When it comes to insurance planning, it is best to avoid potential pitfalls which consumers may have overlooked. One of the most common mistake is to combine insurance and investments, thinking that one policy will be sufficient to cover both needs. However, this may not be the best arrangement. Let us elaborate more in the next paragraph.
#Mistake 1: Using Insurance as Investments
Insurance can be expensive for a reason. The premiums that you are paying include commissions, distribution costs, mortality charges, sales charges and others. If you are looking to use your policy to get a decent return, you will be surprised to find out that only a fraction of your premium will get invested in the first few years.
This is why most participating insurance plans (that gets invested into a par-fund), have almost no cash value in the first 2 years, and will would usually come close or break even near the very end of the policy (based on guaranteed values only). If you decide to pull out of the plan early, expect potentially significant losses.
(See "4 Exciting Ways Insurance at FSMOne Makes Your Life Better")
The next point that we would like to illustrate relates to your HR benefits. Most companies provide free group insurance as one of the entitlements when you join as an employee. Now the potential mistake could be relying on the company's insurance coverage and thinking that this is all you need and ignore the whole insurance planning process.
#Mistake 2: Relying on Company's Group Insurance
Many companies cover their employees through a group insurance. Some provide very comprehensive coverage which can be quite attractive. However, have you consider what if you leave the company? What happens when the company gets down-sized and you have gotten retrenched? What happens if your health condition is not in the best state right now?
This is a common trap that many people fall into. By the time they start to look at getting insurance coverage when they are much older, they may not be able to get the coverage they need, or get it at less than ideal terms.
(See "You Might be in Massive Trouble, Without These 3 Insurance Policies")
Lastly, we have written previous articles highlighting the need to get the right amount coverage and ensure that we have covered the potential expenses coming along. Nevertheless, under-insured is still a common thing amongst consumers.
#Mistake 3: Under Insured
A mid-career person might incur a couple of liabilities along the way. Here's a simple breakdown of the potential liabilities and obligations that might happen:
Expected Expenses or Liabilities |
|
HDB Loan for 4 or 5 room |
$360,000 |
Car Loan |
$72,000 |
Household Living Expenses for 10 years1 (Based on Singstat study) |
$4,000 x 12 months x 10 years = $480,000 |
Child's Future Education Needs2 (Based on approx. education cost inflation rate) |
$40,000 p.a. x 4 years = $160,000 After 21 years of inflation at 5% = Approx. $446,000 |
Total Protection Need |
$1,358,000 |
*Based on approx. purchase price of $400,000 for a HDB apartment at 90% loan
Some of the liabilities can be covered through other means, such as the Home Protection Scheme for HDB loans. However based on the scenario above, if you are not covered for at least $1million, you are most definitely under-insured. And that is all before taking into account the effect of inflation.
Did not buy enough coverage as it was too expensive? - This would be easily covered through term insurance plans.
Being under-insured means that your family will essentially be putting all their lives on hold as they will need to focus on clearing the sudden financial burden upon their shoulders.
(See "Average Singaporeans Need $1 Million Coverage. Have You Had Yours?")
How FSMOne can help you get on track
Our team of friendly advisers is able to help you review your financial objectives, long term commitments, and offer you investment and insurance advice specific to your needs. If you would like assistance in reviewing your financial and protection portfolio, or simply to get a quote for an insurance plan, you can contact our advisers at advisory@fundsupermart.com.
Available Products on FSMOne Insurance |
Term Life, Whole Life, Critical Illness, Annuity, Health, Endowment from Manulife, NTUC Income and Tokio Marine Life Insurance *Please check with our advisory team if the product you want is available on FSMOne Insurance |
Interested to learn more? Check out these articles:
5 Simple Steps on Getting Your Life Protection Coverage Right
Average Singaporeans Need $1 Million Coverage. Have You Had Yours?
How Do You Know If You Are Immune to Cancer?
5 Awesome Facts You Didn't Know About Medisave & Shield Plans!