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Tuesday, July 29, 2014
Trinidad & Tobago Guardian Online
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Life without insurance
Last week the Sunday Business Guardian explored reasons to get life insurance. This week, the other side of the issue is being examined as Sunday BG speaks to those who have avoided getting life insurance.
Trevor* has one of the Trinidad’s most recognisable voices. In January 2009, he was in his sixties and on the verge of collecting on his pension plan, something he had been pouring money into for almost 40 years. As far as he was concerned, he was set; the company was solid, it was profitable and it was about to pay out.
He was going to travel, as he had been dreaming of doing for decades. He was also going to help take care of his older brother, who has a debilitating motor-immune disease. The insurance company that controlled his pension savings: Clico.
In an address at a breakfast seminar hosted by the Chartered Financial Accountants in 2012—more than three years after the announcement of the collapse—Central Bank governor, Jwala Rambarran said of the conglomerate: “Apart from balance sheet scars, the Clico crisis may have left psychological scars on the population of T&T. For many, memories of this failure are still fresh, causing an overestimation of the probability of a repeat disaster—the fear of fear itself.”
Five years after Clico collapsed, the failed insurance giant continues to impact on the public consciousness. In May, there was word that its 105 agents are going to be sent home come June 30, again arousing concerns among its remaining policyholders about the security of their investments.
Speaking with the Sunday Business Guardian, Trevor said, he has “moved on.” He has been able to recoup some of his losses. He is getting good paying work, steadily. It covers the bills. Other relatives have stepped in to help with his brother. It is not, ideally, how he would have hoped to spend his twilight years, but he has learned to accept it.
Believe in entrepreneurship
A generation away, 40-something year-old *Eric looks on. He doesn’t have life insurance with Clico, or any other company, and given everything that has happened, he considers himself lucky “that a friend who sold insurance with Clico” was not able to get him to purchase. In the 1970s, when he was eight, he recollected that his father took out policies on his, Eric’s and his mother’s life. Eric related that the company failed in the early 80s.
“We took about 10 years before we got any kind of settlement and it was pittance, less than $1,000 each. That money was just dead money.” But he was not dissuaded then. When he started working, he took out life insurance; a policy he said he had for a year and a half before bad times hit.
“I missed two payments. Before I got the mail, I went in and tried to pay and was informed that my policy had lapsed. I never got a letter. I got a letter the following week but it was backdated. I don’t believe insurance companies make sense for most people.”
Eric sees himself as a creative type and is a firm believer in entrepreneurship. He said most people between 35 and 50 have been told to go out, become educated and get “good” jobs. Insurance is part of this package. However, Eric—who owns a production company—has rejected the idea that he needs life insurance, a medical plan or pension provision, not even checking to see if he has coverage under the National Insurance system. His laundry list of problems with the industry is long.
He has car insurance and has had unpleasant experiences in getting his claims settled after accidents, receiving less than what he thought he deserved in payment and this, after “horse trading” with the company. He reasoned, if this was happening while he was alive, things could only get worse after his death. Eric has two teenaged sons, but is not sold on the legacy aspect of life insurance. He said it was much better to teach his children entrepreneurship.
“Teach your kids how to make money and make sure when they have enough and they have a great idea. They can invest in that idea and then they can turn something around.” Eric is a homeowner. He inherited his house from his parents. He thought real estate was a more sensible, long-term investment and said he always tells his children to “add value” to anything they are given. He said owning a house presents his children with options.
Eric also has no plans for the typical retirement, preferring to work “everyday of his life” because he loves what he does. He is not worried that as he ages, declining health may make this hard, if not impossible. Eric said he has embraced a lifestyle of “preventative healthcare”. He explained the concept: “If you don’t get fat, you won’t have fat-related disease when you are 50. Don’t smoke, you won’t have respiratory illness. Have an active lifestyle, you won’t be diabetic.”
