Nobody likes to talk about insurance. Let’s face it, insurance isn’t the most interesting topic we would like to start a conversation with. Most people often believe nothing will happen to them but this is precisely the reason why insurance is important - nobody knows when an accident is going to happen and when it does happen, it may deplete a huge chunk of your savings. If you are a newbie at purchasing insurance, take a look at the following to prevent yourself from making the same mistakes.
1. Failing to do your own research or comparisons
As per any other major decisions, one ought to do the necessary research and comparisons before coming to a conclusion. This is particularly true for insurance, since the premium payments are going to last an entire lifetime for most people, depending on what type of insurance you get. We have all heard of insurance horror stories whereby a client have purchased an insurance only to realise that it generates good returns, though not for themselves but for the financial advisor instead. This is probably one of the key reason why Singaporeans are reluctant to dip their hands into purchasing insurance as they feel that they may get cheated instead.
2. Mixing insurance with investments
Most people usually prefer whole life insurance given that it provides them with not just protection but contains a savings element which allows you to accumulate your cash value. However, that said, although this scheme does work for some customers, the returns tend to be lower than, say, a mutual fund. Thus, it is recommended that one separate both their insurance coverage and retirement savings. One should always remember that the purpose of insurance is for risk protection.
3. Inadequate Coverage
Now comes the key question for insurance. Everyone knows they need it, but many of them do not have sufficient coverage because they do not know how much they need in the first place. Bringing this topic up to your financial advisor might sound like an invitation for them to sell you more policies but it is still an important question that you need to ask. Everyone have different needs hence it is important to sit down with a financial consultant to help you assess the required level of protection for you and your dependents based on your sources of income and various financial responsibilities. You should know how your life is changing and which areas may require more attention. At the same time, you should have a feasible budget that will not disrupt your family’s daily expenditure requirements or other financial planning strategy that you have in place. Life events such as getting married, purchasing a home, having a baby or even pursuing a new hobby and adopting a pet can change your insurance needs and requirements. Take these types of questions to your financial advisor only after you have pondered over it yourself and are ready to listen to professional advice. Listening to what they says makes a lot of sense as you would never know the details and fine print of the policies you are intending to buy without their explanation. Your policies may include exclusions for certain risky jobs or hobbies. Similarly, you could require additional policies once you are less healthy or contract a disease.
In summary, one should always perform due diligence before committing to an insurance policy. Instead of avoiding the topic altogether, I would like to cite a quote from Benjamin Franklin, who said this, “By failing to prepare, you are preparing to fail”.