What insurance policies do I need?
Now, that is a question that almost nobody asks themselves. Every day, we shop for stuff that we need (or don’t need) either through the internet or visiting the physical store. However, when have you ever set out to buy an insurance policy?
The reason why we don’t do so is because we do not see the need for insurance early on. I mean, how do we envision the day we are no longer around? But when we eventually do realize this need, it is often too little too late.
Here are the 5 types of insurance that every individual needs.
This has got to be one of the most ironically named words of all time. By purchasing life insurance, you get a payout when you pass on. So why do you need money when you are no longer around? The answer, for your dependents.
Life insurance protects people who are financially dependent on you. For instance, your children might need a monthly allowance from you, or your spouse might need money from you for the family’s living expenses. When the unexpected happens, the payout from a life insurance policy provides them with money, ensuring that they have no financial worries.
In Singapore, we are automatically enrolled into a term life insurance policy. Called the Dependents’ Protection Scheme (DPS), it insures all Singaporeans for a maximum sum assured of $46,000 up to age 60. However, this sum assured is usually not enough and you need life insurance from a private insurer.
If life insurance is protection against passing on too early, then an annuity is a hedge against passing on at a later age. Depleting your savings while you are alive is a very real problem. An annuity takes care of that, by providing you with a payout for a pre-determined period, or forever.
An annuity is so important that the Singapore government has mandated CPF Life for all citizens. CPF Life provides fixed monthly payouts to you for life. But, this payout might be not be enough for some of you especially as medical costs increase and you might need an additional annuity plan to supplement CPF Life.
Other than your age, there is one other thing that only goes up: medical expenses.
Medical care is getting more and more expensive and it will be needed more frequently as you grow older. Getting a suitable health insurance plan has become a necessity if you want to avoid large hefty bills from the hospitals.
With MediShield Life, you will be able to hedge against enormous bills from hospitalization and surgery. In addition, to defray the expenses even more, you can add on riders so that you do not need to pay the deductibles and co-insurance for the bills.
A deductible is the minimum amount of money you have to pay in a year before you can get to receive any insurance payouts. Co-insurance is the amount you have to pay after deducting away the deductible.
Assuming the deductible is $2,500 and co-insurance is 10%, for your first bill which cost $10,000, you will need to pay $2,500 and $750 (10% of $10,000 minus $2,500). The MediSave website has a good explanation on this: here.
Singapore is the world’s densest country and you can expect to see many people and vehicles all around you. Even at night, our roads are brightly lit and you can still see many people walking around and getting by.
Because of this, you have a higher probability of accidents. Accidents might be trivial or they can also be very detrimental.
With personal accident insurance, you will be able to get a peace of mind when you are involved in an accident as you will receive a sum of money to pay for your medical expenses. This money can also be used to supplement your income should you not be able to go work for some time.
Automobile insurance is mandated by Singapore law. It is not hard to see why. If you are involved in any accident, you could be subjected to a lawsuit and we all know, lawsuits are cheap.
Besides having the insurance paying for your medical expenses, it can also help to pay the legal fees of a lawsuit, even if you are not at fault. It is dangerous and financially unwise to drive around without an automobile insurance so get one even if it is not mandated by law.
When getting auto insurance, the most important thing you should look out for is the no-claims discount (NCD). You will get a discount to your premium each year if you do not file any claims for the year.
You get this in increments of 10% each year, to a maximum of 50% after 5 years. If you get file a claim, then your NCD discount will drop. How much it drops depends on the policy you have. NCD is so common these days that not having it means that you are getting a poor policy.
These are the 5 key insurance policies that you probably should look into. Remember, this is the most basic level and your insurance needs will most likely differ.
This article was first posted on PolicyPal’s blog.
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