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Common mistakes to avoid when purchasing insurance
By James Yeo
Insurance is probably the most crucial thing you can have when things take an unexpected turn. This is why many financial advisers advocate buying insurance as one of the cornerstones of financial planning.
That being said, most people are not aware of the subtle mistakes they make during insurance purchases. They end up buying something that might not even be suitable for them and – costs much more than what is required.
The following are four common mistakes that you should avoid when purchasing insurance.
1) Buying a policy based on price alone
With so much information available on the Web these days, people have been reading up and leaning towards cheaper insurance plans as a whole.
While it makes sense to go for more affordable insurance premiums, you have to take in other factors as well. These include the level of service from the agent (one that has your interests at heart) and also the coverage covenants contained within the policies.
Therefore, do not choose your product based solely on price. Aim to make an informed decision by comparing the different features. You can also do market research through various insurance comparison websites (e.g. GoBear, Moneysmart, and Comparefirst).
2) Not getting the right coverage
Whenever I talk to my friends or acquaintances about insurance, I notice that most of them focus on buying only whole-life or term insurance. They often neglect the insurance types, such as endowment plans, hospitalisation insurance, disability income insurance, and more.
In my opinion, it is essential to have well-rounded coverage so that you don’t kick yourself when something unexpected occurs and you blame yourself for not being insured.
3) Not being honest
Being honest up front is the most important factor in purchasing a policy. This is because dishonesty or omitting certain critical information can lead to much bigger repercussions.
For example, if you withhold information and the insurance provider figures it out at a later stage, there is a high chance that they will either refuse to pay out your claims afterwards, or they may even ban you from further applications in future.
4) Insufficient coverage
According to a Prudential protection poll, many Singaporeans are under-insured despite their increasing disposable incomes.
Here is information from the Life Insurance Association of Singapore:
“Typically, you should aim to have approximately 11 times your annual earnings as basic life cover, although this would vary from person to person.”
Thus, a person earning $3,000 per month would require $396,000 of life coverage. And that’s not inclusive of the other types of insurance, such as disability income, hospitalisation, and so on.
That said, it is also easy to over-pay for insurance when you are not sure how much is sufficient for you. Everyone’s circumstances are different so it is best to reach out to a financial planner and go through a fact-find process.
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