Adulting 101: Getting started on buying insurance policies

Adulthood is an invigorating stage of life as young people join the workforce, take on more responsibilities and set their sights on the future. But its many facets — from managing finances and buying a home to achieving work-life balance — can be overwhelming.

In this series, TODAY’s journalists help young Singaporeans navigate this stage of their lives and learn something themselves in the process.

SINGAPORE — I will be the first to admit that I am pretty clueless about insurance. I have heard the words “products”, “premiums”, “coverage” and “claims” being thrown about but have not been able to make much sense of any of it.

Having started my first full-time job last year, I was urged by my parents to buy my first insurance policy.

“I’ll just get whatever she got,” I said to the financial planner who had helped my sister some months before.

Based on conversations with friends, I know this is common — many of us just buy the same policies that friends or family have. Or when our friends become insurance agents, we buy the plans they offer us without doing much research of our own.

A friend said: “Honestly, until now, I still don’t know anything about insurance. I just close (my) eyes and pay $7,000 every year.” 

This past week, I decided to speak to some financial advisers to get some help on how to properly start an insurance portfolio, and they said that this method of blind faith is certainly not the way to go.

HOW TO GET STARTED

Mr Tan Chin Yu, a client adviser at wealth advisory firm Providend, said: “You should not just blindly buy insurance because you might end up overpaying but still being under-insured for what you really need.”

Executive financial consultant Damian Pang said that before buying anything, it is useful to speak to a financial consultant to help with your planning process.

Besides providing professional financial advice and recommending suitable products, they can share their own experiences and identify possible blind spots you might have, he added.

“A good analogy is like trying to self-assemble a personal computer for the first time by buying different hardware parts from different sources. It can be a time-consuming and frustrating process,” Mr Pang said.

Mr​​ Tan Siak Lim, the director of financial advisory group Financial Alliance, said that it is important to make comparisons of similar products from various insurance companies. 

“The difference between similar products from different insurance companies can be significant. Also, talk to a few financial advisers to find one who can give you really good advice, because some may focus on selling products instead.” 

WHY IS HEALTH INSURANCE A PRIORITY?

Given that most of us do not earn much when we first begin our working lives, health insurance should be our first priority, the advisers said.

Medical expenses can potentially be a huge financial burden, and locking in lower premiums at a younger age is a good reason to start getting health insurance early.

An insurance premium is the amount of money you pay for an insurance policy. Generally, the younger you are at the point of buying a health insurance plan, the lower your premiums will be. 

Mr Tan from Financial Alliance said: “It's important to lock in your protection especially if you are still in good health and fully insurable.”

Once illness strikes, buying health insurance would be more difficult due to a pre-existing condition and some insurers would even reject you as a customer outright. 

If one has limited funds and has no insurance plans at all, it is always good to start with a hospitalisation plan first, such as an Integrated Shield Plan from private insurers, Mr Pang said.

“You can also choose to add a relatively inexpensive but useful accident plan for smaller, more frequent accident-related outpatient bills like sprains, cuts, fractures, falls, burns and the like,” he added.

Similarly, Mr Tan from Providend would advise a young person to first think about whether they need an Integrated Shield Plan to supplement their existing MediShield Life.

MediShield Life is a basic health insurance plan that every Singaporean has. It is administered by the Central Provident Fund (CPF) Board, and helps to pay for large hospital bills and some expensive outpatient treatments such as dialysis and chemotherapy for cancer.

An Integrated Shield Plan provides extra private insurance coverage on top of Medishield Life. This can give you benefits such as covering the cost of seeking healthcare from private hospitals or a stay at A- or B1-type wards in public hospitals.

WHAT’S NEXT?

So let’s say I’ve bought an Integrated Shield Plan. What should I think about next?

Ms Viviena Chin, chief executive officer of Eternal Financial Advisory, said the answer is what is called a “rider”.

While an Integrated Shield Plan will cover the big bills that you incur in hospital, it is subject to an annual deductible and 10 per cent co-insurance. A deductible is an initial amount you have to put down for your medical expenses before you can make a claim on your health insurance.

Of the remaining amount after the deductible, you have to co-pay 10 per cent and your insurer pays the rest.

“So you will have to ask yourself whether you can afford to take care of the deductible and co-insurance from your own pocket. If not, you have the option to cover that by getting a rider to patch up that amount, but it will still be subject to 5 per cent co-payment,” Ms Chin explained.

A rider is an insurance policy provision that adds benefits to or amends the terms of a basic insurance policy such as an Integrated Shield Plan.

Ms Chin also noted that an Integrated Shield Plan would not provide an extra lump sum payout to replace your income in the event of diagnosis of early or major illness, and that there are insurance plans that do this.

She gave this breakdown of the different types of health insurance plans I could consider after investing in a hospitalisation plan:

• Critical illness plan – To provide a lump-sum payout to replace my income if I am ever diagnosed with a major illness such as cancer. This could help reduce the financial burden of ongoing follow-up expenses.

• Disability income plan – To replace the loss of income if I ever become disabled due to an accident or illness and am unable to go back to work during a stage of life when most people would still be working.

• A plan for long-term care in the event of a severe disability – This would help provide monthly benefits in the wake of a severe disability, should I be unable to perform some daily activities due to an accident or illness. The monthly payout would reduce monthly ongoing expenses, which can be costly.

WHAT ABOUT HEALTH INSURANCE PROVIDED BY MY COMPANY?

To err on the side of caution, the short answer is “no” to depending fully on insurance provided by your employer.

Mr Tan from Financial Alliance said: “To play safe, you should get your personal health insurance and disregard what you have from the company. This is because, firstly, your company coverage may be quite low and with various sub-limits.”

He added that the coverage provided is also subject to one’s continuous employment with the company, which is not certain.

A company might also change or even remove the coverage upon the next policy renewal, he said.

In the event that one suddenly suffers from a major illness such as cancer, for example, one may not be able to continue working, resulting in the loss of coverage and income at the worst time.

"And you would not be able to buy personal insurance for yourself after that, since you would already have a pre-existing condition," he said.

“Even if none of the above happens and you work there happily until retirement, by then, it’s likely that you may be suffering from some chronic illness, rendering you 'uninsurable'.”

HOW MUCH SHOULD I BE SPENDING?

Mr Tan from Providend said that some people might advocate setting aside 5 to 10 per cent of your income for insurance premiums, but it is preferable to focus on your needs first and covering those needs in the most cost-efficient manner possible. 

“This is preferable to sticking to a fixed percentage to spend. Everyone’s circumstances can be very different and if one is fortunate enough not to have many dependents and have simpler needs, then they can allocate the savings towards other goals,” he said.

How much is too much?

This is an interesting question, Mr Pang the financial consultant said, because if everything is going smoothly in life and we don’t have to make a claim from our insurance plans, most of us will feel like we are overspending on premiums.

However, when calamity strikes, many end up wishing that they had invested a lot more in insurance.

And so the key to this, as with most things in life, is balance.

The danger of under-insurance is we do not have sufficient protection when unforeseen circumstances strike, whereas over-insuring compromises our ability to enjoy now or save for the future. 

Speaking to the financial advisers helped me realise the need to truly understand the various insurance plans available and how I should be careful in picking what best suits my needs.

Like they said, while it may be a tiring and tedious process, sitting down with someone who can break things down for you and best explain your different options is most ideal and is an important step that I will be taking.

Now that I’ve learnt all this, I will be going back to the adviser who sold me the same plan as my sister to relook its coverage to make sure that it really is ideal for me.

ABOUT THE WRITER:

Natasha Meah is a journalist at TODAY covering the health, education, community and finance beats