As from April 2013 my Journey in Investing is to create Retirement Income for Life till 85 years old in 2041 for two persons over market cycles of Bull and Bear.

Since 2017 after retiring from full-time job as employee; I am moving towards Investing Nirvana - Freehold Investment Income for Life investing strategy where 100% of investment income from portfolio investment is cashed out to support household expenses i.e. not a single cent of re-investing!

Currently; it about 54% to destination!

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Sunday, 11 October 2009

Insurance - Human Asset and Liability

For the sake of this discussion, let us put aside all the human emotions and love that impress upon on the insurance matters, and take a look at Insurance as a hedging tool against Human Asset and Liability in the Human Life Cycle - Balance Sheet from a financial perspective.

So what is hedging?

Hedging means reducing or controlling risk.

Insurance as a hedge against Human Asset and Liability?

The moment when we were conceived in our mother's womb; a human liability was created in our parent's Human Financial Balance Sheet; but, it was still a very, very small liability.

When we were born, this human liability became very real and will continue to grow each day till the day when we start working full time as human asset and generate Income. When we start to generate income, the Liability in our parent's human financial balance sheet begins to decrease.

Slowly, we start to increase our human liability in our own human finanical balance sheet when we start a family and create more human liability. (gosh, now I understand why some couples decide to have no or 1 child as they want nice looking balance sheet with less human liability)

So as parent, do we see our child as Human Asset or Human Liability in our Human Financial Balance Sheet.

If we only see the child as Human Liability then we may use Insurance to hedge against this human liability and doesn't want to over-hedge to cover the financial aspect of a human asset when actually there is none.

What we probably need is a Liability Insurance - comprehensive Medical Shield? This is the basic hedge against human liability. We may have limited financial resources to hedge against all possible risks.

When we start working full time and generate income, then we will need to hedge against the new Human Asset and Human Liability as well.

The scope of insurance as hedge is now extended to cover the Human Asset. Again, we have limited financial resources to spend on the hedging expenses (insurance premiums) to hedge against human asset and liability. We have to hedge wisely.

We have to sit down to evaluate what is the percentage of this human asset to be hedged? To hedge 100% of the human asset is probably is too costly. Each of us have to determine how much to hedge according to our future earning power and living expenses.

When we fully retire, we once again turn back from a Human Asset to Human Liability and the hedging need change to somewhat like a child.

Like any hedging, it is far difficult to hedge correctly, and we also don't want to under-hedge if we can afford it. Finally, it is how much can you afford to hedge that counts in the entire Human Life Cycle - Balance sheet.

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