16 Apr 2019

Millennial’s Guide to Types of Insurance Part I [InsurBites #3]

Insurance is such an integral component in personal finance. However, many Singaporean millennials find it difficult to relate to. So often, the problem gets neglected till they are much older. Moreover, purchasing a plan involves thorough comparison-making and due diligence in a largely unfamiliar area. As a result, young adults in their 20s to early 30s are making the biggest mistake by being under-insured. In other words, they are not having enough to protect their future wealth.

For a start, Part 1 will arm you with the basics of life and health insurance. Moving on, you’ll know which fits your needs and not just what is being sold out there. If you’re new to insurance or are currently exploring for the right coverage and plan, this visual guide will come in handy! Read on!

WAIT, WHAT EXACTLY IS INSURANCE?

It’s okay if you haven’t the faintest idea of how it works – we knew we had to add this segment in anyway. On top of it being a financial product, insurance acts as a safety net and supplement for your finances should something unexpected arise. Think of insurance as a form of protection. In short, your health is an example of what you’ll want covered on your first policy.

If I’m under-insured, what’s the worst-case scenario that could happen?

Say, you’re taking home an annual of $55,000. All is good until you’re unexpectedly diagnosed with early-stage lung cancer which requires you to be warded. You leave behind your partner to take care of household expenses and school fees for your 2 children.

Above all, you have hefty hospitalisation and surgical fees. But, you realise you don’t have sufficient protection that can cover and tide you over your current situation. In other words, being under-insured triggers and snowballs a ton of problems.

TOP INSURANCE OPTIONS AND INSURANCE FIRMS

There are 2 broad types of insurance (Life VS General) and a whole lot of policies under the two. The 5 common plans you should be well-informed of are:

– Health Insurance
– Life Insurance
– Critical Illness
– Personal Accident
– Disability Accident

That is to say, anything that has a certain level of value should come with some form of insurance. Even the Google Home Hub you purchased online might have some form of protection that you can opt for!

On top of knowing the common insurance options out in the market, there are also hundreds of insurance firms to choose from. These are the few you should keep an eye out for great deals!

AIA
Aviva
AXA
Great Eastern
NTUC Income
Prudential

GOOD TO KNOW!

Feeling a little lost as to how much protection is enough for you? The common rule of thumb that you should aim for is a coverage of about 11 times your annual income. Most importantly, this amount should be able to last for a span of 10 to 20 years (on top of 3% annual inflation) for your family to suffice through if something happens to you.

The aforementioned types of insurance are just the bare few. Some of the more exclusively unique ones (click on them to find out more!) we came across include:

Insurance for Pets
Insurance for Freelancers
Hole-in-One Insurance for Golfers
GRAB Surge Pricing Insurance

Firstly, we’ll be covering the fundamentals of the two highly essential insurance types – Health and Life Insurance. So, if you’re worried of not comprehending whatever your financial advisor is going to bombard you with on your first appointment, read on!

WHAT IS LIFE INSURANCE?

In a nutshell, life insurance provides the most essential form of financial back-up for your dependents when an emergency arises – which could range from permanent disability to death.

Some life insurance plans come in bundles together with investment-related components – also known as investment-linked policies (ILPs) – which can be used to supplement your retirement income for your loved ones.

3 FACTORS TO CONSIDER BEFORE GETTING LIFE INSURANCE

Whether you’re expecting a newborn, constantly travelling around with kids, or prepping your teen daughter for her dream university, you’d want to be prepared for unfavourable mishaps that could happen along the way. Premiums, benefits and limits can be baffling from the start.

But, if you’re in your mid 30s to 40s with schooling children, you should already be halfway building up wealth protection for your loved ones. There are loads of customisable protection plans catered to families across various sizes and conditions!

Depending on one person’s primary source of income may not be as smooth-sailing for some. The sudden loss of a breadwinner can be emotionally devastating to the whole family. Are you the backbone of your family’s household finances? Then, you certainly have an important role in ensuring there is sufficient money to last the family long enough to meet future needs and obligations.

