“I don’t believe in insurance.” Sounds familiar?

This is probably the first thing that came to your mind whenever someone approaches you, be it a phone call or out on the streets.

However, what if insurance is free; would you have taken a second consideration? If you do, chances are you are not a non-believer of insurance; rather, you have no idea what the purpose of insurance planning is.

Over the years, I’ve seen much confusion surrounding this topic – from what type of insurance is the best to how much you need and where to get it.

In my newsletter to you, I will share the following:

  1. Before planning: Five common mistakes people make
  2. After planning: Four common mistakes people make

Before planning: Five common mistakes people make when it comes to insurance planning

  1. Last priority in the list

Nobody wakes up one day and say that today is the best time to get my insurance planning sorted out. In fact, in most circumstances, people put insurance planning as the last priority.

The main reason why planning should start early is because as we age, it gets more costly to do planning. Take for example, the difference between a 20 year old and a 25 year old man’s premium for a simple life insurance is about $300 per year. That is $6,000 extra over the next 20 years PLUS if something happens within that period, you lose your ability to get covered totally.

  1. Thinking that it is all about buying products

This is one common mistake that most people would think whenever they want to start planning. The mantra is, financial planning is never about buying products, it is about making the right financial decisions time after time.

To a working adult without any dependants, e.g. parents or children, technically getting a life insurance would not make sense to him. However, that does not mean that he should not look into areas like having a critical illness and hospitalization insurance plans in place.

It is about which phrase of your life you are at before making any decision with the types of solutions in place in the market.

  1. Thinking that it is expensive

This is one of the major concerns to many people who were first introduced to financial planning. However, this will reiterate the previous point on the misconception of just buying products.

Ideally, to address most (if not all) of the concerns of insurance planning, 10% of your income should be able to do the job. One of the reasons why it may not address all could be your age. The older you get, the more portion of your income you have to set aside for planning.

4. Relying on employee’s benefits only

This is one grave mistake that anyone should make. Just imagine that your company provides you a company’s car. Do you list the vehicle in your property? In the event of a car accident, do you have a choice like car owner, on whether you should repair or discontinue driving the car? The chances will be you have to pay your company for the loss.

Relying on employee’s benefits is as good as that. In fact, you do not own the insurance policy, but rather just one of the lives assured in the group’s profile.

What if you are down with a chronic illness and you are being laid off by your company, how are you going to pay for the remaining of your outstanding medical bills?

5. Getting it online

Nowadays the insurance industry is not just flooded with new consultants, but also a lot of marketing online for direct perchance of insurance. It was an initiative to allow consumers to have the options to acquire insurance products without going through a consultant, sometimes, the pushy ones.

While getting insurance online has its own benefits, there are some pitfalls that one must consider. Buying insurance online is like self prescribing your own medicine when you are down we severe flu. After many attempts, you will have to seek doctor’s advice because of their profession.

However, the biggest worry about insurance is not at the point of application, rather, it is at the point of claims. However you ever wonder the real cost of not engaging a professional when a claim occurs?

After planning: Four common mistakes people make

  1. Buy and that is it

What if you have gotten you insurance planning in place? Congratulation, however planning does not end there. Below is a bell-curve and it represents the amount of needs required for your insurance planning.

The bell-curve above shows that the lifetime coverage of an average man is represented by the area under the curve. For instance, most of the people would have their highest liability during mid-30s to 50s, because of house, a car, education cost for their children etc.

However, you are in your 20’s now, it might not make sense to get $1,000,000 coverage for yourself. However, along the way, as time passes, it is important to do constant review to address the concerns along the way. The last thing you want during claims is to learn that you are way under-covered than you should.

After 50’s, your dependants may rely lesser on your income and thus, you should review to reduce the unnecessary cover. This is one approach to unlock your resources from the insurance company. Thus, the next time you reject your consultant for a review, do think twice.

  1. Nomination of policies

Do you know that there is a chance insurance company not pay a “proper claimant” full policy proceeds if an insurance coverage is more than $150,000? This is in accordance to Section 61 of the Insurance Act.

The Act has also stated that any remaining amount above $150,000 will be paid to the executor(s) named under a Grant of Probate or administrator(s) named under a Grant of Letters of Administration (LA).

In layman terms, the purpose of nomination is to prevent any hassle during the claim of the proceeds when one passes on. In addition to saving the hassle, it also save cost and time as the request of LA process would usually be costly and long. On the other hand, the cost of doing a nomination is actually free of charge.

This is one of the reasons why there were unclaimed proceeds lying in insurance companies, as of 2016; there were more than 8,000 insurance policies unclaimed, which is worth some $150 million in proceeds .

Generally, there are two kinds of nominations, Trust Nomination and Revocable Nomination. The difference to the types of nominations is in the rights to the ownership of the policy. In a trust nomination, the policy owner loses all rights to the ownership of the policy and revocation of trust nomination can only be done with the consent of all nominees.

  1. Not fully understand what one has gotten

Imagine that you went into a pharmacy and purchased an oral medicine not knowing the purpose it serves. It is probably unthinkable because we all know the potential repercussion of taking wrong medicine.

It is the same when it comes to insurance planning. The last think you want is being told that your insurance policies do not address the concern you are currently faced with.

For instance, in Singapore, there are medical insurance which provides cover for hospital bills, it is known as Medishield Life. Individuals have the option to upgrade it with private insurance company through the Private Medishield Integrated (PMI) plan.  However, not many of them are aware that PMI alone does not comprehensively provide cover for your hospitalization cost, due to deductible and co-insurance payable on your part.

Therefore, it is important to understand what you have gotten so that you will not be caught in the cold.

  1. Family members are not aware of what one has gotten

The reason why insurance planning was established was probably because you want to leave something behind should any mishap happens prematurely.

This is a true story that happened more than 8 years ago. One of my childhood friends passed on at the age of 20. At that time, the family members were not aware of what to do and whether what policies have their son gotten then. As a result, we have to go through each insurance company in Singapore to check whether my friend was a policyholder in any company. Can you imagine the pain each time the customer service officer said, “I am sorry sir, he is not our policy holder, we can help you with it”?

In the event when a claim occurs, you may not be around to facilitate or instruct your loved ones what to do. Thus, it is important to keep your family members in the loop of the policies you have gotten.

Conclusion

In conclusion, it voices down to how discipline and responsible one is towards his or her loved ones. It is also a wrong perception to think that insurance planning is only affordable to the rich. In fact, on the contrary, if you cannot entertain the thought of forking out tens of thousands dollars for your medical needs in future, then insurance planning is crucial. Why not set aside a monthly “medical expenses” for the future instead of facing the uncertainty of life as a result of an unknown medical bill?

My recommendation for people who are new towards financial planning, find a consultant that you trust and understands you. The reason is because each individual is a unique situation financially. You would not want a consult a doctor who already had your medications prescribed even before seeing you (that is product pushing!).

Disclaimer:

All content provided in this newsletter is for informational purposes only. The owner of this note makes no representations as to the accuracy or completeness of any information on this site or found by following any link on this site.