As you embark on your adulting journey, one of the things you need to learn is managing your personal finance.
For a start, you should definitely learn more about insurance because it is the foundation of your financial portfolio.
But to be honest, I have never felt the urge to buy any insurance. Like many, I used to think that insurance was a scam. You put your money in, you get nothing in return. Even if you did, it is probably too late for you to spend the money. It was only until I begun my journey as an aspiring actuary where I learned to appreciate the importance of insurance. In addition, a few life events also influenced my perspective on why insurance is important.
Thus, I decided to write this insurance guide for anyone in your 20s, based on my personal experience:
- Start building your insurance portfolio with a health insurance
- Term insurance is meant for financial protection for your loved ones
- CI insurance is a small price to pay to insure against the risk of falling critically ill
- Retirement plan helps you to take small but sure steps towards an achievable retirement
4 Must-Have Insurance in Your 20s
1. Health Insurance: The First Insurance You Need To Own
What is it?
When you are in your 20s, you are full of vigour, passion and hunger to take on the world. You feel like you can stand up to anything the world hits you with and come out victorious. As someone in my 20s, I have felt that way too.
Why do you need it?
But the reality is that life is fragile and we are not as invincible as we think. There is still the possibility of falling victim to unannounced health problems as we grow older. As I enter my 20s, I find that I’m no longer as healthy as I used to be, even if I don’t want to admit it. A small flu can get me down for a couple of days. In the past, I probably would have brushed it off and head back to my daily routine. If that’s what a small flu can do to me, I can’t imagine what will a more serious illness do to me.
That’s why I make it a point to take advantage of my youth. So, I bought my health insurance while I am still in the pink of health. This will ensure that I do not end up being excluded from any health coverage in the future.
For Singaporeans like you and I, we will have basic health insurance coverage from MediShield Life. But you should definitely supplement the basic coverage with a health insurance from one of the Integrated Shield Plan (ISP) providers like Aviva, Income, Prudential or Great Eastern.
ISP coverage ranges from Class B1 wards to private hospitals. The better the class you choose, the more you have to pay. Another factor that will affect the premium you pay is the addition of full riders#. With a full rider, you will only need to make a 5% co-payment of any medical treatment you claim for. However, it also means that you have to pay more premiums, ranging from an additional 50% to 100% of the premium on your base plan.
|Class||Premiums* w/o Rider|
|MediShield Life Only (Non-ISP)||$195|
|Basic||$208 – $230|
|Standard||$228 – $261|
|B1||$233 – $268|
|A||$253 – $294|
|Private||$304 – $420|
*Premiums = total premiums payable, including both the MediShield Life premiums and the ISP premiums.
#Rider is an optional addition that you can add to your base plan for more coverage.
Table up-to-date as of 1st July 2019
Recommended coverage: You should complement your basic MediShield Life with a Class B/B1 Integrated Shield Plan e
Note: I bought a Raffles Shield A Plan with full rider and Raffles Hospitality option rider.
2. Critical Illness (CI) Insurance: A Small Price To Pay What is it?
While health insurance covers the cost of treatment and hospitalisation, you cannot rely on it completely. In particular, serious conditions known as critical illness (CI) will require you to have a separate coverage.
Why do you need it?
The reason is CI not only affects your health, it also impacts your ability to continue your daily life for a certain period of time. You may not be in a position to be able to continue working as you focus your energy on recuperation.
According to the LIA Study, an average Singaporean spends 8 years in ill health. That is 10% of our lifespan! Plus, the rate of chronic disease is also on the rise among Singaporeans.
Unfortunately, many Singaporeans are inadequately covered for CI with only coverage for 20% of what is recommended. Thus, CI insurance is definitely one of the must-have insurances, especially if you have just started your career.
Personally, my grandmother suffered a stroke while I was in teenage years. I saw how the incident affected my family, both emotionally and financially. I don’t want my loved ones to go through what I went through. Thus, I make it a point to buy CI insurance, which is a small price to pay in my humble opinion.
Recommended coverage: 5-10x of your annual income
3. Term Insurance: Protect Your Loved Ones
What is it?
While the other must-have insurances are meant for yourself, term insurance is meant for your family. That’s because term insurance provides a lump sum payout to your beneficiaries upon your death. Just like you, I didn’t think about my own death in my 20s. After all, like most of you, I’d like to believe that life has probably just begun for me.
Why do you need it?
But here’s why I bought a term insurance: my loved ones, including my parents and my partner. As my parents grow older, they start to become more financially dependent on me. My partner and I are also in the midst of applying for our own home. So, if something were to happen to me, they would not only have to deal with the emotional stress or be left in a financial disarray. If there’s something that I can do for the most important people in my life, it is to insure myself in order to provide for them as much as I can. That’s why I bought my term insurance while I was still in my 20s.
Recommended coverage: 10x of your annual income
4. Retirement Plan: Start Small, But Start Early
What is it?
Planning for retirement is like training for a marathon race. You cannot start a few months before your race and expect to come out on top of the race. It is the culmination of hard work, consistency and persistence of carrying out your retirement planning from your early 20s all the way till your 50s. Personally, I want to be semi-retired when I am 45. For me, semi-retired means that I will still continue to work but it is by choice. I want to have the freedom to choose work that interests me, rather than working for financial reasons. XX
Why do you need it?
By starting your saving for retirement early, you have a longer runway to save enough for your retirement. Even if you start by saving a small sum every month, doing it consistently across 30 years will ensure that you can meet your retirement savings goal. A personal tip that can help you in your planning for retirement is to consider buying a retirement plan.
It helps you keep the discipline to save for your retirement. At the same time, it allows you to invest the savings that you have put into your retirement plan so that they don’t sit idle in the bank. When you eventually retire, the retirement plan will disburse a monthly/yearly sum to you to spend during your retirement years.
Recommended coverage: 10-30% of your annual income
Missing an essential insurance? Get it before it is too late
If you find yourself missing any of these essential insurances, it is still not too late to get it today. As you set out to fill these missing insurance gaps in your financial portfolio, ensure that you do not make the mistake of over/under-insuring yourself. It is also important to do your own due diligence on the suitability and coverage of each insurance coverage you are buying. If you are not confident in making the right call, do consult a financial advisor for his/her professional advice.
If you have year-end travels coming up, you might want to compare and apply for your travel insurance through our SingSaver comparison tool and find the best plans for your needs, based on destination, coverage, premium, and more!
Read these next:
Changes to Definition of ‘Critical Illness’ in Life Insurance Policies
What Women Need to Know About Insurance
All You Need To Know About Insurance Policies
Travel Insurance Promotions and Discounts for October 2019
By Si Jie Lim
Most people think personal finance is dry, boring and full of confusing jargon. But the fact is it can be simple
and interesting. That’s why Si Jie is passionate about turning personal finance into an easy and fun topic that everyone can relate to.