It’s a difficult task to determine which type of insurance is the “right” type for us. There seems to be a never-ending amount of insurance needs that one can have and most people might be afraid to miss out on certain coverage, leading to over-spending on insurance premiums.
As we move nearer to the end of the year, it could be a good time to review your existing policies to see if you need more coverage or to consolidate some of your insurance needs. Some may think that since we have Medishield Life coverage from our CPF, we will not need additional insurance. That’s not true at all as there are exclusions on Medishield Life and it also does not payout a full amount on claims. Thus, it is always prudent for us to take responsibility for our healthcare needs.
Here’s a helpful list of the different types of insurance products we think will be essential for your life-stage planning.
For those who have just stepped into the work force, getting an insurance coverage might not be at the top of your priority. You could be paying off your study loan or trying to save up a bit of money and think that being young, you’d probably not need insurance coverage. However, it is precisely due to the low cash reserves that you should give insurance a thought.
You might want to start with a Hospitalisation plan to start to cover you in case of any unfortunate accidents or illnesses. On top of having an hospitalisation plan, you can consider getting a critical illness or a disability income policy. While you may not have a lot of financial commitment at this stage, getting yourself insured for this aids income protection and prevent your medical needs from becoming a burden to your family as well.
Other than gettting these essential insurance, draw up a savings plan where you put aside 20 to 30% of your income per month to start building up an emergency fund which should be the equivalent to six months of your monthly income. Any extra cash could go into investments which will give you better returns for your money.
At this stage, you can anticipate an increase in financial commitments – mortgage loans, car loans and perhaps family planning.
Consider getting a mortgage insurance that will cover your home mortgage in the event of a partner passing on. A mortgage insurance protects members and their families against losing their homes in the event of death or permanent disability before the outstanding mortgage loans are paid up.While the policy will not lessen the emotional pain of losing a loved one, it will at least ensure that the remaining mortgage for the home is not something that the surviving partner has to worry about.
If you have children, you’d also need to start planning for their education needs. You should also include a term policy to ensure that your children are taken care of in the event that anything happens to you. A term insurance is comparatively more affordable than a whole-life insurance and will be sufficient to put your mind at ease knowing that your dependents are taken care of.
Any surplus you have from these should go into a fund for retirement-planning. As the cost of living rises with time, you will need to look at investment vehicles which provide returns higher than inflation. You’d need to look beyond “safer” investments such as low-interest yielding savings account or bonds if you want to accumulate enough wealth to support your retirement lifestyle.
For those who are 40 and above, consider getting a long-term care insurance. This provides you with a fixed monthly benefit that will be paid out should you not be able to take care of yourself due to sickness or disability.
By 50, you should already have adequate insurance to cover your healthcare needs and building up your retirement fund should be your priority.
At this stage, you could also be thinking about wealth distribution for the next generation.
If you are unsure about your insurance needs, you should always speak to an agent that you trust. Compare the type of insurance you have across different insurers with our tool or enquire with Moneyline should you have more questions.
It is important to prioritise your needs and set a budget for insurance needs. Insurance policies are meant to insure yourself against unfortunate events in life but they should not burden you with high premiums.
What’s listed above simply focuses on insurance needs but does not represent a holistic financial planning view. It is important to take into account other money goals as well, such as income protection and wealth accumulation at different life stages.
You might want to learn more about investing and the different types of investment products available to suit your risk profile. Look out for our next article on an introduction to the different types of investment products to get yourself educated!