Buying Your First Insurance Policy? Here’s the Lowdown to Ensure You Don’t Get Fleeced
15 December 2017
They lie in wait at MRT stations, at shopping mall roadshows and outside office buildings, just looking for the right time to pounce. First they approach you and ask you to fill in an innocuous-looking survey. Before you know it, they’re calling you on the phone, asking if you’ve ever thought about financial planning.
You might instinctively avoid insurance agents like the plague, but truth be told, you probably do need at least one of the products they’re selling.
What is insurance?
Insurance is a financial product. In return for the payment of your insurance premiums, the insurance company promises to pay you if certain unfortunate incidents, detailed in your insurance policy, take place.
For instance, medical insurance usually gives you an insurance payout if you get hospitalised. Of course, you don’t know if that will ever happen to you, but if it does, you could be spared a four or five figure hospital bill, thanks to your insurance.
Types of plans
There is a mind boggling array of insurance types. You can insure almost anything so long as you have the cash. For example, Taylor Swift reportedly insures her shapely legs for $40 million.
But for us mere mortals, there are only a few types of insurance that are affordable and relevant, such as the following:
Medical insurance: While Singaporeans have MediShield Life, which is essentially a health insurance plan, this plan covers only the bare minimum. It does subsidise things like your hospitalisation costs, but only up to Class B2 wards, and outpatient treatment such as dialysis and chemotherapy. Integrated Shield Plans add on to what MediShield Life offers by paying for private hospitals, or Class A or B1 wards in public hospitals. You can also buy additional “riders” for greater coverage.
Life insurance: If you have dependents such as kids or aged parents who rely on you financially, life insurance ensures that they receive a payout if you die or become incapacitated. This is not to be confused with…
Investment-linked life insurance: This is a hybrid of life insurance and a sort of savings/investment plan. Insurance agents tend to push these plans very aggressively due to the high commissions they get from selling them, and many Singaporeans buy them thinking they make a good retirement plan. If you’re thinking of signing up for one of these, make sure you understand how they really work and determine if they’re the best choice for you.
Motor insurance: All vehicle owners in Singapore must buy motor insurance, which ensures that if you get into an accident and damage someone else’s car, the insurance company will be able to pay on your behalf. Motor insurance can also offer payouts in other situations, such as if you have to get your car towed and/or repaired.
Travel insurance: Lost luggage, stolen belongings, missed or delayed flights and unexpected hospital bills are just some of the mishaps that can befall you on holiday. Travel insurance offers compensation for travel-related misfortune.
How do you decide what to buy?
If some insurance agents are to be believed, you “should be buying investment-linked life insurance on top of your normal medical insurance”.
But what you really, really need depends on your age and your circumstances in life. So how do you decide exactly which plans are best for you? Should you just listen to everything your insurance agent says? Of course not. Understanding what different types of policies cover you for and are meant to do is the first step to deciding what to buy.
By all means listen to what various agents have to say, but afterwards it’s up to you to compare the various policies from different insurers and decide which offers the best value for money. If you’re just starting out in the workforce and don’t really have much to spend, getting something like term life insurance, that provides you with a much larger coverage amount for smaller premiums might be more prudent. As you are able to dedicate more of your salary to coverage, you then consider adding policies like life insurance policies that have a cash value as well, for your retirement years.
[Read also: The 5-Step Salary Budgeting Guide for 1st Jobbers]
How much should you spend?
If you’re the sort who is overly concerned about adequate coverage, you might be tempted to shell out a ton of money to make sure you are insured for anything and everything. But that’s just as bad as being insufficiently insured—either way, there are much better ways to be managing your money when it comes to having adequate coverage.
For starters, you should make sure you’re not buying policies that overlap, as you won’t be allowed to claim money for something that’s already been paid for by another policy.
It’s also important to be realistic about whether you can afford your insurance premiums. You might love the idea of never having to foot another hospital bill in your life. But medical insurance armed to the teeth with riders can get mighty expensive as you age.
As we’ve mentioned, knowing the basics of each product can help you to make a much more informed decision and help you to build the coverage you need in the right way without overstretching yourself on premium payments.
[Read also: Insurance Or Investment Which is More Important]
Do you have insurance? Tell us which plans you have in the comments!