Look into insurance that can provide your loved ones with adequate coverage in the rare event something happens to you.

The insurance payout at the end may seem like a large sum of money. But, bear in mind that it’s meant to keep your family’s finances afloat for long-term needs. Consider the necessity to support foreseeable priorities such as the living needs of your elderly parents (as well as your spouse’s), your children’s tertiary education funds and any outstanding big-ticket loans.

WHOLE LIFE INSURANCE VS TERM INSURANCE

But before you delve in deeper to your decision, you need to be aware of two types of life insurance – whole life insurance and term insurance  – and which is right for you to opt.

Whole life insurance protects you till the end of your life, as long as you continue to pay the premiums. Alongside, you can potentially reap some savings and investments. Moreover, if you do terminate your plan, you can still get back some of the monetary value. Hence, premiums are usually more expensive.

Term insurance covers you only for a specific fixed period of time (20-30 years) and you get the sum insured upon death. If nothing happens to you and no claims were made during the period of coverage, you won’t get anything. Hence, premiums are generally more affordable.

WHAT IS HEALTH INSURANCE?

Briefly, health insurance – as the name suggests – has a lot to do with healthcare and your wellbeing. Having health insurance on top of your current Medishield Life coverage ensures payouts that can help finance your medical bills.

In addition, you can get to enjoy wide healthcare options and higher claim limits depending on the policy you choose.

HUH, NEED HEALTH INSURANCE ONE MEH?

Firstly, consider how much outstanding debts and loans you are incurring or are foreseeing to incur. Imagine if 5 family members were depending on you alone for income. What if a critical condition of coronary disease left you unfit for work? From what we studied, such conditions will likely set you back by nearly S$25,000 (upper-bound estimate set by MOH).

That’s a couple of months worth of salary out of the pocket, plus another few more months of lost income! As such, having adequate protection can help go a long way in tiding you over the adversity.

Secondly, upgrading your protection – aka ‘IP riders’ – comes with extra benefits. These normally range from choice of higher-class wards to private hospitals. And, not to forget, freedom of choice of doctors! Furthermore, you can expect shorter waiting times and higher claim limits.

Most Singaporeans take advantage of the popular option of receiving regular cash allowances! This will definitely be of help to you in finances during such misfortunes.

Lastly, healthcare can be really expensive when you have so many outstanding obligations. You’ll be shocked to know that CPF has certain payout limits when paying for housing/property. After which, you will have to fork out the remaining out of your wallet (yes, even if you have S$1 million accumulated in your CPF).

The same goes for your health and wellness – which is something you cannot afford to compromise. Without a source of passive income, financing healthcare expenses might be taxing.

YOUR PERSONAL ADVISOR IS JUST A WHATSAPP MESSAGE AWAY

Before we wrap up, it’s important to note a few pointers before deciding on whether to enlist a personal financial advisor! The primary reason of having such handy expertise is (on top of paperwork, of course) is to assist you through any confusing concepts or doubts and provide you with valuable financial direction to the best of his or her ability.

It may be beneficial especially if you have:

  • Limited financial expertise
  • Prior financial expertise and are keen to explore new financial insights
  • Little to no time and discipline to select and manage your investments
  • Require in-depth advice to help you in devising your own savings and retirement strategy

Look out for our next InsurBites edition so you’ll always be at the forefront in all things financial planning!

Alternatively, contact our growth consultants to find out more about our upcoming masterclasses and programmes. We are committed to creating real change in the community in our in-class sessions, and hope to see you and your teams’ breakthroughs!

Here’s a tip for FAs where you can step in to educate your client, or at least show you are willing to direct them in financial mastery.

Step 1: Right-click to save a copy of the infographic at the bottom of the page; or
Step 2: Copy the URL of the article
Step 3: Forward the copy/link to your close friends and clients! Or even better, share it on your social media to show your circle what you are/have been educating your network with. 

InsurBites #2: Top 5 Myths on Insurance Singaporeans have to abandon!

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