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3 Common Mistakes Singaporeans Make When Purchasing Insurance

Buying insurance is a subject that people do not like to face. Most people would rather shrug it off and say: “Nothing will happen to me!” Let’s be honest – no one hopes that something will happen to them but this is precisely why insurance is important; unfortunate events happen unexpectedly and may use up a huge chunk of your savings.

Let’s take a look at some 3 common insurance pitfalls that you should avoid.


1. Failing to do research or make comparisons

Similar to investing, one ought to make comparisons when it comes to insurance, especially when the premium payments are going to last an entire lifetime! Regrettably, we have one real-life example in the DollarsAndSense team, a member who had fallen prey to this mistake when he was young and ignorant at that time.

At that time, he reached the age where purchasing an insurance policy will help enforce his savings habits and thus, responded to a plea by his insurance friend to meet up. Eventually, he bought a policy from the party thinking that his interests will be taken into consideration. Nevertheless, it was only when he grew up having better financial knowledge, did he realize that the policy he got into was the kind that generated the best returns; albeit not for him but for his friend instead.

This is probably the fundamental reason why Singaporeans are reluctant to dip their hands into purchasing insurance as they feel that they may get cheated instead.


2. Mixing insurance with investment

People usually feel that they are better off with life insurance policies because they offer both insurance protection and help to grow their savings due to the cash value that can increase over time. However, although bundled insurance-cum-investment products do work for the right customers, the returns tend to be lower than, say, for a mutual fund.

Therefore, it generally makes better sense to keep your retirement savings and your life insurance separate unless you’ve got a significantly large estate to deal with. A common saying goes like this: Stick with term and invest the rest. One should always remember that the purpose of insurance is solely for risk protection.


3. Insufficient coverage

This is probably the most popular question when it comes to buying insurance. Singaporeans know that they need insurance. However, many of them are not sufficiently protected for one simple reason – they don’t know how much insurance they need in the first place!

Everyone’s needs are different so it pays to sit down with a financial advisor to assist you in determining what level of protection is right for you and your family based on your financial responsibilities and different sources of income. Nevertheless, many people including myself, are afraid of certain conflict of interests where the agents are more inclined to sell their fat-commissioned products rather than helping to plan your finances with your interests as priority.

Nonetheless, you can still turn to online calculators or an independent financial adviser. Or in general, some experts suggest that you should own a life insurance policy which pays a benefit equivalent to around 7 to 10 times your annual income. I.e. you earn S$36,000 per year and should go for insurance coverage of an estimated value S$252,000 – S$360,000.



To sum it up, one should always perform due diligence before committing to an insurance policy. Instead of avoiding the topic altogether, we would like to cite a quote from the Roman military writer Publius Flavius Vegetius Renatus, who said this, “In times of peace, we prepare for war”.



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