FINANCIAL THOUGHTS
10 Common Myths of Life Insurance:
Singapore Edition
The word “insurance” is something very common in our society. As a matter of fact, within our group of friends, there will surely be one insurance agent. If you are smiling, it is probably right.
Then again being well aware of insurance makes us have so many assumptions of it. And unfortunately, there are things that are just pure myths. Thus, this article is here to debunk it all. Let’s go straight to number one.
1. I’m Single and Don’t Have Dependents, so I Don’t Need Insurance
This is one common myth but fortunately, people are being more aware of insurance even in such a situation. Nevertheless, lets shed a light on this myth.
Insurance has evolved throughout the years and the uses and benefits have certainly enhanced as well. And the insurance payout does not necessarily only pays out to your dependent only. Some insurance do payout the benefits to you, as the policy owner.
Being single, you are highly depending on yourself for everything. As the same as all human beings, all of us work in order to earn an income. From that income itself, it will be used for your day-to-day living.
When you are not able to work, it might mean the loss of income. And with the loss of income, you are not able to fulfill your expenses.
Income can stop at any time but expenses will continue regardless of the situation. Thus, being single and not having dependants means that you actually only have insurance to lie back on.
2. Sum Assured is Based On Your Annual Salary Only
You might have heard or read that the sum assured of your insurance policy must be based on your annual salary. It is true and one way to calculate for your sum assured. However, it is not the only way.
The number derived in order to get your sum assured that you need might be frightening and huge. And for a higher sum assured, it will mean a higher premium. Sometimes till a point, you feel that you rather not spend money on insurance.
But let’s change the mindset on that.
If the premium is too huge of an amount, you do not have to go all out and work extra in order to pay for it. Insurance should be helping you and not “torturing” you.
Your salary is usually made up of your:
– Expenses
– Debts
– Savings
When you are not able to afford the full of your salary, you can round up to a sum assured which consist of your expenses and debts only.
Here are the reasons why:
If you do not have money for expenses, you are not able to “live”
If you do not have money for your debts, interest charges will be kicked in and you will eventually fall into a bigger financial hole.
However, for your savings, if you do not have it, you can still continue to “live” and there is no penalty for not putting aside for your savings.
Thus, your sum assured does not necessarily is based on your annual salary only. You can derive it from your debts obligations and expenses only.
3. Cheaper Premiums Means Lower Quality of Insurance Coverage
Sometimes the phrase “you get what you paid for” means that if you pay for something cheap, you will get an item of low quality.
However, it does not necessarily apply to insurance. Lets elaborate further.
There are a few sites that are available that you can compare the premiums for a term life policy. You type in all the necessary fields in order to produce a list of options. But, when you look onto the cheapest one, that does not mean that it is not good or even unreliable.
An objective of a term life policy is to pay out a death benefit upon the death of the life assured. There is no argument between life and death, as it is clear-cut. You are still alive as long as you have not been issued a death certificate.
From the list of insurance companies that offer term life policies, all of them produce different premium amounts. With the assumption that every company has the same sum assured, you are actually offered different price points for the same amount of death benefit.
From the example above, the cheapest premium is from Company C. And highest premium is Company B. Nonetheless; the sum assured is all the same.
However, sometimes there is a different variable that results in the different premium amounts. Sometimes there are extra benefits other than the death benefit.
But overall, the quality of the insurance is not affected by the price of the premium. Therefore, if you want to compare insurance, do not only look at the premiums. You might want to look at other benefits, or perhaps even from the experience of your financial adviser. They would know better as they literally liaise with companies on a daily basis.
4. Only Breadwinners Need Life Insurance Coverage
It is a common assumption, the number four. But it is not entirely true.
You might have heard that the insurance is used to replace your income. It is a straightforward statement and makes sense.
If you are the breadwinner, the only source income for the family is from you. Thus, if something were to happen to you, the insurance payout can be used to continue your cost of living.
But, for a stay-home spouse, it is also wise for them to get insurance coverage. Let’s explain further.
If the stay-home spouse were to fall sick and was diagnosed with cancer, the breadwinner would need to continue working in order to get the money for treatment and other necessities as well. In other words, you still need to work no matter what.
The worst that could happen is that the stay-home spouse only has 3 months left to live.
The question is, would you go to work when you only have 3 months left with your spouse or you rather stay home for the last 3 months of your spouse’s life?
If the stay-home spouse has insurance coverage, you have the option of staying home with your spouse for that crucial, emotional last three months.
Thus, it does not mean only the breadwinners need life insurance coverage but so do the spouse.
5. There Are Only 3 Life Insurance Companies in Singapore
This is more to self-observation but it is quite true. Most people are aware only of the insurance companies that consistently have roadshows or events.
Let’s not name names but you might know the common ones. But as a matter of fact, there are more than 3, there are a total of 23. It is not your fault that you might not know all of them.
