Singaporeans recognise the need for financial planning as a way towards getting enough insurance coverage, as well as a part of a long-term plan to manage their finances and achieving their dreams. Yet, the somewhat confusing nature of the financial planning industry here has added to the uneasiness of consumers with regards to how they approach the subject and who to trust. In fact, more than half of the “financial planners and advisors” we see these days are insurance agents; many of which provide financial planning advice through the sales of their products. A survey conducted by the Financial Planning Standards Board (FPSB) in June 2015 found that seven in 10 respondents said they did not know who to trust (for financial planning), with Singaporeans ranking at the bottom three across Asia for their confidence in their financial strategy and knowledge. While Singaporeans benefit from the nationwide Medishield Life programme as an access to basic health insurance, most of us also know that it is inadequate on a more comprehensive level. So before you take out any insurance blindly for the sake of it, here are some common mistakes to avoid when taking up insurance coverage here:
1. Using insurance as investment
Insurance products have certainly evolved to cater to the multiple needs of the consumer. Other than simply providing monetary benefits when unforeseen illnesses strike, it is increasingly seen as an investment tool as well. Life insurance in Singapore provide options to invest via investment-linked products – insurance that comes with an investment component where part of your monthly premiums are used to buy units in funds. There are also those that build up cash value over time, similar to a savings plan where you will be able to get back a fixed sum of money after staying with the policy for a set number of years.
While these products may be suitable for those who aren't actively investing or not sure how to, they are perhaps not the most cost-efficient way to manage your money. It is a well-known fact that these products charge high management fees compared to investment funds you find on the market. It is best to separate your various financial needs and to buy insurance purely for coverage so that you do not pay for these excessive charges.
2. Ignoring Exclusions
Certain health insurance do not cover all types of health conditions, so you need to make it a point to ensure that any existing health conditions you may have are declared before you take up a policy. This can also include your family's health history and your propensity towards getting certain types of disease. The consequence of not checking this will be to pay for many years of premium and not being able to proceed with claims because the condition was excluded.
3. Getting over-insured
Due to the complexity of insurance policies, you may not find one single insurance policy that is all encompassing, and there is a chance that there are overlaps in coverage from buying a few insurance policies.
The fact is it is quite impossible to have an “all-in” coverage, or you will probably end up with thousands of dollars of premiums to pay per month. The best way to get around this is to establish your coverage priorities according to your life-stages. For instance, a young adult who is new to the working world may want to focus on getting a hospitalisation plan first and getting a critical illness plan in his thirties. When one is at the stage of building his own family, he may want to look into getting a term plan with death benefits, as well as a disability income plan. Everyone's needs differ so discuss with a trusted advisor about your needs to look for a plan that is suitable and affordable for you.
4. Buying on Friendship
It is surprising that being the Asian financial hub it is, Singaporeans still rely primarily on friends and family for financial matters and planning. This signifies that a huge emphasis is placed on trust when it comes to consumption of financial products. However, this hardly beats spending time getting yourself educated and understand your individual needs when choosing a suitable insurance policy. The other possible downside is that because you are buying from someone familiar, you may take-for-granted that whatever advice given is gospel and trust in it without doing the relevant research or seeking a second opinion.
5. Not Making Comparison Across Insurance Products
While there are many comparison sites here that focus on credit cards and loans, insurance products is a little tougher to compare as each policy can differ by their type of coverage, number of conditions and the premiums charged. It is difficult to compare like-by-like, which is also why consumers tend to take on the recommendations given by the agent they meet. The Monetary Authority of Singapore (MAS) has launched their Direct Purchase Insurance initiative last year, allowing consumers to compare and buy basic like insurance products directly. Although the product range is limited and you still need to contact a specific insurer to purchase a policy, it can serve as a useful tool to get yourself acquainted with the types of products available instead of speaking to an adviser which is tied down to a single insurer.
Buying insurance can be a confusing and time-consuming process, but it is equally important to ensure that you get the right products so that you do not end up wasting thousands of dollars to find out that you are not eligible for any claims when you need it the most.
Article written by Lynette Tan