In many aspects, adulting can be exciting. Figuring out your insurance however, might not rank quite as high up there.
With so many types of insurance, so many providers and so many plans, many young Singaporeans tend to settle on whatever their insurance agent friend recommends.
Just like any other financial product, knowing how to choose an insurance plan that suits you best will make sure you get the most bang for your buck. In this guide, we start by identifying the difference between general insurance and life insurance.
What is General Insurance?
General insurance is actually a broad umbrella term that refers to many different types of insurance. It’s sometimes called Non-Life insurance, meaning that it covers almost everything other than death.
With general insurance, you’re essentially protecting your assets rather than your life. This means that the provider will compensate you for financial loss associated with everything from health, travel, business or your property.
Types of General Insurance
From your car to your home, below are just a few of the most common types of general insurance you’ll find in Singapore.
- Health and accident insurance (also available under life insurance)
Health insurance typically covers you for surgeries, hospitalisation or critical illnesses.
- Motor insurance
Motor insurance compensates for damage caused to your vehicle or a third party’s vehicle due to accident or theft etc.
- Travel insurance
Travel insurance reimburses you for costs associated with flight cancellations, loss of baggage or emergency medical expenses abroad.
- Home insurance
Home insurance covers you in the case of damage to your home due to natural disasters, fire or burglary etc.
Comparing the two: General insurance vs Life insurance
The whole premise of insurance is that you as the insured, pay to protect yourself or your beneficiaries against the possibility of unexpected loss.
With life insurance, the loss in question is your life. With general insurance, that loss is more specific, such as to your car, home or luggage.
Life insurance may also involve an investment component to it which most general insurance does not.
|General insurance||Life insurance|
|Objective||Compensation for unexpected loss or damage up to a certain amount||Financial compensation to beneficiaries in the case of the policyholder’s death + investment product|
|Coverage||Highly specific, depends on the nature of the loss or damage||Death, terminal illness or permanent disability|
|Insurance claim||Sum insured is paid upon the insured event||Sum assured is paid upon the insured event, or policy maturity|
|Cash value||None||Depends on policy|
Check out: Comparision of whole life insurance policies
What is life insurance?
Life insurance is a contract that ensures upon your demise, your beneficiaries will receive financial compensation to help support them after your death. Some life insurance policies also cover terminal illness or permanent disability to various degrees.
This is particularly important if you’re the sole breadwinner in your family. Risk is present all around us, and in the case of sudden death you’d want your family’s financial security to be secured rather than plunged into uncertainty.
You pay either a lump sum or periodic premiums to your life insurance provider.
Types of life insurance
While the concept for most life insurance policies is similar, they can be split into these categories:
- Term life insurance plan
A term life insurance plan is the most basic type of life insurance. The “term” in term life insurance means that you will only be covered for a specific time — for example a term of 30 years or up to 80 years of age. Term life insurance is the most affordable and straightforward life insurance plan, but doesn’t accumulate any cash value.
- Whole life insurance plan
A whole life insurance plan covers you for your entire lifetime as long as you’re paying the premiums. While it may be a little more pricey, your beneficiaries may get to receive cash value on top of the sum assured.
- Endowment plan
With an endowment plan, there’s more of an investment component rather than just insurance. The premiums you pay are essentially split into two buckets — one for the actual life insurance, and one for investment. Once the policy matures, you receive a payout called an endowment.
- Money-back plan
Money-back plans and endowment plans are similar in that they’re both an investment and insurance at the same time. With money-back plans however, you receive the payouts at predetermined intervals rather than at the end of the policy.
General insurance vs Life insurance: Which do I need?
Life insurance is something that should be considered as soon as you have someone who depends on your income. That could be your spouse, children, or parents.
Most experts agree that single individuals with no dependents would be better off placing their money elsewhere. That said, do note that any debt that you might leave behind will be passed onto your dependents (if you’re single, this is likely your parents) in the absence of life insurance.
General insurance on the other hand, is to be decided on a case-by-case basis since it operates on a claims and reimbursement basis.
Motor insurance is mandatory in Singapore and most other countries. If you travel often for work or leisure, you might want to opt for annual travel insurance as a precautionary measure. As with many things, it’s all relative.
Got more insurance-related questions? Check out our fresh grad’s guide to insurance policies you should get in Singapore!