Bridging The Protection Gap At Different Stages Of Life

This article was contributed to us by AIA Singapore.

Having sufficient insurance coverage will always be a fluid situation for people. As we enter different stages of our lives, insurance coverage that used to be sufficient in the past may no longer be adequate or even suitable.

One common problem is underestimating the risk of being under-insured when a person transits from one life stage to another. Often, people don’t even recognise that their protection needs have changed until a life crisis hits. By this time, it is often too late and individuals are left to bear the full consequence of being under-insured.

What can a person do to ensure that they are not at risk of being under-insured?

One simple trick is to re-look your existing coverage levels each time you enter new stages in life. Here are some common life stages that will have the greatest impact on your protection needs.

# 1 Joining The Workforce

One of the first things any responsible adult should do upon entering the workforce is to get themselves insured, if they haven’t already. The reason is simple – being young and with the potential of a long and bright career ahead, the biggest risk you face is an unexpected accident or illness restricting your ability to earn a livelihood for yourself and/or your family.

The easiest way to jumpstart your insurance planning journey is to set up an appointment with a trusted financial advisor.

It’s important to openly discuss any existing insurance policies that you may already have. This could be policies that may be bought by your parents while you were a child or provided by your employers. It is equally crucial to discuss your financial commitments and requirements with your advisor. Only when your financial advisor is armed with this information, can they accurately identify possible protection gaps that you may have.

Generally, for young working adults who do not have any dependents yet, common insurance policies to consider would include a private integrated shield plan (IP), critical illness coverage, disability income protection and a personal accident policy.

# 2 Starting A Family

After working for a few years, many people settle down and start a family. This is where it’s timely to review your existing insurance coverage to identify new protection gaps that may have formed.

For a start, you should ensure that you, as well as your spouse and children, have the right health insurance policies to protect the entire family against hefty medical bills. This should include a private integrated shield plan (IP) like the AIA HealthShield Gold Max. For added peace of mind, you could also consider purchasing a rider to reduce your co-payment and deductibles on medical bills.

Beyond just health plans, having sufficient life insurance coverage is crucial at this stage in your life. That’s because as a parent, you need to ensure that your spouse and children are able to continue life at the existing standard of living they are used to if something were to happen to you. Life insurance policies are a great tool to ensure that sufficient insurance payout is made to cover your family’s future needs.

The Life Insurance Association of Singapore (LIA Singapore) has a useful protection gap calculator that can be used by individuals to calculate if you have enough life insurance coverage.

Alternatively, you can work with a trusted advisor to calculate the amount of coverage that you need, and discuss the best way to close any existing shortfall.

# 3 Peak Earning Years

As you enter the decade between your mid-30s and mid-40s, you will likely be at your “peak earning”. At this stage of your life, retirement planning becomes an important part of financial planning.

Even as you go about building investments and income streams for your retirement, you have to be vigilant to the risks you face. For example, you may have bought an investment property to provide rental income in your retirement years. In the long-term, this property could be a valuable one providing a recurring income stream. However, in the meantime, you would have had to take on a housing loan to fund the down payment.

This housing loan, while taken on as part of a savvy retirement plan, creates a significant insurance gap. That’s because in the event something happens to you or your spouse, the surviving parent may be burdened with a strenuous mortgage to upkeep, especially if they have to ride out a weak rental market. That’s where a term life insurance policy becomes important.

Other risk areas associated with retirement planning include poor health or illness, which may force a person to take a break from working, at a time when their earnings, and financial commitments, are peaking. This could be detrimental towards an individual’s retirement planning goals and even have a more immediate impact of struggling to keep up with financial commitments.

To protect against this risk, individuals can consider disability insurance policies. Such coverage ensures that policyholders who find themselves being unable to work due to a disability continue to receive income to provide them with vital financial stability and peace of mind.

Relook Your Protection Gap During Major Transitions In Life

Entering new stages in life can be exciting and daunting. This also means making important decisions in both our career and personal life, while having new experiences to look forward to.

Critically, it is this period of time that is most important for individuals not to neglect the protection gap a new phase in life creates. Whether it’s the birth of a new child, an additional loan to fund an investment or even switching to a career that is considered higher-risk, it’s always worth spending the time with your financial advisor to identify new risk areas and how you can bridge the protection gap for yourself and your family.