Right Time to Buy Life Insurance Series: Too Late Procuring Life Insurance

Right Time to Buy Life Insurance Series: Too Late Procuring Life Insurance

Right Time to Buy Life Insurance Series: Too Late Procuring Life Insurance

I’ll go straight into a short but rather unfortunate case study. 

In 2003, I got introduced to Ritesh, a businessman who needed to procure Life Insurance cover worth US$ 2-3 million. 

The bank had asked Ritesh to provide some form of collateral to be able to continue extending the credit facility that they had been extending to him for the last 30 years. 

Ritesh ran a successful steel manufacturing company. As he got older, however, the bank took notice of the fact that amongst other red flags(like his failing health), he had no heirs in the business. The entire operation was solely dependent on him. They started to question the risk of a continued credit facility. 

After conducting an audit, the bank decided that the only way for them to continue providing the credit facility to Ritesh was if he could provide some form of guarantee or collateral. In comes Life Insurance. 

The Challenge 

Ritesh was 63 when he met me with his Life Insurance requirement. At the time, he was a raging alcoholic, severely diabetic, and morbidly obese. He ate lavishly and partied until 2 am six nights a week. He suffered from high blood pressure, cholesterol, and all the challenges that come with that lifestyle. 

The biggest challenge was getting Ritesh to show up early in the morning for the medical examination he needed to clear for the Life Insurance company. The medicals required that he had to be fasting for 8 hours – no food or alcohol the night before in that 8-hour window. 

Ritesh made it for two medicals and failed both. The result? The Life Insurance company was unable to offer him any form of Life Insurance coverage. 

The Outcome 

Ultimately, his inability to procure Life Insurance and provide the bank with the required collateral resulted in a rather difficult conversation with the bank. They had to withdraw a credit facility that they had provided a steady customer for over 30 years. 

This also happened to be at the peak of Dubai’s construction market, when the steel industry was doing exceptionally well. 

At an age (63), and in a market condition where an entrepreneur would typically be taking equity out of their business, Ritesh had to pump money into the business to be able to get the credit facilities he needed to continue trading. 

The Culprit: Procrastination 

If I had to pin this all down to one major cause, I’d say it was bad timing or more specifically, procrastination. 

Ritesh’s case is not an unusual one. Entrepreneurs often put off the decision to secure Life Insurance cover, and it’s usually due to one of a few reasons. 

Why Entrepreneurs Put Off Buying Life Insurance 

  1. Always Being Pitched: They are pitched so many products and services day in and day out, that they approach this too with a slightly reserved mindset. 
  1. The Life Insurance Industry: The global Life Insurance Industry hasn’t always enjoyed the best reputation for several reasons. Policies have underperformed, upfront commission structures have created unethical practices, and so on. 
  1.  The UAE’s Transient Nature: In the UAE, where the population can be rather transient, we come across a lot of ‘Orphan Clients’ – these clients have been abandoned by their Advisors because Advisors change jobs, industries, or countries. This can leave clients in a bit of a lurch. 
  1. The Best Deal: Entrepreneurs are wired to wait for or seek out the best deal. They often feel like they might be able to get a better offer than the one on the table, and will pass up making a purchase decision. 
  1. A Better Time: I’ve come across many situations where an entrepreneur will decide that they want to wait because they’re in the process of getting fitter and healthier, or they’re trying to quit cigarettes or alcohol. They would like to wait then because they might get better premium rates after they’ve made this lifestyle change. This can be counterintuitive: Take a look at this case study of how one smoker took the plunge. 
  1. All or Nothing: Some of you might want to secure a large amount of Life Insurance coverage but current cash flows or market uncertainties might not allow you to invest that kind of money in premiums. And so, instead of opting for a smaller policy and then choosing to add on to it, you might decide to skip it altogether for now – an understandable but risky call to take. 
  1. Uncertainty: A lack of understanding of how Life Insurance works, the policy structure, and perhaps even the uncertainty of being able to continuously pay premiums are all reasons why some entrepreneurs might be skeptical of making the purchase. I understand that. Finding the right Advisor, the right amount of cover, and the right strategy to procure more Life Insurance coverage over time is the way to go. Life Insurance is as personalized a purchase as it gets. 

My Final Two Cents 

What could have prevented Ritesh’s situation from taking the turn it did? What would help so many others who for one reason or another are too late procuring Life Insurance? 

It’s funny how clear hindsight can be, and funnier yet how we can see the solution in someone else’s story so much clearer than we can in our own. 

Theoretically, Ritesh should have procured Life Insurance earlier in life – in his 30s perhaps. Or perhaps he should have managed to procure Life Insurance before he was diagnosed with diabetes or before he started to pack on the pounds or before it went from a drink or two every weekend to a drink or two or six every night. 

But it’s hard to time these things – it’s hard to know when things are going to take a turn, or when you might come back from the clinic with a diagnosis that suddenly renders you uninsurable. 

And that’s why the here and now become so critical. 

You might get healthier and fitter, and you might have much more cash flowing in a year from now. But the passing of time and age are critical factors when it comes to your insurability. 

So, at the risk of sounding like a broken record, I’ll say it again: The best possible time for you to get your Life Insurance in place is right now. Establish that baseline now when you can. 

Premiums can come down over time, policies can be restructured. But there are two things we can’t do: Turn back time or predict tomorrow.

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