Not Sure How Insurance Works? We’ve Got You Covered

Not Sure How Insurance Works? We’ve Got You Covered

Learn the basics of insurance and how you can benefit from coverage.

What is Insurance?

Wondering how you can protect your loved ones, the things you care about and even yourself from unforeseen circumstances? Well, being insured can be your safety net for when things go wrong.

Insurance protection comes in the form of monetary coverage provided by an insurance company, so that you don’t have to bear the financial burden alone. There are certain insurance plans in Singapore that you are required to get, such as MediShield, motor insurance if you own a vehicle, and HDB fire insurance if you’ve taken out a loan for your HDB flat.

The idea of dealing with insurance may seem daunting to many of us. But don’t fret, we’ve got you covered (pun intended). Let’s go back to the basics, shall we?

1. Choose Your Plan

Answer this: what is most important to you?

Is it your health? Or maybe your home? Or even your safety?

Before purchasing insurance, it’s important to first assess what you currently have, what you deem as important, and then decide if you need any protection in those areas. From there, you can narrow down the types of insurance you need.

There are 6 types of insurance you can consider signing up for:
Hospitalization
Critical illness
Disability
Life
Home
Personal accident

For more information on these plans, click here (click out to Insurance Policies Everyone Should Have: Life, Health, Hospital, Disability article) to check it out.

After you’ve made your mind up on what plan(s) to get, we can move on to the next crucial step.

2. Pay Your Premium

In essence, “premiums” are payments you make to your insurance company for insurance cover, that is, protection.

There are 2 main modes of payment:
Installments
Full sum

The amount you have to pay for premiums are usually varied based on the level of risk and the value of your potential loss. The bigger the risk and the loss incurred, the more expensive the cost of your premiums.

It’s also important to pay on time, as failure to do so can result in the premature termination of the policy and loss of coverage. This may also mean receiving zero cash value or less than what you’ve paid for your premiums. A very costly mistake!

3. File Your Claim

We’ve come to the final step of your insurance planning journey, and it may well be the most vital one.

Before filing your claim, it’s a good idea to double check on what your insurance covers or consult your insurance agent. Doing so can prevent any wasted effort should your situation not meet the insurance requirements.

If you’re moving forward with the claim process, make sure to document everything. For example, if you wish to claim for hospitalisation, you’ll typically need: hospital bills and receipts, as well as hospital discharge summary and medical reports (if any).

Once you’ve gathered all the necessary documents, fill out the relevant claim form, which you can ask from your insurance agent or even download from the insurance company’s webpage.

Finally, submit all of this – the documents and claim form – to the company. This can be done via email or post.

Remember to Buy Within Your Means

As the cost of insurance plans can add up, we have to ensure that we’ll be able to afford what we signed up for.

A useful rule of thumb is to spend 3% to 10% of your income (before CPF deductions) on protection-only insurance. This does not include endowment or investment-linked plans that will certainly require more spending if it’s your only form of investment or savings.

Conversely, if you’re spending significantly more than 10% of your income on protection-only insurance, you might want to check out the market rates and compare the amount you’re paying for premiums.

On a parting note, always consider your other financial commitments before purchasing an insurance plan. Remember, these plans are meant to lighten your load when the need arises and not to become a burden to you and your finances!

Credit and Citations:

5 Key Insurance Policies You Should Get in Singapore, https://www.axa.com.sg/blog/insurance-guide/key-insurance-policies-singapore

Insurance Basics, https://www.moneysense.gov.sg/articles/2018/11/insurance-basics?sc_lang=en

Julia Kagan, Insurance Premium, https://www.investopedia.com/terms/i/insurance-premium.asp

Joanne Poh, How Much Should You Spend on Insurance in Singapore, https://blog.moneysmart.sg/life-insurance/how-much-to-spend/