When you think of Singaporeans, you think of kiasu – the fear of losing out. Take the Gifted Education Programme – it’s meant to be for children who have developed ahead of the learning curve, but these days, you even have tuition classes to help children ace the GEP selection tests. Singaporean logic seems to be: If you can afford it, and it’s good for you, you should buy it. Which makes us wonder: are Singaporeans spending too much on insurance?
1. First things first, insurance is not bad.
Let’s get this out of the way first: You NEED insurance. There’s just too much at stake for you not to set aside a certain portion of your income in order to pay for your insurance premiums. And I’m not just talking about the basics like home insurance or car insurance, both of which you need to get by law if you are a homeowner or a car owner. I’m also including life insurance on this list of basic insurance you should have, because the last thing we want is to leave our loved ones with a financial burden in the case of death of total permanent disability. But that’s not all you should have.
You should definitely also set aside money for travel insurance when you travel, no matter how short your trips are. You don’t want to be caught without travel insurance in a situation where you’re stuck with delayed baggage and missing your connecting flight. But on the other hand, you might also be paying a little too much for your travel insurance.
2. How much is too much when it comes to insurance?
In the case of travel insurance, it’s very simple. Several insurers offer different rates depending on your furthest travel location. For example, a travel insurance policy that covers only countries in South-East Asia is going to be much cheaper compared to a policy that covers travel in Europe or the US. If you’re only travelling to Malaysia or Indonesia, you definitely shouldn’t be spending more on worldwide coverage that you don’t need.
Some people, for whatever reason, may have paid for more than one travel insurance policy that may be eligible for a claim. However, most if not all insurance companies will have a clause in their terms and conditions that say you are not allowed to claim from more than one policy. Essentially, you are paying extra for nothing, and the insurance company is laughing all the way to the bank with your premiums.
At this point, you may be laughing at me – after all, no one spends too much on travel insurance. Most of the time we buy the cheapest travel insurance available!
But the same logic applies to other types of insurance as well! How many of you have health insurance policies that pretty much duplicates what MediShield Life will do when it kicks in later this year? Remember, MediShield Life is compulsory, your health insurance policy is not.
But you might be saying, surely no insurance company is evil enough to charge you for coverage that you don’t need. But the question remains: Do YOU know exactly what you’re covered for?
- Min. Death and TI Coverage
- Critical Illness Coverage
- Add on
- TPD Payout Limit
- Monthly Premium
3. The opportunity cost of insurance
Let’s start with an oversimplified illustration:
Say you’re just starting out in your career and earning $2,500 a month. You find a life insurance policy that covers you for $1.5 million dollars in the event of death or total permanent disability. However, it’s going to cost you $500 each month. That’s $6,000 a year.
There are two questions you have to ask yourself is: Firstly, can you afford to set aside $6,000 a year? When you’re starting out in your career, 20% of your income is no joke. Secondly, do you really need $1.5 million dollars in coverage? Are you even going to earn that much in your lifetime?
Furthermore, you have to consider what else that money can be used for. That $500 you set aside each month for insurance could be used to invest and earn you returns. How do you decide how much insurance should you buy?
A simple game that encapsulates the need to find this balance is Future Nova by NTUC Income, a city-building mobile game created by Innervative, a financial education games company. In Future Nova, your task is to earn as much money as possible from your city. However, various disasters can affect your city and cause you to lose significant amounts of money. Fortunately, you have the option of buying insurance, to protect you from these disasters. The catch? Buying insurance costs you money – so buying ALL the insurance available may not be the best strategy.
At the end of the day, there needs to be a balance between how much you’re spending on insurance and how much coverage you’re getting. Fair enough, finding that sweet spot is not easy – so hopefully playing a game like Future Nova will help you reflect about your insurance spending. Go check it out and see how things turn out for you. We’d love to hear your thoughts.
Are you paying too much for your insurance premiums? Or not enough? We want to know what you think.