Getting the right insurance in life is important. However, people sometimes get confused over what the “right” insurance is. It doesn’t help as well when we meet agents that have their own sales agenda to push for.
In an ideal world, we will love to be able to buy everything that we want. However, budget is always a constraint, and hence, the “wants” have to be further classified into “needs”.
The same logic applies to insurance. Who wouldn’t want to have as much coverage for as many things as possible? The problem, of course, is that we do not have an infinite amount of money to be able to buy every insurance policy out there and still have enough for daily expenses and future investments.
As a rule of thumb, it is worth setting aside around 2% of your income for insurance expenses. Assuming an individual earns $30,000 annually, that means about $600 a year set aside for insurance premium.
A budget is essential. Without it, there will be no end to the amount of policies you can spend your money on. A budget forces you and your agent to answer the hard questions. What are the truly essential insurance policies?
Here are our views for people in different phases in life.
Students: A hospitalisation plan is important even if you are still a student. It helps cover you for any medical expenses incurred due to hospitalisation or surgery. It insures you from any bill “shock” that could easily put your family in debt. Do yourself a favour: get it.
Young Working Adults: In addition to the hospitalisation plan, you can consider getting a critical illness or a disability income policy. This insures you against the event of an unfortunate illness that may prevent you from working. It also provides you with some income that may be required for your medical treatments.
Young Married Couples With A Home: Make sure you get mortgage insurance or a decreasing term policy that will cover your home mortgage in the event of one partner passing on. The policy will not lessen the pain of losing a loved one but it will at least ensure that the remaining mortgage for the home is not something that the surviving spouse has to worry about.
Married Couples With Children: In addition to the policies listed above, you should also include a term policy to ensure that your children are taken care of in the event that anything happens to you. A term insurance will be relatively affordable and sufficient to put your mind at ease knowing that your dependants are taken care of.
Elderly Couples: For an elderly couple, some of the insurance policies listed above will no longer be necessary. For example, if your children are grown-ups, a term insurance is no longer important. Neither is a disability income if you are no longer working.
For those who are 40 and above, you can consider getting a long-term care insurance. This provides you with a fixed monthly benefit that will be paid out should you not be able to perform certain daily activities on your own.
Speak To Someone You Trust: It is important for us to stress that the above pointers are simply guidelines based on the needs of the general public. As what insurance agents love to say, each individual have their own personal needs. Though an overused cliché, the agents are right. There is no one-size fits all product out there in the market.
If you are unsure about your needs, go talk to an agent that you trust. Ultimately, remember to set a budget for yourself. Insurance policies are meant to insure yourself against adverse circumstances in life, not take over your life completely with high premiums.
Have a specific insurance question that you wish to ask? DollarsAndSense is teaming up with fundMyLife to help get your insurance questions answered – for free. You can get personalised answers from a pool of handpicked, professional advisors. You can find out more about advisors on fundMyLife.