The 5 biggest concerns to address when buying life insurance

By James Yeo

Buying life insurance is a common headache for many working adults. They know that the coverage is important for their dependents but, at the same time, they are often overwhelmed by the array of complicated policies available from different insurers.

It also doesn’t help that the insurance industry in Singapore appears to have a bad rap as there are always cases where people are talked into buying insurance policies meant to feed the agents’ pockets instead.

With that in mind, we have asked around and come up with the top five questions people normally have regarding life insurance.

1) How much is the monthly premium?

The most common question is almost always about the price tag, because people know that buying insurance is a life-long commitment. On paper, the premium will depend on the person’s age, gender, the number of years payable, their work environment, and so on.

However, this can be rather vague to the layman.

Luckily, we found that the Monetary Authority of Singapore has come up with an interactive online portal named compareFIRST, in partnership with industry partners. The portal allows you to easily compare the premiums and features of life insurance products. You can even customise your search by choosing parameters such as the coverage amount, premium payment period and the inclusion of critical illness riders.

Here’s a simple illustration:

You can even sort and compare the list of products available.

Based on the needs of a 29-year-old male non-smoker who is interested in Whole-Life products (with critical illness benefit), sum assured of $100,000 and a premium payable to 70 years old, the monthly payments according to compareFIRST range from $137.75 to $213.25.

2) How much coverage do i need

If you have been keeping up with the news, you might have come across articles saying how underinsured Singaporeans are. A poll done by insurer Prudential indicated the following: Some 85 per cent of respondents were potentially under-insured by industry standards, with only 5 times their annual earnings set aside as contingency funds for unexpected personal and financial events.

A check with an employee of NTUC Income who wanted to be identified as Edwina says that the industry rule of thumb is to have 5 to 10 times your annual income as basic life cover. This means that, if you earn $5,000 a month, it would be prudent to opt for coverage of $300,000 to $600,000.

That said, Edwina also says that this amount differs from case to case,because the longer you expect to take care of your dependents, the more you would need. Your financial adviser representative would probably be best placed to evaluate your protection needs.

3) What does the policy cover?

It is important to know what you are getting when purchasing a lifelong plan. Here is what you should be asking about the plan’s coverage:

• What will my insurance policy cover?

• What kind of benefits and limitations does it have?

• Will it meet all my insurance protection needs?

• What exclusions are there?

• If I already have some life insurance coverage, how does the recommended policy help me?

Don’t worry too much if this is overwhelming to you. Check with your insurance agent and he/she would have to go through the details above with you.

Furthermore, according to Amanda from Great Eastern Advisors’ Clique, one should be aware that buying a plan is not comprehensive enough. It is also wise to add a couple of riders to the plan, such as an income protection rider which covers your monthly income up to a certain percentage until one turns 65 years old, early stage critical illness protection, accident plans, etc.

4) Which one should you get: Whole Life vs Term insurance?

There isn’t a right or wrong answer to the above question, as it depends broadly on your needs at various life stages, as well your preferences.

The main differences between whole life and term insurance boils down to their coverage period and the premiums.

As the name suggests, a whole life policy provides coverage for “life” and includes a savings element, such that there would be a death benefit payout provided by the insurance company if the policyholder dies.

On the other hand, term insurance covers the policyholder for a certain period, usually until 65 or 70 years old. While this is much cheaper than whole life plans, it does not have a cash value at the end of your policy. As such, advocates of term insurance generally practise the rule of “Buy Term, Invest the Rest”.

To sum up, it usually depends on whether the person is investment-savvy and willing to invest the premium savings. I have heard of many risk-averse friends who are more open to buying these insurance policies and treating it as a long-term savings plan instead.

5) What is the payout procedure like when it comes to claims?

According to the Life Insurance Association Singapore, there are still more than 8,000 unclaimed insurance payouts in Singapore – so they have come up with an online register here.

Nowadays, one can easily go online to submit a claim by preparing the required documents, such as identification documents and proof of relationship as well as filling up the claim form.

Alternatively, if you are still having a difficult time, you could also look for the claimant’s financial planner who would be well-versed in this area for further advice.