In the world of personal finance, everyone has their take on the topic of insurance coverage, it can get a little confusing on what is considered necessary (and what’s good to have). Learn why getting adequate protection is important, and why it’s good to get it when you’re young
If you’ve been working for some time, take a moment to flash back to graduation year.
Most likely you and your peers would have been thinking about polishing your resumes, preparing for job interviews, getting ready to scale the corporate ladder to success. Or perhaps you’re one of the few thinking of taking a gap year to explore different interests or see the world.
Did anyone consider the types of insurance policies you should be getting?
If you’re wondering why it is better to buy health insurance when you are young, here are the facts to get you started.
Like Most Things, Healthcare Will Get More Expensive
The main reason why health insurance should be your #1 priority is because when a diagnosis is made, it becomes more difficult or impossible to get coverage due to the pre-existing condition.
Imagine living through the financial nightmare of having to suffer the next 50 or 60 years not just physically but also mentally without hospitalisation coverage, causing a huge drain not just on your finances but also on your family's.
As Singaporeans, we are lucky to have access to a worldclass universal healthcare system and mandatory basic health insurance MediShield to help offset some medical expenses. To ensure the bulk of the financial burden is not on you, there is the option of topping up your coverage with an Integrated Shield Plan rider via a private insurer. Some insurers also advise getting a disability income
For longer term care, the government introduced CareShield Life in 2020 to replace ElderShield, with higher cash payouts starting at S$600 that increase over time.
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If You’re Taking Care of Parents or Dependants
Another key insurance you should get as soon as you start working is life insurance. Why? For the simple fact that you’ll be paying cheaper premiums when you start younger.
If you are getting a term life policy, the 15-25 years of payment period means you won't be paying after you decide to retire (vs a whole life policy) and can focus on other forms of protection or just your life. For parents with young children, this is usually when your kids are starting to earn their own income and no longer depend on you for financial support.
Deciding between a term or whole life insurance plan also depends on whether you are looking for a product with cash value and your ability to pay for the premiums, which are more expensive for whole life plans.
While the general advice is to allocate around 10% of your salary on insurance premiums, balance that with your actual financial situation and needs.
Critical Illness Is Getting Younger
While that’s not the case for the entire list of 37 official critical illnesses, sadly it is the case for diseases such as stroke, which is partially caused by lifestyle factors such as smoking, too much sodium intake, and a sedentary lifestyle.
The findings from a Life Insurance Association of Singapore study revealed that the average Singaporean has a critical illness (CI) insurance gap of S$256,000.
This is based on the recommendation for the CI coverage amount to be around 3.9x of the insured person’s annual salary to cover the costs of treatment, unemployment, and taking care of his or her family.
Unfortunately, getting a critical illness could also mean its recurrence down the road after recovery, so having a plan that provides payouts at different stages would be helpful.
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For Your Longer Term Financial Goals
Do you plan to send your children to university? Or are you looking forward to early retirement to enjoy a slower pace of living?
These are examples of huge financial commitments that require some advance planning, such as creating an investment portfolio that includes fixed income or endowments.
When it comes to getting an endowment plan, have a goal in mind before signing up so you are more likely to stay the course rather than thinking it’s a waste of money.
For short-term goals such as affording a wedding or housing, there are plans with shorter duration between 2-3 years. Before investing, ensure you are able to lock in the funds for the entire period to reap the maximum interest.
Tips for getting insured
- As a rough gauge, allocate around 10% of your take-home income for your insurance needs
- If setting aside a fixed amount every month is not possible, then commit what you can realistically afford and not have your plans lapse plans as signing up again depends on your prevailing health status.
- Do regular insurance reviews. As life goes by, your liabilities and goals will change. The plan that your parents purchased for you will definitely not be enough when you have children and a mortgage to pay.
- For claims, just get a good financial consultant who will fight on your behalf. if its general insurance, ensure all receipts and documents are in good order before submission to reduce the back and forth
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