Insurance – a hierarchy of protection

A hierarchy of protection

For the young and healthy, getting insurance is usually not a top priority. Yet, life is full of uncertainties and it is often at the precise moment of meeting a misfortune that one would go, “I should have gotten insurance coverage!”

Despite the importance of insurance, some choose to avoid talking or finding out more on topics like accidents, falling sick or premature death as they are deemed as unpleasant or taboo. 

For those who are keen to find out more, they could be overwhelmed by the wealth of information out there. They could also be reluctant to meet with an insurance agent for fear of being a subject of product-pushing.

However, it is no doubt important to get the right type of insurance according to your needs; and there could even be advantages when you start young! Here’s help to finding out more about your protection needs.

An introduction to different types of insurance

A term/life insurance plan typically offers a lump sum payout in the event of death, terminal illness, and total & permanent disability. You can choose to add on a critical illness rider for coverage against the diagnosis of a covered critical illness, such as a heart attack or cancer. This can help you with medical and living expenses as treatment for such illnesses are often costly and may affect your work and income stream whilst recovering.

For a more holistic coverage, a personal accident insurance provides a payout in the event you meet with an accident and incur medical expenses, or if you pass away or become permanently disabled due to an accident.

A hierarchy of protection

Hospitalisation & surgical policies help you settle costly bills that are incurred during your hospital stay. They have rider options, or enhanced benefits at additional premiums, to cover your portion of the bill known as “co-insurance” and “deductible”.

Some of these policies also come with a hospital cash benefit that offers daily cash payouts during the time spent in hospital.

Critical illness plans pay a lump sum in the event of a serious illness such as cancer and heart attack, to help you with expenses.

Other healthcare plans cover doctor visits and emergency treatment, as well as long-term care in the event of disability.

Do note that all Singaporeans and Permanent Residents already have MediShield Life, a national health insurance plan that provides lifelong protection. It is administered by the Central Provident Fund (CPF) Board and helps to pay for/subsidise large hospital bills and selected costly outpatient treatments, such as dialysis and chemotherapy for cancer.

The coverage is meant for subsidised treatment in public hospitals. If you prefer to cover charges for staying in Class A/B1 wards in public hospitals or private hospitals, you may wish to consider purchasing additional private insurance coverage, known as an Integrated Shield Plan.

A hierarchy of protection

Some people find endowment plans attractive because of the guaranteed cash payout they would receive upon maturity after a specified number of years. The tenure ranges from two to 10 years or more.

The policies are usually bought as a form of disciplined savings as well as by parents to fund their children’s tertiary education. Such plans also provide some protection against total & permanent disability and death.

Endowment plans are available as participating policies, which have guaranteed as well as non-guaranteed benefits.

The guaranteed portion, or sum assured, is paid when the policy matures, or the insured person dies. The non-guaranteed portion comprises annual dividends in the form of a cash bonus, that comes from participating in the profits of the insurance company, or the funds it invests in.

Prioritising insurance for young adults

As someone starting out in the workforce and finding ways to make the best of paying off study loans, giving a monthly allowance to your parents and perhaps saving for your first home, taking out an extra amount each month for insurance premiums can be painful.

But getting basic health insurance during this time will be your best first step to building up your financial defences. Premiums are generally more affordable for younger people, so it is a good time to pick up essential health coverage. Another consideration is a critical illness plan and a personal accident plan, if budget permits.

Consider a private hospitalisation Integrated Shield Plan as young adults are less likely to have pre-existing medical conditions that excludes them from insurance coverage.

If you work in the gig economy, there is a greater need to have sufficient insurance coverage since you face a bigger risk if you are unable to work for a period of time. Find out more about the additional insurance coverage that is relevant for a freelancer here.

A hierarchy of protection

Are you getting married, or have a child on the way? Would you want to ensure that your family continues to thrive even if you're no longer around?
Life insurance is an option for those who are the family's key earner, or who have elderly parents or children to support. Such policies typically pay out the sum assured to your dependants, should you be disabled, critically ill, or no longer around.

Such policies are available as term insurance, whole life insurance and universal life insurance.

Term insurance are policies that provide coverage for a fixed period. It pays the sum assured only upon total & permanent disability, or death, of the insured person during this period.

Whole life insurance on the other hand is a long-term plan covering the insured’s life or up to 99 years. It also accumulates cash value. Such a plan pays out a sum of money upon the policyholder’s death, or when the policy is surrendered.

Other options are investment-linked policies, which means you are investing part of your premiums in a fund, or funds, picked by the insurer or a third-party fund manager.

However, these tend not to have a guaranteed value and you are responsible for the investment risks. Your payout at the end of the policy's term could potentially be less than the sum of the premiums you've paid over the years.

And if you have a mortgage on your home in your name, you could also consider taking out mortgage term reducing insurance, a form of decreasing term insurance where the sum assured declines over time. This helps to pay off your home loan upon death.

Consider how many people you have to support and how old they are before you decide how much life insurance to purchase. Our NAV Planner tool allows you to calculate the coverage you’d need by considering your dependants, your existing insurance and savings. Login to the NAV Planner to try it out!

Now that you are clearer on the types of insurance available and what could be more suitable for you, let’s look at a 3-step plan to making your insurance purchase!

3 steps to purchase insurance products

1. Understanding your insurance and financial needs

Getting a comprehensive insurance coverage in Singapore can be expensive. As someone who is starting out at work, it is important to buy according to your needs and affordability.

Before you heed your best friend’s advice that “you need to buy life insurance”, give it a second thought. What suits him may not suit you, and the amount of money he has budgeted for his premiums could differ from yours.

It is thus extremely important to understand your financial circumstances and needs first, before you start shopping for an insurance product.  You can also use the digital financial advisory tool NAV Planner to help you find out how much coverage you need.

2. Comparison between the different insurers and pricing

Similar plans provided by different insurance providers are usually priced quite competitively, but there could be slight differences in coverage. Look into the details when you are comparing plans, and don’t forget about taking your budget into consideration!

You can always seek help from an advisor if you need further explanation on the coverage and guidance. It’s always a good idea to have some knowledge by reading up first, so that you ask the right questions and make informed decisions.

3. Free look period

All insurers grant at least a 14-day free look period that starts from the day you get your policy. Do use this period to look through the policy documents and assess if this is what you really need. 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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Disclaimers and Important Notice
This article is meant for information only and should not be relied upon as financial advice. Before making any decision to buy, sell or hold any investment or insurance product, you should seek advice from a financial adviser regarding its suitability.

All investments come with risks and you can lose money on your investment. Invest only if you understand and can monitor your investment. Diversify your investments and avoid investing a large portion of your money in a single product issuer.

Disclaimer for Investment and Life Insurance Products