Credit: Pixabay

Misconceptions About Insurance That Will Cost You

Koh Jun Hui (Bryan)
Sep 2, 2018 · 4 min read

Insurance is a topic hardly discussed among friends. There is a saying that goes “no-one woke up thinking they have to get insured”. I benefited and was also cheated with Insurance. Hopefully this article will clear a few misunderstanding towards Insurance.

I hope that by the end of this article, you will learn something new or invoke a positive change to your own financial management.

“Insurance is not part of Financial Planning”

Insurance serves 2 functions of Financial Management: Protection, and Growth. Health Insurance is a form of Protection of an individual’s finances — in the occasion when you have to be hospitalised, hospitalisation fees is an unforeseen expense. Saving or Endowment plans helps with Growth of finances by providing some form of interest which may be used to beat inflation.

In proper Financial Planning, the duty of an Insurance Agent is to assist you with planning financially for your financial goals in life. Thus, the term “Insurance Agents” has recently been more commonly used as Financial Consultant, or Financial Advisor.

This point is useful in gauging if the Financial Advisor you may meet or currently have is doing proper financial planning. All Insurance products are more or less similar, what matters is how the Advisor tailor fits the available products to fit your lifestyle.

“Get covered while you’re young is a sales tactic”

It is a fact that Medical Insurance plans are cheaper when you are younger. The logic behind this is that premiums are set based on past statistics, younger people do not require as much medical treatment as when they are old, thus, less medical claims. Therefore, Insurance premiums are cheaper when you are younger.

As we grow older, it is possible to develop certain “less serious” conditions which may affect underwriting for medical coverage. For example, high blood pressure will affect coverage for cases such as stroke or heart attack as it is a related pre-existing medical condition. However, if you have bought the plan before being diagnosed with high blood pressure, the medical condition will still be covered.

“Buy once is enough, I’m already covered”

Contrary to popular belief, having once bought Insurance plans does not mean you are adequately covered. According to the Life Insurance Association’s study in 2017, economically active Singaporeans and permanent residents are only covered for a year of their expenses — or 20 per cent of what is needed should they be out of the workforce for five years. (Louisa, 2018).

Your coverage will depend on a few factors, such as the number of dependants in your household, your yearly income and your current expenditure. Proper financial planning will take into account these factors in deciding how much you should be covered. A good Financial Advisor will also look at how you can achieve the greatest amount of coverage within your budget.

“Yearly review means I have to buy a new plan every year”

Some advisors make it a point to do proper after sales service such as yearly reviews for our clients. The purpose of a yearly review is to be kept updated with your current lifestyle, changes in your job or expenditure (a newborn). These events will require tweaking of your financial plans. This does not necessary mean you have to keep buying new plans, in fact, there will be instances when there are areas where you can save on premiums, such as a change of job classified under a risky profile to one that is less risky can potentially save you money for plans underwritten based on your occupation. Changes in the number of dependants may mean changes to your financial plans accordingly as well.

Credit: Pixabay

“Insurance is only for consideration if I die or fall ill”

Insurance helps financially during an unexpected passing, or to reimburse your hospitalisation fees. There are insurance plans which also helps you in case you live too long as well. “Annuity” plans provide you with monthly allowances either till your death or till a certain age. These plans are getting more relevant as the improvement in medical technology means illnesses gets treated better, which result a longer lifespan. Reports have shown that life expectancy is increasing globally (Lancet, 2015)

“The more Insurance plans, the merrier”

Getting more plans, such as Life Insurance plans may not seem to be a bad idea if you can afford it. BUT, realistically, majority of people do not have the luxury of having a coverage of $50 million on their life. In addition, spending too much on your Insurance plans may mean that you have less resources to allocate to other things in your life. Proper financial planning should ensure that your finances are well protected and most importantly to allow you to enjoy life, such as a yearly holiday with loved ones. After all, YOLO.

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Thank you for reading. I will be posting regular content on my page, your shares and comments are greatly appreciated. It will help me with improving my content and even inspire me to write even more. Cheers.

References

  1. https://www.todayonline.com/singapore/singaporeans-lack-80-critical-illness-protection-needs-life-insurance-association
  2. https://healthdata.org/news-release/life-expectancy
Koh Jun Hui (Bryan)

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