Life Insurance

How Much Insurance is Too Much Insurance in Singapore?

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Peter Lin

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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?

 

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.

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Peter Lin

I am the poster boy for reinventing one's self. I've been a broadcast journalist, technical writer, banking customer service officer and a Catholic friar. My life experiences have made me the most cynical idealist you'll ever meet, which is why I'm also the co-founder of a local pop culture website. I believe ignorance is not bliss, and that money is the root of all evil only if you allow it to be.

  • Joelle Lim

    Hi Peter, I think i fall under the catergory where I have TOO MUCH insurance. Also my agent is also my friend, but i am starting to feel that the policies i bought is no longer fitting my needs and my friend is no longer processional enough to give advise that is suited to my needs. I am a pro insurance person, but now i do felt that not buying it wisely will only ended up wasting money after paying premiums for years and you cancel it.

    • sylvest83

      You should however look at the areas of concern and the potential loss u will incurred. For example, should a critical illness strike, medical bill is a financial loss to u. Unable to work for a prolonged period is another loss. Therefore it’s beneficial to have your medical bills covered comprehensively and have a lump sum payout of preferably 5-7 years of ur income. Do note critical illness payout traditionally meant in the more severe stage. Currently there’s early stage critical illness payout too.

      The potential loss if death occurs will be the loss of financial support for ur family, after life expenses etc. calculate your monthly family contribution, remaining liabilities like loans and mortgages. Make sure the death benefit can pay out all liabilities and last ur family till they are financially independent.

      There’s a lot more science to this and personally I believe one should always protect one’s wealth before trying to accumulate more. So before u start jumping into the next new endowment plan, think again if u are equipped with a good harness when u fall.

      • Joelle Lim

        Hi, medical bill is covered under the hospitalization policy (medishield) which i had that with a private insurer. lost of income i have sufficient to cover 5 years so does that mean i can safely say i have had enough?

        • sylvest83

          Joelle, happy to know you have put your financial plans in motion. You have to also look into different aspects like death, critical illnesses and disability. The potential losses for each event is found in my reply above. Then decide which are your concern and priorities your budget towards them.

          Personally, for critical illness coverage, so long you are covered 100% for your medical bills, up to a private hospital, and have a lump sum payout of about a year’s income during the early stage, and another 5 years income during the severe stage, with this coverage I believe it is sufficient.

          Reason being having the financial capability to recuperate for a year when you are diagnosed with an illness in the early stage, and hopefully will recover faster. If escalate to severe stage, it’s likely you can’t work normally till u recover.