was ex­posed to in the course of life was key to un­der­stand­ing why in­sur­ance was nec­es­sary.

He said there was al­ways a chance that these dan­gers or "risks" could oc­cur. If they did, there need­ed to be some way to in­dem­ni­fy or re­place the fi­nan­cial loss that would oc­cur, should some­thing hap­pen to a fam­i­ly's main bread­win­ner or to prop­er­ty. Re­gard­ing hu­man life, Ince said risk could be cat­e­gorised in­to three gen­er­al groups: pre­ma­ture death, dis­abil­i­ty and re­tire­ment.

"When some­thing does oc­cur, some­one or some­thing has to re­place in­come loss. That could be a sav­ings plan, it can be a rel­a­tive who steps in to sup­port a fam­i­ly, but very few self re­spect­ing peo­ple wish to de­pend up­on char­i­ty to sup­port them­selves in case of risk. In­sur­ance be­comes valu­able. Med­ical in­sur­ance will cov­er health­care cost, it can cov­er in­come re­place­ment. Life in­sur­ance will cov­er the loss aris­ing out death of a per­son. A pen­sion plan will cov­er loss of in­come aris­ing out of re­tire­ment."

But pro­tect­ing against risk to life is on­ly part of the equa­tion.Bar­ry Thomas, is a fi­nan­cial con­sul­tant and an en­thu­si­as­tic sup­port­er of the con­cept of life in­sur­ance. An ad­vis­er and train­er with over 20 years ex­pe­ri­ence, some of which were spent in in­sur­ance sales, Thomas told the Sun­day BG that cre­at­ing a lega­cy was im­por­tant as well.

"You could make one pay­ment on an $800,000 pol­i­cy, or a $4 mil­lion pol­i­cy and on the way to do the med­ical, get run over. Your fam­i­ly is good to go. That's the mir­a­cle of life in­sur­ance. You in­stan­ta­neous­ly cre­ate an es­tate by sign­ing your name on that doc­u­ment."

Crit­i­cal ill­ness

Thomas said this is what will en­able peo­ple like Mario to con­tin­ue their "dreams" for their fam­i­lies, whether this was a ter­tiary ed­u­ca­tion, pay­ing off for a house, or start­ing a busi­ness, even though they were no longer in the pic­ture. He al­so saw the ben­e­fits of crit­i­cal ill­ness rid­ers to life poli­cies which en­abled the av­er­age per­son to af­ford ex­pen­sive health­care.

"How many work­ing class peo­ple can save $500,000 to $600,000 to han­dle an on­go­ing can­cer sit­u­a­tion? Or car­diac surgery? Most peo­ple can't come up with that kind of cash in an emer­gency. You have poli­cies that are do­ing that."Thomas added that pos­ses­sion of a life pol­i­cy was a sign of good fi­nan­cial health and man­age­ment, par­tic­u­lar­ly if one was able to main­tain the pol­i­cy in force for a lengthy pe­ri­od. Own­ers of life in­sur­ance can use their poli­cies as col­lat­er­al to pur­chase prop­er­ty, Thomas said.

In the event of the demise of the pol­i­cy­hold­er, the pol­i­cy would pay off for the prop­er­ty and the hold­er's fam­i­ly could still re­tain own­er­ship of it.But, as en­thu­si­as­tic as he was for pure life in­sur­ance, Thomas was un­abashed­ly crit­i­cal of "in­vest­ment-linked" or mixed poli­cies. These com­bine a life in­sur­ance pol­i­cy with and an an­nu­ity or pen­sion pay­ment plan.

In­sur­ance com­pa­nies put the in­come aris­ing from the sales of these types of poli­cies in­to mul­ti­ple busi­ness ar­eas, hop­ing for a re­turn suf­fi­cient enough to keep the client ahead of in­fla­tion in the fu­ture in his re­tire­ment years. Ac­cord­ing to Thomas, their main fault was that a re­turn could nev­er re­al­ly be guar­an­teed.

Mixed poli­cies

"These mod­ern poli­cies...you don't know what they are go­ing to de­liv­er to you. They (the com­pa­nies) don't know what is go­ing to be de­liv­ered to you. These move and fluc­tu­ate with the stock mar­ket. Right now, for ex­am­ple, what are in­vest­ment-linked poli­cies pay­ing? Noth­ing. Be­cause the stock mar­ket is pay­ing noth­ing. This is a per­son­al bias. Feel free to say so, but the best form of in­sur­ance is rock sol­id, or­di­nary life in­sur­ance."

Dami­an Car­ri­bon is an in­sur­ance sales­man at­tached to one of the larg­er com­pa­nies in the mar­ket. His day-to-day ex­pe­ri­ences con­vince him that a move to­ward these "mixed" poli­cies was in­evitable.

