7 useful tips for buying insurance
If you don’t have time to read through the whole article, you can check out our short version below.
- Figuring out your insurance needs and objectives is key
- Do not buy insurance on impulse
- Always do your homework – read your policy documents
- Buy according to your budget
- Make use of the free-look period
Insurance is a key component of financial planning. This is especially so in times of unfortunate events and crisis, such as the current COVID-19 situation. Yet, buying insurance can be complex since there are so many different types of coverage to satisfy a wide array of needs. Here are 7 useful tips:
1. Understanding your insurance and financial needs
If one had unlimited cash, then getting a comprehensive insurance coverage is not much of a problem. But insurance premiums can add up, which is why it is important to buy according to our financial needs.
Before you heed your best friend’s advice that “you need to buy life insurance”, give it a second thought. What suits her may not suit you, and the amount of money she has budgeted for her premiums could differ from yours.
It is thus extremely important to understand your financial circumstances and needs first, before you go searching for a product you want to buy.
2. Not buying insurance on impulse
Buying an insurance product is a long-term commitment. It is important that you can afford the premiums over a long period of time. Not keeping up with the premiums can lead to premature terminations, which can result in not getting back the premiums you have paid.
3. Do your homework
Like all types of financial products, it is important for you to do some basic reading on insurance before making a purchase. This will put you in a better position when you talk to your financial adviser. By knowing exactly what you are buying, it will prevent any unpleasant surprise should you need to make a claim one day.
This also means reading the policy documents – the Cover Page, a Policy Illustration, a Product Summary, a Bundled Product Disclosure document (for bundled product); and a Product Highlights sheet (for investment-linked policy). If reading all these is overwhelming, at least read the cover page, which consists of all the key things you must know about the policy.
4. Ask for help
If you are in doubt of any terms or policy statements, you should always ask your financial adviser or insurance company for clarifications. There is no need to feel embarrassed as insurance can be rather complex to grasp.
5. Know your objective – protection, investment or savings?
Before you speak to an advisor, you might want to first clarify your objective of getting an insurance policy. While you can always sit through a needs analysis with an advisor, you can also ask yourself some of the questions below to clarify your needs:
- Do I have enough to cover expenses if a major illness strikes?
- Do I need income protection in case of a critical illness
- Are there alternative sources of income if I cannot work anymore?
- Will my dependents have enough financial support If I pass on?
These might be difficult questions, but will help you clarify some of your insurance needs. On the other hand, there are also insurance products that provide more than just protection. Some life insurance products are bundled; which means they provide both insurance coverage, as well as investment benefits or a savings component. Typically, such products cost more than pure insurance products. If you are concerned with keeping your premiums low, you might want to keep to pure insurance products to provide sufficient insurance coverage. However, if you are considering a bundled insurance product, make sure it covers your insurance needs first.
Some advisors advocate the “buy term and invest the rest” approach, but it is important to consider whether you have the knowledge and discipline to manage your own investments.
6. Know your budget
Since insurance is a long-term commitment, it is important to consider the affordability of your premiums years down the road. There are endless permutations of insurance coverage you need, but it will require a large amount of money to support the premiums.
If budget is a constraint, you should focus on health insurance first, such as a hospitalisation plan to provide basic coverage of medical cost when needed. For those with dependants, you might want to look at term insurance to provide them with some financial support in the unfortunate event that you cannot provide for them anymore.
7. Free look period
All insurance companies grant at least a 14-day free look period that starts from the day you get your policy. Use this time to read through the contract and carefully consider if it meets your needs. Should you decide that it is unsuitable, you can request to cancel the policy and get a refund of your premiums minus the medical and administration fees incurred (if any).
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