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The Dangers Of Predictive Analytics In Life And Health Insurance


wealthymattersCurrently the health and life insurance products we buy are static in the sense that right at the beginning of the policy term the insurance company makes an assessment of the morbidity or mortality risk of the person and then agrees to insure them at agreed-upon rates.

Now imagine a scenario of continuous health monitoring and a dynamic premium that reduces when people engage in what is deemed healthy behaviour. A scenario where the insurer provides various “incentives” like discounts on gym memberships , wearables like fitbit and preventive healthcare check-ups etc.

The first time I came across such an idea,2 lines of thought came to my mind simultaneously: Read more of this post

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Results Of The Use Of Predictive Analytics In Life And Health Insurance


wealthymattersPredictive analytics involves the analysis of large data sets ie big data ,to make inferences by identifying meaningful relationships between different variables and using these relationships to forecast what might happen in the future with an acceptable level of reliability.Predictive Analytics includes what-if scenarios and risk assessments.

Now, insurance is an industry where intelligent use of data can provide huge competitive advantages.So over the last dozen years, insurance companies world-wide have tried to be early adopters in using the emerging science of predictive analytics in life and health insurance to get ahead of their competitors.They have attempted to use predictive analytics to segment and underwrite their risks in a more accurate, reliable and cost-effective way. Read more of this post

AI Driven Personalized Life Insurance Premiums; Aye Or Nay ?


wealthymttersThe mortality risk is not the same across different sections of the population.So one of the ways in which life insurance companies have traditionally competed is by restricting their offerings to people who have lower risks of dying early and thus keeping premiums lower and/or bonuses higher.The classic example is the Postal Life Insurance plans of the past that were offered exclusively to government servants vs similar plans of the LIC that were open to all. In more  recent times,insurance companies target the more educated, affluent, urban ,financially successful professional/managerial class with better living standards and access to world-class healthcare.

Insurtech powered by AI can increase the ability of life insurance companies to make fine distinctions in mortality risks, resulting in more risk classes .So one of the merging trends in life insurance is the increasing number of risk classes as insurers seek to better match risk with premiums.Thus in theory, rather than dozens of risk classes, thousands of risk classes or even lakhs of risk classes are possible. In fact if the AI is astute at risk classification, its possible that each policyholder would be in his/her own risk class. In other words, we would have personalized premiums,designed and calculated on a custom basis for each insured person. Read more of this post

Tax Savings And Products From Life Insurance Companies


wealthymattersInsurance companies provide insurance and that’s very important in itself. But long after some people have met their safety needs and perhaps even accumulated so much wealth and secured it in a way that makes life insurance plans to provide for bereaved dependents superfluous, you find them still opting for investments in products from life insurance companies….Ever wonder why ?The answer is that, never mind what most run-of-the-mill financial advisors say, a FEW of these plans do provide excellent returns, and help create wealth,  provided a person is wealthy enough to be able to wait the decades to realize the benefits of these returns or better still think in multi-generational terms. Further, intelligently played , these products offer a way of mitigating the risk of falling interest rates on savings that all of us face. Next factor in tax and the numerous tax advantages products from life insurance companies offer and you start seeing the wisdom in what these wealthy people do.

Aegon Life has published a tax guide on it’s website to help you explain all things related to taxes and tax-planning.

However, if you’d like to educate yourself in peace before dealing with any sales pitches, here’s what you need to know: Read more of this post

When Does Buying A Term Insurance Makes Sense ?


wealthymattersBasically there are just 2 types of life insurance products anywhere in the world, though there are endless variants of both these types :

1.Term Insurance

2.Endowment Plans.

The second kind has a savings/investment component, the first doesn’t.

An oft repeated thumb-rule in the financial advisory trade, is to generally recommend that clients simply buy term insurance for their protection needs and look to mutual funds etc. for their investment needs. Combining protection and investment, according to this school of thought ,leads to sub-par results on both fronts.

My advice is a bit more nuanced. As long as a person can afford it, I recommend certain Endowment Plans, such as the now withdrawn Whole Life Policy of the LIC , over Term Plan+ MutualFunds or Term Plans+ PPF etc. I believe that such plans make for excellent investments returns-wise and tax-wise and allow people to enjoy predictability and stability in their wealth portfolio over many decades. Along with the flexibility to change plans as and when required.

However, I do believe that Term Plans have an extremely important place in one’s finances. Following are situations when you must absolutely opt for Term Plans:

1.If you are a wage/salary earner with a large number of dependents and have no large income from assets or businesses ,no stock-pile of assets that can be cashed in or otherwise tapped to provide for your dependents, the first thing you must do is sit down with a term insurance calculator and figure out just how much money you need to somehow find the money to afford the term insurance you need to provide for your dependants in case of your sad demise. You are ultimately their only hope for a better future.

2.Should you decide to become self-employed, or tap into assets such as your home to borrow the money to set up a business, make certain you have enough Term Insurance to cover your loans and business liabilities, especially if you have not thoroughly segregated your personal and family assets from your business assets.

3.Adequate keyman insurance for personnel crucial to the survival of your business.

4.If you are taking out  huge mortgages to finance home purchases, you can consider a term insurance to cover repayment in case of your demise. However, I find that mortgage insurance/home-loan insurance often works out cheaper and is often available to older people who might no longer be eligible for Term Insurance or larger sum assureds in case of Term Insurance.

So Term Insurance has its time and place in your financial life. Use it wisely as needed.

 

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