My family has been part of the insurance business for almost my whole life. I have witnessed all the changes from plain old simple insurance with guaranteed returns to the newer version with return of investment based on the market's performance. I am aware that in countries such as the U.S. and UK, insurance is a basic part of one's life. Here in the Philippines, it's still too hard to penetrate and educate people regarding the importance of insurance in one's life. I would like to know how insurance is on your part of the world and how important it is for you personally. I'd love to hear your thoughts on this.
Insurance is a major industry sector, should be part of everyone's portfolio IMHO. They pay actuaries a lot money to figure out how they can always be profitable.
Well in most countries in Europe you insure stuff like your house and your car. You don't really need health insurance as you already have that from the government, some countries have a good one, some don't have such a great one. You can always get your own personal (additional) one if you wish to do it. It's certainly a good business to be in but it favours the large companies since smaller ones can get in trouble if they get a lot of big claims in a short amount of time.
There is so much more to insurance though! Don't forget people insure all kinds of things, not just house and car. Renters, travel, personal items, investment, marine the list goes on and on. Also commercial insurance is a huge industry too! A quick google tells me the world market for insurance products is well over 3 trillion dollars.
Various forms of life insurance, annuities, etc can certainly be a good idea as part of one's portfolio. If you're fairly young and don't have a whole lot of money, you're probably better off just spending a few bucks a month on a term life insurance policy, and putting most of your money into stocks, perhaps an index fund or mutual funds, etc. If you've got a pretty nice nestegg, you can look at perhaps putting a little of that money into an annuity that will grow tax-deferred until you're able to start drawing money on it (usually past age 59.5 to avoid IRS penalties in most cases), and perhaps consider also putting some into variable/whole life insurance products if you're really loaded and looking to take some money out of the estate and away from estate taxes that kick in past the $5 mil level. A main advantage of insurance products aside from the tax advantages is that they pass through to beneficiaries outside of your estate at death, bypassing not only any estate taxes, but also the whole probate/succession/will process. It's a great relief to a spouse or child who gets handed a large insurance check within a few weeks or less of your death that is free from getting hit by the tax man, and also free of the estate settlement process that takes longer - sometimes much longer. Another good thing about many of the better variable annuities is that they are set up to offer a minimum guaranteed stream of income for life (even if the account value is depleted), and they are often set up to pay out more when the investments within the annuity perform above a certain level. They may also offer a death benefit, and in some cases a guarantee of a return of principal at death, and also the ability to stretch the income stream across multiple generations. But all of these extra bells and whistles cost you. Money invested in insurance products is also shielded from creditors and civil liability. A couple of disadvantages of insurance products are that the fees are quite high, and the investment choices within the investment vehicles (mutual funds, etc) are typically not so great.
For me it's always been the fees that have been a put off with the investment-linked insurance products. They can have some tax shelter benefits where I live, but if you really look at the layers of costs involved sometimes it doesn't always add up. As for straightforward insurance products, they're certainly necessary - we live in a world of chaos and not order, and protection is a something we should have in place.
You're right Onionman, in my country some clients are put off by the large cost they have to invest in variable unit linked products as compared with the traditional life insurance plans that give guaranteed returns. It really takes a lot of guts to take the risk of investing in unit-linked products especially if one has limited amount of knowledge when it comes to investment and the likes. That is one of the hindrances I have encountered in offering unit-linked plans to my clients. The benefits are undoubtedly very good though but sometimes some clients overlook the benefits because of their lack of knowledge when it comes to investing in unit linked plans.
Where I live, I have learnt that a company has this insurance package, that can literally make you rotten rich, but there's a twist to it, you have to start it when you are young for example, you have to start it in your 20's,without starting young you cannot maximize the package. I'm talking about $1,000,000- $10,000,000 USD So, for me, insurance is gold,I'm just waiting to finish a few things before I really start investing massively.
I think it's really an advantage to start investing in insurance as young as you can, even at the lowest possible price the insurance company offers. In that way, your money has an ample amount of time to grow and by the time you really need it the most, you might be surprised at how big your money has grown.
I don't know what is happening to our country when insurance companies are losing. They are mostly pre-need insurance like education where you pay installments and after some time the company gives you the required expnses for the college education of your child. So many pre-need insurance companies have reneged on their promise, most of them folded up due to excessive losses.
