This is part of a series of posts that will explore a number of firsts in the life of a fresh graduate. Insurance is a sensitive topic for many of us, especially since it has been historically plagued by scandals of fraud and deception.
Insurance shouldn’t be hardMany of us are not fully aware of the options available – with more than hundred of policies from tens of insurance companies in Singapore alone, choosing the right policy is time consuming and difficult because everyone of us has different needs at different stages of life. This lack of knowledge makes us victims to predatory behaviour from insurance agents on the street or some of your ‘close friends’, who claim financial planning expertise or dangle cheap freebies in exchange for signing up wealth management plans. Now that the heavy introduction is done, let’s get to the important point of this post: which insurance should you buy first?
Understanding is keyUnderstand first, what insurance is supposed to do — it acts as a goalkeeper, not a goalscorer. Many of us use insurance for the wrong reasons, like hoping to get rich from it or buying them based the the promise of quick gains and glitzy promises. WRONG. Insurance should be first and foremost, a protective tool that protects you from any financial outlay beyond your means. Buy life insurance — which pays out a lump sum upon your death — to protect your loved ones from the burden of having no money or income when you die. Buy hospitalisation insurance — which covers your medical bills in part of in full when you get hospitalised — to protect your family from scary bill shocks when you undergo an expensive treatment. Buy critical illness insurance — which pays a lump sum upon diagnosis of a critical illness — to protect yourself from worrying about expensive treatment costs. Buy personal accident insurance – which covers accidental injuries from burns to fractures to dismemberment — to protect yourself from costs which cannot be claimed if you’re not hospitalised. Buy travel insurance – which reimburses you for travel related mishaps or unortunate events — to protect you from forking out additional travel expenses in addition to your misery. As you can see, they are all protective in nature, and the cost you pay to protect is the insurance premium, which rises with the scope and duration of coverage. But which insurance should you buy first? Well, it depends on your needs. You don’t need insurance if you don’t need protection. Simple.
Do not mix it with investmentsBeware of mixing insurance with investments as they are two entirely different products. Insurance is a protective tool while investments are used to grow your wealth. But financial advisory firms often package these together as part of a package to do both conveniently, at the expense of high commissions! These investment-linked plans not only suck at doing both well, they require long-term commitment on your end and are expensive to terminate prematurely. Imagine having regrets being stuck with the plan five years down the road! You’d be disappointed that after reading up till this point, I still haven’t recommended an insurance plan. Fret not, because I…won’t.
Insurance is a personal decision and the type of plan to chose depends on every individual’s circumstances, financial constraints, protection needs, time horizon and many more. Consult a financial advisor to assist you with this, but never go into the meeting clueless.To read other posts in this series: The First Paycheck | The First Savings Account