Similar to going for a yearly medical check-up, reviewing your insurance coverage is something that you should do at least once each year. Doing so can help you identify insurance gaps and keep abreast of changes in your lifestyle that may require you to adjust your insurance coverage. These could include significant milestone events in your life such as buying a new house or welcoming a baby into the family. With these changes, your liabilities may change, and you need to ensure that your dependents are well taken care of should anything happen to you.
Before meeting and reviewing your insurance portfolio and potential coverage gaps with your trusted financial advisor, here’s a recap of the different types of insurance coverage that you need to take note of for yourself as well.
|What This Coverage Entails||How This Benefits You|
|Death / Total Permanent Disability (TPD)||Upon the event of death or permanent disability, a lump sum is disbursed to your dependents (loved ones).||This helps your dependents tide over the loss of potential income if you are no longer around (or in sufficient capacity) to provide for them.|
|Critical Illness (CI)||Upon the event of critical illnesses like cancer, a lump sum is disbursed to you or your dependents.||This helps you cover some of your medical expenses and relieve the financial burden on your loved ones or dependents.|
|Early Critical Illness (ECI)||Upon the onset of early-stage critical illnesses, a lump sum or multiple lump sums will be disbursed to you.||This helps you cover most of your medical expenses resulting from the critical illness you are covered for. ECI coverage is usually more comprehensive than CI coverage.|
|Long Term Disability||Upon the event of a disability resulting in you unable to work, you can opt for a lump sum payout or regular monthly payouts (in the case of Eldershield or Careshield)||This helps you to ease your financial loss should you be unable to work and provide for your family.|
These are some of the major needs to take into account when reviewing your insurance portfolio. Moreover, these needs will change in magnitude as we go through major life events. Here are 5 reasons how reviewing your insurance coverage at least once per year will go a long way to help you prepare for unexpected scenarios or plan for major changes.
#1 Ensure Appropriate Coverage
An annual review of your policies helps you stay up to date with what your coverage protects and where you may have gaps you may like to fill with supplemental coverage or additional policies.
At particular stages of life, different types of coverage will become more important as the probability of a particular event occurring becomes higher. One such example would be death and TPD coverage. The probability of death and TPD occurring for a 25-year-old university graduate who just started work is lower than a 60-year-old retiree. A more appropriate coverage may be early critical illness coverage, considering that critical illnesses afflict people of all ages. However, if you are 25 years old and have dependents who are reliant on your income (e.g., your elderly parents), then you may also wish to get yourself covered with life insurance.
#2 Manage Your Personal Life Changes
For couples who are getting married or awaiting the birth of a new child, there will be significant financial commitments in the near term that warrants consideration of greater insurance coverage.
Managing personal life changes can mean insuring your new-born child with a life insurance policy or buying a life insurance policy that reflects your new marital status (with dependents), protecting yourself and your loved ones against new risks posed by life transitions. Ironically, these transitions in life may impose a greater strain on your finances (having a child will cost you money) thus reducing the impetus for you to review your insurance portfolio as it would cost you even more.
However, precisely because of the heavier burdens you have to shoulder, you should offload some of the (financial) risks to insurance companies.
#3 Considering Purchasing A New Property
It pays to understand the role that purchasing property (taking on a mortgage loan) plays in your overall net worth and adjust liability protection for you and your family accordingly.
Purchasing your first BTO flat as a couple can be one of the biggest financial commitments young couples make. Taking on a mortgage loan also means a major increase in your overall liabilities (debts). Although most households are now dual income, if one spouse is unable to work, this will still add severe financial strain to the other.
This is why couples who purchase their first property together should also consider buying mortgage insurance, also known as mortgage term reducing insurance. It is a type of insurance that is designed to protect your mortgage loan against the event of a life changing event in your life. In the event of an accident or death, a lump sum will be paid out to you or your family if you have bought a mortgage insurance. The lump sum received will be used to pay off your home loan, which eliminates the worry of paying your mortgage.
Mortgage insurance is a type of term insurance where the sum assured amount decreases with time. This is because as time goes by, you would be paying down your mortgage. Since mortgage insurance is meant to pay for your mortgage loan in case anything happens to you, the sum assured should decline together with your mortgage amount.
#4 Your Salary May Have Increased Since The Previous Year
Having a bump in your salary may put you in a better position to afford some essential insurance coverage that you could not previously afford. This may be important especially if you have yet to consider critical illness plans that can protect you financially against the risks of getting critical illness in your lifetime.
According to the National Cancer Centre Singapore, cancer cases have been rising over the years, and the number of people living with cancer will continue to increase. During the period from 2013-2017, a total of 71,265 cancer cases were reported in Singapore and 48.4% and 51.6% of those cases were reported in males and females respectively. Critical illnesses like cancer can be age and gender agnostic and is a big risk to consider when doing an insurance review.
Moreover, it is not prudent to rely wholly on Medisave and Medishield for your healthcare needs. Although you may have the Integrated Shield Plan, hospitalisation plans cover only immediate medical expenses and not household expenses, ongoing debt payments and lifestyle maintenance during the period of recovery.
There are many types of critical illness plans in the market, such as single-pay, multi-pay, early-stage and late-stage plans. It is best to identify the plans that best suit your needs before committing to one, as CI plans are not easily understood.
#5 Starting New Ventures
If you are considering quitting your job and starting a new venture, there is going to be increased financial risk for yourself and your business partners (if any).
For business owners, anything that happens to you as the key person running the business can have an outsized impact on the business itself. This is where you can consider getting keyman insurance. Keyman or key person insurance is a standard life insurance or trauma insurance policy that is used for business succession or business protection purposes, taken out by a business to compensate that business for financial losses that would arise from the death or extended incapacity of an important member of the business.
Insurable losses in keyman insurance include:
– When a key person is unable to work or to provide temporary personnel and, if necessary, to finance the recruitment and training of a replacement
– To protect shareholders or partnership interests
– For anyone involved in guaranteeing business loans or banking facilities