Having choices might be good news for you. And respective companies have their strength of respective products. Say, for example, Company A offers good Whole Life Plans and Company Z offers good returns on their Endowment Plans.
It is confusing and cumbersome however to know and compare all of them.
Thus, you can always approach an independent financial adviser to be exposed to a variety of financial instruments. Better yet, you can contact, yours truly.
6. My Health Disqualifies Me From Life Insurance
For most insurance policies, you are required to answer medical related questions and sometimes a medical check-up prior to getting insurance coverage. If you happen to fail due to your health, you might be declined from getting life insurance coverage.
But not all insurance policies go through the same process. There are insurance policies that are called Guaranteed Issuance Offer (GIO) policies. They are insurance plans that you do not need to go through medical check-ups and answer medical related questions. Normally, GIO plans are called endowment, retirement and savings plans.
What is the catch?
Nothing actually. All you need to know is that the policy is mainly used for accumulation and savings purposes. Not for death benefits or critical illness benefits.
Yes, there is a death benefit but not a substantial amount.
Thus, your health does disqualify you from certain life insurance policies, but not all of them.
7. I Will Receive Money At Some Point Of Your Policy Term
You might be wondering on what does this mean. And to avoid confusion, let’s continue scrolling down.
Not all insurance policies will give you back money upon maturity. Term Life and Whole Life policies will mainly give you payout upon death. Hospital and Surgical plans or more commonly known as shield plans, will normally only reimburse you when you get hospitalized or have to go through surgery.
Yes, some policies do have cash value, which means when you withdraw your policy, you will receive a certain amount of money. But do take note that, if you withdraw and surrender prematurely, most of the time it would not be to your advantage,
Insurance is something that is beneficial for you and it should be kept as long as possible. Thus, if you get back your money when surrendering or withdrawing your policy and NOT from the end of the maturity, it means that you wrongly bought the policy or perhaps you do not understand what you got in the first place.
8. You Are “Fully Covered” When You Have A Lot of Policies
The more policies you have do not necessarily mean that you have everything “covered”. Quantity does not define the completeness of your insurance needs.
Shall give you an example.
Footwear. There are many types of footwear and each one of them is suited for different functions and situations. You can buy 8 pairs of sandals but that does not mean you are ready for a hiking trip. You actually need a hiking boot.
You can buy 4 pairs of soccer boots but that does not mean you are fitted to play basketball. You would need a pair of basketball shoes instead.
Now fit the examples into insurance matters. You can buy as much Personal Accident plans but it would not pay out if you passed due to an internal illness. It only covers ACCIDENTAL death only.
Thus, if you do have a good number of insurance policies, do make sure the differences between each one of them. You do not want to come to a day that you are not able to make a claim.
You should not rest your life on assumptions. You should be certain of your life’s plan.
9. Yearly Review equals to Buying More Insurance
Most people have goals in life and they work hard in order to achieve them. Your goals might be owning a penthouse, opening up a café or even buying a luxurious sports car.
All that requires money and you will be working hard to achieve them.
Annual reviews are done to make sure that you are on course to reach those goals. Hence, if there is any potential event that might disrupt your journey to the goal, insurance might be one solution to it.
Life is full of both delightful and also unfortunate surprises. Thus, insurance is a tool for you to achieve your goals in a life full of unexpected situations.
10. Dependents Will Receive All of The Death Benefit
Most of us buy insurance so that the death benefit can be handed over to our beneficiary. But have you thought whether that money really is being “given” directly to your spouse or children?
Sometimes, you just buy an insurance policy but never really chose anyone, in particular, to receive the sum assured.
Thus, it comes to the importance of nominating your insurance policy.
Then you question, “What will happen if you do not nominate your insurance policy?”
The death benefit will then be included in the deceased estate. And when that happens, it will only be 2 different scenarios.
If there is a will, the sum assured along with the rest of the estate will be distributed accordingly to what is written in the will.
The other scenario is that if there is no will involved. The sum assured along with the estate will be distributed accordingly to the Intestate Succession Act.
That means that the distribution will not be following your personal liking or intention.
Take note, this will only apply to a Non-Muslim. It will be different for a Muslim. You can read here for a better understanding of estate distribution for a Muslim.
Clear assumptions and have more clarity
There is some uncertainty and bad blood about insurance. But if you understand better of it, you will realize that it will help you one day.
We would not know when you will need it and you do not wish for anything bad to happen either. But with insurance, you know you are more prepared to face it and even recover.
Well, that’s the end of this article. Do share it if you think this is beneficial to your friends and family.
Disclaimer:
I am a financial adviser but I am not your financial adviser. Therefore, what is posted on this website, are my opinions and NOT to be taken as financial advice. Information provided might be relevant at this period of time but may be irrelevant due to alterations to rules, regulations or policies. The information provided is true to the best of my knowledge, but there maybe omissions, errors or mistakes.
