The right way to examine your insurance coverage your self (no agent required!)
The process of comparing and buying insurance can be so tedious that you might be tempted to forget it all and start living your life again.
Sorry to ruin your day, but you have to repeat the process every few years!
Insurance doesn't hold up by itself. While most insurance agents will screen you and do portfolio reviews on a regular basis, it is a good idea to review your own insurance policies so you know exactly where you are.
Why should you review your insurance policies?
Ugh why are we giving you all this extra work? Well there are a couple of reasons for that …
- Adaptation to new circumstances: You may need to revise your policies to reflect life changes such as: B. a new home or a baby. These increased liabilities make you likely to want to reconsider your sum insured.
- Consideration of inflation: The old insurance savings plan you signed up for when cops wore shorts? Yes, you probably want to revise that to keep up with inflation.
- Possible cost savings: New insurance products are constantly coming onto the market, so it is worthwhile to find out what is on the market. If there's a new policy that offers better coverage at lower prices, why not switch and save a ton of insurance premiums?
That's how it works.
Step 1: Set a date for your insurance policy review
Set a review date for your insurance policies. That is usually done every 3 to 5 years. Anyone previous, and you might not want to switch policies anyway (you might lose some returns).
Most insurance agents call every 6 months anyway, which makes them a perfect reminder system. When speaking to yours, make a habit of ending with this question:
"By the way, when was the last time we looked at my payouts, coverage, etc.?"
If it's been 5 years or more, you should make an appointment. They want them to walk you through the benefits, returns, terms, etc. one more time. Because in no time you'll be shopping and seeing how it compares to current guidelines.
Step 2: Consider the cost of returning your policy
Before you even think about switching insurance, check them out Benefits illustration. That's the number roll the insurance agent gave you years ago when she cornered you in Burger King.
For "protection only" policies such as health insurance and term life insurance, this does not matter. The premiums all flow into the insurance cover and there is no cash value anyway. However, if you have intermittent health problems, it can be difficult or expensive to get new insurance.
In the case of life insurance, endowment insurance or unit-linked policies, there is usually a surrender value.
You need to calculate if you will make a loss if you abandon the policy. Do this by clicking on the Total premiums paid so far minus the (lowest) Surrender value at this point. Additional fees or charges may also apply if, for example, there was a lock-up period.
Let's say I've had this policy for five years and it's $ 3,000 a year. So I've paid $ 15,000 in premiums so far. The surrender value of my policy is $ 10,000. If I lose this policy, I'll lose $ 5,000 (or more if there are additional fees).
That's pretty much! But remember, I pay $ 3,000 a year for this. If I can find comparable insurance at a fraction of the price – let's say risk insurance – I might be able to make up for the losses in a few years.
Step 3: Compare Other Insurance Insurance
Now you can start looking for other insurance policies. You can get quotes for life insurance, term life insurance and health insurance on MoneySmart.
For each type of policy, speak to a few insurance agents and get performance illustrations from them. Try to get at least 3 to 5 benefit figures for comparison.
Now repeat the process in step 2 for each panel image.
If you only get term life insurance, it is much easier to compare. Just look at the premiums for policies with comparable coverage and choose the cheapest.
This is much more complex for insurance with an investment component. You should assist your agent in calculating your losses (if any) when moving to a new candidate.
Aside from premiums and insurance coverage, you should also check out how those Surrender value is calculated. Some policies have no surrender value in the first few years, which equates to a lock.
When you make comparisons, you will find that "cheap" is not the only consideration. The next thing to compare is …
Step 4: Review the coverage specifications of your insurance policy
Assuming you've found a few contenders for your new insurance policy, you should check the specs for "catches" such as co-insurance, deductibles, and waiting times.
Co-insurance and deductible apply to health insurance, which is highly regulated in Singapore. The rules can change every few years, and you should be prepared.
For example, Integrated Shield drivers with full co-payment are now banned and insurers can only sell drivers that require a 5% co-payment on your part. While you will likely save a bundle with your new policy, you will also need to top up your emergency fund as you will have to pay more if you are hospitalized.
Let the insurance agent go through these for you. If you are uncomfortable with any of the conditions, check with other insurers to see if they have a more suitable policy.
You would also like to the waiting periodthat normally applies to insurance policies such as major illness plans. This refers to the time until you can make your first claim.
In the case of critical illnesses, the life insurance association stipulates a waiting period of 90 days. However, there may be other waiting times for things like new diagnoses or recurring illnesses.
Step 5: Who invests in funds you are comfortable with?
With foundation, life insurance, or investment-linked plans, the returns on your policy are earned by investing your money. All these premiums you pay? The insurer takes this money and puts it in various funds to multiply it.
The performance of the funds in which your premiums are invested determines the amount of your eventual payout. Now you know why the surrender values are "not guaranteed".
Some insurance brokers will ask you how they would like your premiums to be invested (e.g. what percentage do you want to invest in stocks and how much do you want to invest in pension funds?). What if you are a layperson is like your surgeon asking you how are you going to remove your appendix.
But maybe you will be asked anyway, and then you have to consider: Are the funds you are investing in risky?
You don't want to pay premiums for 20 years and then find the funds were crap. And your return after the deduction is about two dollars.
To answer this question, you need to know more about investing – may we refer you to the Investing section of MoneySmart?
Be warned, however: if you do your research on investing, you will likely want to switch to term life insurance and invest the money yourself.
Read More: Term Life Insurance Vs. Total Life Insurance In Singapore – Which Is Better For You?
Did you find this article useful? Share it with others who might benefit from it.