"Even in pro­grammes de­signed for crit­i­cal ill­ness or dis­abil­i­ty, the pos­si­bil­i­ty ex­ists that through­out the client's life­time, the client may not be­come crit­i­cal­ly ill or dis­abled and, as such, quite pos­si­bly would want to be in a po­si­tion to re­coup a cer­tain per­cent­age of the pre­mi­um they would have con­tributed over the years. If you be­come sick or dis­abled, there is mon­ey to as­sist with your med­ical and your nor­mal month­ly ex­pens­es. If noth­ing hap­pens, there is mon­ey to help you with re­tire­ment or some oth­er ex­pense you may have in the long-term fu­ture. We try to make it win-win sit­u­a­tion for the client as much as pos­si­ble."

Car­ri­bon said changes in the way peo­ple view life, work and re­tire­ment was re­spon­si­ble. Us­ing his own clients as ref­er­ence points, he said that gen­er­al­ly peo­ple were think­ing about re­tir­ing ear­li­er to en­joy what they have worked so hard to earn.In­dus­try um­brel­la body, T&T As­so­ci­a­tion of In­sur­ance and Fi­nan­cial Ad­vis­ers (TTAIFA) points to the econ­o­my to sup­port Car­ri­bon's as­ser­tion. In an e-mailed re­sponse to the ques­tion of a shift to­wards mixed poli­cies, TTAIFA con­firmed this was so.

"The econ­o­my has changed, so peo­ple's lifestyles have changed and so, too, their needs. The mar­ket has to re­spond to the ever chang­ing needs of clients."A break­down of sta­tis­tics from the Cen­tral Bank shows that the to­tal num­ber of in­sur­ance sales for life in­sur­ance and an­nu­ities have grown. In 2010, life in­sur­ance sales were on­ly 5,803 above com­bined an­nu­ities. By 2011, sales of an­nu­ities be­gan to out­strip sales of or­di­nary life by 10, 361. By 2012, this dis­tance grew by 15,095.

But, de­spite this, the con­sul­tants and agents the Sun­day BG spoke with felt there was a sig­nif­i­cant ig­no­rance about in­sur­ance. Thomas blamed the in­dus­try and the agents for the state of af­fairs. "The prod­uct is very bad­ly sold and very bad­ly mar­ket­ed."Ince thought both the pub­lic and the agents con­tributed.

"An in­di­vid­ual may not recog­nise the need for in­sur­ance, or they may be ig­no­rant of the con­cept. Some­times they may have had a bad ex­pe­ri­ence with a prod­uct or a prac­ti­tion­er. But the need for in­sur­ance ex­ists. Life is at best un­cer­tain."TTAIFA de­fend­ed agents against the claim ac­knowl­edg­ing that while maybe the per­cep­tion of in­sur­ance as a scam, and its agents as "smart­men" might ex­ist, the fact was that most agents were pro­fes­sion­als and that on­ly a hand­ful had done lit­tle to en­hance their knowl­edge over the years.

The um­brel­la body said it is reg­is­tered with the Ac­cred­i­ta­tion Coun­cil of T&T as a train­ing provider and has in­vest­ed hun­dreds of thou­sands of dol­lars in de­vel­op­ing and ex­e­cut­ing cours­es for agents.TTAIFA said that agents are be­ing trained to recog­nise the needs of their clients, build re­la­tion­ships and sell ac­cord­ing to those needs.

"They have to iden­ti­fy the rel­e­vant short­falls in their lack of life/term in­sur­ance to meet their fam­i­lies present and fu­ture needs in terms of mort­gage pay­ments, food, shel­ter, cloth­ing, ed­u­ca­tion for their chil­dren etc should the bread­win­ner be­come dis­abled, die too soon or even live long where a prop­er pen­sion is need­ed."The um­brel­la or­gan­i­sa­tion said prospec­tive clients should take on the re­spon­si­bil­i­ty of check­ing what in­dus­try rel­e­vant cours­es the agent had done be­fore do­ing busi­ness.

Car­ri­bon, mean­while, be­lieved there was an­oth­er area peo­ple need­ed to take a lit­tle more re­spon­si­bil­i­ty."In my job, I re­alise a lot of peo­ple say the gov­ern­ment will pay me a pen­sion."The in­sur­ance agent said that the $3,000 a month pen­sion dis­trib­uted by the Na­tion­al In­sur­ance Board may be un­sus­tain­able giv­en the fi­nite na­ture of the coun­try's oil and gas re­sources. He said the pos­si­bil­i­ty may ex­ist that fu­ture gov­ern­ments may cut back. In such a case, he ad­vised the pub­lic to be able to pro­vide for them­selves.

But does that mean you have to be in­sured in or­der to pro­vide for your­self?Next week we in­ter­view two in­di­vid­u­als who do not be­lieve this to be the case in Part II of our se­ries, "To in­sure or not to in­sure."*not re­al name


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