Putting together a plan for your financial future can be daunting. Any good financial plan should include consideration for protection needs, and that’s where life insurance can play a role.
If you’re not yet insured, what should you know when you’re considering the purchase of your first life insurance policy?
Here are seven things you need to know so that you can get started on the right foot.
1. Understand your financial and insurance needs
Life insurance should serve a need. So before even looking into the different life insurance products that are available on the market, a smart move would be to assess your own life circumstances and financial needs.
While most people would benefit from the protection provided by life insurance, it’s key to understand the purpose of life insurance in your own life. Do you have family members who rely on your income? Do you need to take care of your loved ones’ future in case of your early death?
Once you understand how life insurance can help plug in any gaps in your financial planning, the process of finding the right policies for your needs becomes much clearer. This knowledge can also help guide your decision-making.
2. Life insurance is not an impulse buy
Most people may not realise that buying life insurance is a long-term commitment. Why? Once you’ve bought one, you are essentially committed to paying the premiums over the course of the life of the plan.
So, it’s important that you can afford paying those premiums. Your life insurance premiums should be an expenditure that is factored into your monthly budget.
Why is this important to know? A premature termination of your policy often means that you will lose money as it’s likely that you will not get back the full amount that you have paid into the policy.
The best way to avoid this issue is to ensure that the premiums are affordable for you and that you will be able to pay for the policy throughout its tenure.
3. Different types of life insurance are designed to meet different needs
For a beginner, seeing the wide array of life insurance products on the market can be a daunting prospect. Where do you even begin?
Here’s something to remember: the different types of life insurance plans have different purposes. That’s why knowing what gaps exist in your overall financial plan can help you filter through which policies are most suited to your needs.
For instance, if you’ve identified that death coverage is what you’re missing, then a term life or whole life plan are the options that can address that concern.
Or perhaps you’re worried about the debilitating costs of having a critical illness and would like protection for that. In this case, critical illness coverage can provide you and your beneficiaries with a lump-sum payout in the event that you are stricken with critical illness.
If building up your savings and enjoying some additional insurance coverage is what you’re after, an endowment plan may be the choice for you. This type of plans allows you to earn a higher rate of return on your capital compared to savings instruments such as a savings account or a fixed deposit account. At the same time, it also offers a small amount of life insurance coverage.
By outlining your financial and insurance needs first, it will be easier to navigate the sea of life insurance plans that are offered, and you can make an informed decision on which types of plans might be best for you.
4. One size does not fit all
Every single person has a different financial situation, family circumstances and individual goals for the future. Because of this, there is no one correct answer to having the perfect type or amount of life insurance coverage.
What you should aim for is having the best life insurance coverage for you.
One common concern that people have is how much life insurance coverage they actually need.
There isn’t a standard answer for this such as “you should have $500,000 in life insurance coverage, but there are some guidelines that can provide guidance on exactly how much is enough for your needs. Here’s a guide that can help you.
The important takeaway here is that when it comes to life insurance, what works for one individual may not work for another. Life insurance is most effective when it’s been selected to meet your specific needs and wants.
Thus, it’s worth putting in the time and effort to know both what you need and what you’re buying to ensure that there’s a match and that you’re not wasting your money buying a policy that doesn’t really add to your financial well-being.
5. You can choose what’s best for you: DIY or professional financial advice
We get it: life insurance can be confusing and complicated for a beginner who doesn’t know anything about it.
These days, there are many resources both online (personal finance websites, blogs, and other resources) and offline (events, free seminars, etc) that can help you increase your financial literacy. When it comes to personal finances, knowledge can be powerful, and we certainly urge you to educate yourself.
If you feel comfortable with your level of financial literacy and already know what you want and need, you can opt for the DIY method of buying insurance. With SingLife, you can get insured by purchasing your life insurance online. After a few simple clicks, you can be assured that you’ve got the coverage you want.
On the other hand, don’t be embarrassed to look for professional financial advice, if you think you need it.
Professionals in the insurance industry do genuinely believe in the importance of insurance as part of a sound financial plan and are working in this field as they want to help people make better financial decisions.
If you’re looking for a financial adviser, you could ask family and friends for recommendations or just shop around and speak to several advisers before you commit to a more in-depth discussion with your chosen one.
6. Read before you buy
How many of us are guilty of skimming through or not reading the fine print before signing a financial document? When it comes to the terms and conditions of any document, most of us do not take the time to read through everything; we just sign on the dotted line and somehow trust that nothing will go wrong.
Before you commit to a life insurance plan, we recommend that you read the policy document.
Here’s why you should do it: the policy document outlines exactly how it works includes financial disclosures, illustration of benefits, description of coverage and more.
The more informed you are on how your policy works, the better off you will be. In the event that the unthinkable happens, the financial security of your loved ones is dependent on how well you are insured.
We know that it can be a tedious and painful process to read the entire document, but at the very least, we recommend you read the Cover Page which provides all the key information on the policy.
And if you have a financial advisor helping you through the insurance buying process, don’t be afraid to ask questions if you don’t understand an aspect of the policy or what certain terms mean. Don’t forget, your advisor is there to help you!
7. It’s better to get insured early
Perhaps you already know that getting insured is important, but you’re putting it off. You’re young, you’re still healthy — is there really any reason to buy insurance when you’re only in your 20s or 30s?
Oftentimes, having insurance isn’t really about you but your loved ones. If you have dependents or people who rely on you for financial support, having life insurance coverage means securing their financial future in case of your sudden or untimely death.
When framed in that way, it’s easier to see why it’s good to be insured early.
Buying life insurance when you’re younger can also mean saving money in the long run. This is because the premium for a younger person is typically lower than that of an older individual.
Let’s say you’re keen on a whole life policy that has a sum assured of $100,000. Buying that policy at age 25 versus buying it later at age 35 could mean a substantial difference in monthly premiums for the same sum assured.
What’s more, buying the plan early also means a longer period of coverage.
Another factor that affects your premium costs is your health status. Buying insurance when you’re young often means that you’re healthy which translates to lower premiums. As we grow older, health can deteriorate and having a chronic illness can increase the cost of your life insurance premiums.
So, if you’re not yet insured and you have a life insurance gap in your financial plan, it’s best to address that need now rather than later.