What Are The Different Types Of Insurance Products Out There? What Should I Get Myself Covered With First, And Do I Need Them All?
We take a look at what different types of insurance products exist in the market and narrow it down to what an average person will very likely need to be considering regardless of his or her situation.
Earlier this month, the Monetary Authority of Singapore (MAS) announced that a web aggregator would be launched in April that will enable Singaporeans to start comparing and purchasing basic insurance products online.
This good, and long overdue, move is likely to be the first in a major shift toward realigning the industry from one that has primarily been seen as heavily reliant on personal selling from insurance agents, to one where more effort is spent on educating the people about the importance of identifying and purchasing the right kinds of insurance policies that are most suited to themselves.
We shared our views previously on how we believe buying insurance online will be the next big thing in Singapore.
Of course, one key step toward achieving that will be for Singaporeans to first understand the various types of insurance products out there, and what they actually need for themselves given the particular phase in life they are in or individual lifestyles they lead. Ultimately, having a web aggregator will be useless if individuals here are unable to understand the various products that he or she should be considering.
Education On Insurance
A conversation on insurance products in any group setting is a big no-no. Nobody really cares, or wants to know more about, boring old insurance, unless of course they have to make a claim. That is one of the main reasons why most Singaporeans do not know enough about the different types of insurance products our there and how to differentiate what they need.
What are the different types of insurance products out there?
Many people don’t spend enough time understanding the different types of insurance products because they think it is too complicated. That is not true. Here is a basic introduction, for those who are keen to take their first step.
Types Of Insurance:
|1. Health Insurance
|Hospitalisation & Surgery (H&S)Critical IllnessDisability Income
|2. Life Insurance
|Term PoliciesWhole Life Policies
|3. General Insurance
|Home InsuranceTravel InsuranceAuto Insurance
As you can see, there are basically only 3 broad categories of insurance products. Of course within each category, there are more products for considerations.
What Do I Really Need?
The first thing to recognise is that insurance companies created all the various products (rather than a one size fit all policies) because different people have different needs and wants. This is where the advice of an insurance agent is supposed to come in. In the absence of a good one, here are some of our unqualified (according to MAS) views of what an average individual should zero in on.
1. H&S (Hospitalisation and Surgery)
Every Singaporean already has a H&S plan by default, as Medishield is compulsory (great policy there from the government by the way). The only choice you have to make is whether you want to purchase a private integrated shield plan. If you are already working, you can use your Medisave monies to pay for it.
2. Critical Illness
This kind of insurance policies pay a lump sum benefit when you are diagnosed with a critical illness as defined by your policy. It is not dependent on you being hospitalised or even seeking treatment. Traditionally, Critical Illness is defined as stage 3 and 4, when the illness is already in the advance stage and whereby recovery is less likely (unfortunately).
The rationale for buying this is that the payout from this policy should help cover for the lost of income due to not being able to work during the phase of the critical illness. It is not meant to be a substitute for a life insurance. Hence the amount of coverage required should typically be about 2 – 4 years of income.
Do note early critical illness plans are available as well. They tend however to be a little costlier.
3. Term Vs Whole Life
The never-ending debate of whether Term or Whole Life is more suitable for me. Term insurance provides coverage for a fixed term, usually up to age 65, whereby a payout will be given upon death or terminal illness. There is no cash value to this policy (i.e. if you surrender the policy or it lapse, there is no cash value returned)
Whole Life provides both protection coverage and a savings element to its policy. This sounds good, but the main difference is that premiums are very much higher. That gives rise to the saying “Buy term and invest the rest” where consumers are encouraged to simply buy term insurance and to invest the remaining amount saved in a long-term fund such the STI ETF.
We won’t go into the debate about which is better for you here. However, neither should your insurance agents be the one deciding for you. If you are deciding between either of the two, we recommend further reading and education, or even ask us a question.
This 4-minute video from DIY Insurance explains very clearly the differences between Term and Whole Life policy. Take a look, as it could save you a lot of money over the long run. Yes, we are talking potentially about hundreds of thousands of dollars.
4. Travel Insurance
Annual travel insurance policies are also worth considering if you are a frequent traveller. As a rule of thumb on whether you need one or can make do with buying coverage for individual trip is to ask if you spend more than 30 days a year outside of Singapore?
If you do, just get an annual plan. But first, make sure that your company has not already covered you for business trips overseas, or you would just be wasting your money otherwise.
If you are one of the millennials who very much prefer research, comparing and buying products online, there are non-biased websites out there such as MoneySense and DIY Insurance where you can learn more about insurance policies. There are also insurance calculators where you can get a good estimate on the amount of coverage you would require for various types of insurance products. Moreover, with companies like DIY Insurance offering 30% commission rebates, buying online can also lead to large savings for consumers.
(Editor’s Note: DIYInsurance is now MoneyOwl. MoneyOwl is Singapore’s 1st Bionic Financial Adviser where human wisdom and technology come together to deliver best-in-class financial advice that integrates national schemes. Visit www.moneyowl.com.sg today.)
Image from Morgan Mckinley. Used with appreciation.