Insurance seems daunting to many fresh graduates, especially when you’re not sure which are the best policies to buy.
With different recommendations from one insurance agent to the next, there are just too many policies and information for a fresh graduate to digest.
Yet, there’s no doubt that insurance is an important part of managing your personal finances. For working adults , insurance acts as a safety net, especially when things don’t go as planned.
What are the right policies you should get? How can you make sure that you’re not overpaying for your insurance policies?
Here’s a quick fresh grad’s guide to the basic insurance policies you should get, and how to go about planning your own insurance portfolio. We will be covering:
- Why do we need insurance?
- What are the most important insurance policies to get?
- What to look out for when buying your first insurance policy
Why do we need insurance?
With the right insurance policies, you will be able to mitigate risks and protect your income if something bad happens to you.
What insurance policies should I get?
When choosing the right insurance policies, the first layer of coverage you will have to consider should be risk management. Potential risks such as unexpected illnesses, hospitalisation, or an accident can result in hefty bills that can hurt your finances.
For example, if you get hospitalised due to an illness or personal accident, having proper health insurance in place will ensure that you won’t have to pay a hefty sum for your hospital bills.
The second most important layer of coverage is protecting your income. Life insurance and critical illness policies provide you with a financial buffer, especially during unfortunate events.
In the next section, we will talk about the key differences between some of the most commonly known insurance policies. Knowing these key differences will help you better evaluate the type of insurance you should get!
There are the types of insurance you should look at.
1. Health insurance: Protect yourself from unforeseen events
Also known as an Integrated Shield Plan, Health Insurance helps to cover hospital and surgical bills, as well as outpatient care. This can be used on top of your MediShield Life, a basic health plan for all Singaporeans that provides basic coverage for public hospitals.
For Singaporeans, since you will be covered up to a B2 ward/service in public hospitals under MediShield Life, it’s recommended to get an Integrated Shield Plan that covers private hospitals (or up to an A ward for public hospitals).
Should you need to be hospitalised for any reason in the future, you will have better choices as to whether to go to a public or private hospital
2. Life Insurance: Protect your income in the event of death
For working adults, getting Life Insurance may be a stepping stone to your #adulting journey. You should be getting life insurance if you’re a breadwinner of your family, or if you have dependents or outstanding liabilities.
Life insurance gives a payout to your family, in an unfortunate event of your passing. In case of death, it also helps as a form of income-replacement, for your loved ones to tide over for a few years.
When choosing life insurance, you can choose either a Term Life or a Whole Life Insurance. Here are the differences between the two:
- Term Life: Focused on life coverage. Whatever premiums you pay will go into your coverage, which will end at 65 years old. There is no cash component in a Term Life plan.
- Whole Life: Life Coverage + Savings. There is a cash value tied to your policy.
While Life Insurance helps protect your income in the event of death and total permanent disability, its premiums may be more expensive as compared to the basic health insurance policies. As such, it is important to ensure that you get the right amount of coverage.
As a point of reference, Life Insurance Association Singapore suggests that your life insurance coverage should be around 11 times your annual earnings. This, however, varies according to you and your loved one’s lifestyle and expenditure, so do your due diligence before buying!
3. Critical Illness Insurance: Get protected upon diagnosis of a critical illness
Critical illness is usually considered a rider plan, which you can opt for on top of your life insurance policy.
With a critical illness rider, you will be paid a sum assured in the event where you’d get any of these 37 critical illnesses, such as cancer, stroke, and liver failure. With the possibility of 1 in 4 Singaporeans developing cancer in their lifetimes, it is prudent to get a critical illness rider on top of your life insurance policy.
4. Personal accident (Risk Management)
For those in higher-risk, or more physical jobs, a Personal Accident Insurance will be a great addition to your coverage. Personal accident insurance covers a person’s outpatient accidental medical expenses and is most useful in protecting you when an accident occurs.
For example, if you were to get into a car accident, your health insurance will be able to cover your expenses if you are hospitalised from the incident. However, if your injury does not require hospitalisation, you will still have to pay for outpatient medical bills such as a doctor’s consultation or medication, if you suffered minor injuries.
With a personal accident plan, these bills will be covered and reimbursed to you, giving you better coverage in the event of an accident.
Generally, personal accident plans are quite affordable, and the right coverage amount is dependent on your lifestyle! They usually cover for accidents such as sprains, fracture, food poisoning, insect bites, and more! Check with your company if personal accidents are covered in your group insurance. If not, it will be a good addition to your existing policies!
What you should know when buying your first insurance policy
There are many insurance policies out there, and what we’ve covered above is just the tip of the iceberg! There are, of course, insurance policies related to investing or retirement planning, but make sure your basic coverage is nailed down, first.
Now that you know what are the basic insurance policies you can get as a fresh grad, here are some important considerations you should know before purchasing an insurance policy:
1. Cover the essential, and make sure you’re not over-insured
When starting out, make sure you know your options. Don’t be roped into the first insurance plan you see, but take time to consider what your needs are, and which policies complement it.
Before jumping into any investment options via insurance, do your research on other types of investment opportunities available before buying into a plan. Similarly, if you’re getting your health, life, or critical illness insurance, make sure you’re not over-insuring yourself, as this may lead to hefty premiums that will be unsustainable in the long run.
You may use Planner Bee’s insurance calculator to help you figure out the total insurance coverage you need.
2. Get insured early
Getting insurance when you’re younger has its perks. For one, insurance is cheaper when you’re younger. If you wait till you’re older, you may have to pay more for your coverage. More importantly, getting insured early ensures that you ‘lock in’ your current health condition for your plan.
As many insurance policies do not cover pre-existing conditions, getting covered early allows you to get coverage for any potential illnesses that you may develop in the future.
3. Take note of any pre-existing conditions
Pre-existing conditions refer to any health condition that was present prior to a person’s new insurance coverage. These include certain health conditions, such as past injuries, high blood pressure, cancer that is in remission, diabetes, asthma, depression and more.
Most of the time, while insurance companies provide some level of coverage for those with pre-existing conditions, claims related to a customer’s pre-existing conditions will be excluded.
As such, you should not be purchasing insurance with the intent of ‘covering’ a pre-existing condition. Before you purchase a policy, you will need to provide full disclosure of your health and medical background, so it is good to be clear and upfront with any pre-existing conditions you may have at the start.
Buying your first insurance as a fresh grad in Singapore
The next time you’re approached by an agent, remember to ask for information on the right policies you need! With this handy guide, you will be able to decipher and categorise the different insurance policies in the market and make a more informed choice when it comes to your coverage.
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