And, in the event that he should be stricken with an unexpected illness, Eric did not see a critical illness plan as the solution.
“How do you deal with that? Do you say I am going to put aside, $60,000, so I can get back up to $12,000 on the first bill back. That doesn’t make sense. That’s why I don’t do that. I would prefer to take a bank loan. Maybe go to my family. I mean you have to die from something. That is the bottom line. A lot of people have terminal illnesses. They are 50, 60 , they struggle for life. They have radiotherapy, they get chemotherapy, they spend all their life’s money trying to hang on to a two or three years.”
Singlehandedly, Eric has demolished the holy trinity of insurance sales: life, health and pensions. He told the Sunday BG that, people often bought into the “marketing.” “They don’t see the reality of it.” he said. To him, the reality is represented by an industry with a product that claims to protect against the future, yet cannot guarantee that it will keep pace with inflation. An industry, he claimed, that would spend more on in-house counsel to prevent payout to customers.
The ethical climate in which the industry operates poses some challenges for him as well. Eric referred to it as a “wild, wild west” of financial engineering where anything goes.
“In an economic environment where the companies are not regulated or monitored, when you have no police checking at the stop light, the companies can do whatever they want. Look at Baico, look at Clico, these companies are basically insurance companies but they are into all sorts of things. That is what insurance companies are doing now to increase their money. So why would I take that very large risk. I don’t see it making sense. Financial engineering is not what I am funding when I pay for insurance.”
Attempts by legislators to correct current insurance legislation leave him cold. The Insurance Bill 2013, now under consideration, among other things, will make directors of companies more culpable and better regulate activities non-traditional activities undertaken by insurers, such as pensions and mortgages. However, Eric said in a country run by cliques, the likelihood of them acting against each other in the interest of the consumer was slim.
Regulator inefficiencies are not what is stopping *Deborah from purchasing life insurance. When interviewed, she said Clico played only a small role in her decision. To her, the product is unnecessary because she has no one to leave the money to. She is 36 years old and a business degree holder in middle management. Recently married, Deborah said it is unlikely she will have children because of a medical condition.
Her husband, who is ten years older, is also uninsured. Their joint monthly income is around $14,000. They were recently the recipients of a HDC apartment, where there is no life insurance requirement for a mortgage. Deborah has a pension, though, and a major medical plan, with coverage to the tune of $50,000. She told the Sunday BG she preferred to enjoy what she worked for during her lifetime; she finds the thought of someone benefitting from her death disturbing.
“I know this is going to sound bad. Yes, it is nice to leave something behind but I tend to find that if you work for it, you tend to appreciate it a little more. For me, you hoping I drop down and dead because I have money, that really don’t appeal to me. You know, the attitude is, when mummy dead, I set for life.”
Deborah also said she would be at a disadvantage acquiring life insurance at her age. At a point in her life where she needs the cash value that would have accumulated on her life policy had she invested when she was younger, Deborah said it made no sense to start now, since the policy would need time to build that value.
Even if she did have a life policy, she said she would have been unlikely to take a loan against it because borrowing was something she didn’t believe in. Asked about the possibility of a child arriving unexpectedly, Deborah said, in such a case, her budget would not accommodate care of the child and paying for a policy. Deborah said she was aware of how “selfish” her stance may seem to others, but thought there were other legacies that could be left behind, if she had children.
“If I buy a house, I could finish paying for it and leave it behind. The same way I could put money into insurance, I could save. It is not like I am leaving you with a set of worries. I really don’t see the need for it. I don’t subscribe to it at all.”
In lieu of life insurance, Eric had a philosophical bend to financial planning to his future:
“The important things are the important things. Money make to spend. Money make for something. You invest in money, so you can get money back to do something else. So there is a point in life, where you will have something called enough money. “That point of enough money is when you are comfortable. You will be able to turn around and do things that you might have been interested in. Put a little sacrifice and you can accomplish that.”
* Names have been changed