This article is sponsored by SNACK – a microinsurance offering by INCOME which sells Life, Accident and Critical Illness microinsurance polices from as low as $0.30.
My very first insurance mistake was made in 2009, fresh out of Tekong after my first week as a recruit.
I was approached by an agent during one of those roadshows at White Sands in Pasir Ris. She was holding a clipboard camping out at the bus interchange.
Having spent three weeks on a mystery jungle island with very few members of the opposite gender, I was ummm…enamoured and overcome with emotions.
So I bought that insurance plan without knowing what it was – fortunately it was just a whole life plan – something that I needed anyway.
And that’s how most of us encounter insurance in our early 20s, amirite?
Clueless and groping aimlessly in the dark. Irritatedly flipping through stacks of papers. Buying policies we hardly understand and then worrying about whether we got cheated later on.
It sucks, it really does. It’s a journey full of confusion, paranoia and insecurity.
Don’t worry. Today, we sort it all out.
This article will help you understand the basics, so you avoid confusion, anger, and a whole lot of regret.
Mistake 1: Not covering the essentials
Everyone says “insurance is important,” but few know exactly what is important. It took me years to understand but I finally got it.
The Here’s a brief breakdown.
Health insurance pays the medical bills, whether it’s in the clinic or hospital. The two major ones you want are…
- MediShield Life (which is compulsory)
- Integrated Shield Plan (which enhances your medishield life.)
Life insurance pays you or your loved ones so in the event you die/get disasbled/cannot work, you won’t be a financial burden to anyone.
It won’t settle the medical bills, but will compensate you if you kena permanent disability, terminal illness and death.
This is usually one big plan that covers all three, but there are standalones one as well.
You can also opt for term life or whole life – this is a whole post by itself, so we’ll not go into details. But
Critical illness plans are similar to life insurance, but they only pay out in event of critical illness.
Personal accident plans are for all the suay stuff in between due to an accident. It can pay both your medical bills and give payouts if you are dead or disabled.
(Our sponsor, SNACK, sells micro versions of these insurance plans, but more on that later)
Mistake 2: Jumping straight into investing with insurance
Contrary to popular belief, buying an endowment, savings plan or investment linked policy isn’t the only way to invest. Nor should they be the first products you buy through an insurer.
You should cover the basics first (see above^).
Even if you’ve had the basics, I think it’s important to understand the other investment options (robo advisor, passive funds) available before you commit to anything with long-term payments and surrender fees.
If you’re unaware of all the other investment options, you’ll lack context whether or not an ILP or endowment is a suitable investment for you – it’s possible that what works for someone else might not work for you.
As the saying goes, you don’t know what you don’t know.
Mistake 3: Overpaying and overprotecting
Insurance protects your savings from life’s worst scenarios, but there is such a thing as being over insured.
Let me explain with an overused insurance analogy – the umbrella protecting you from rainy days.
The ideal umbrella you should seek in life (not just in this analogy) is portable, easy to carry around and big enough to keep you dry.
You don’t want a big ass umbrella that can cover 10 people – but so heavy and unwieldy to use that it’s a pain to carry around.
When you’re younger in life and don’t earn a lot, or have a lot, you don’t really need that much insurance…because there isn’t that much to protect.
The more money you have going to insurance, the less money you have for investments or other big ticket items like your BTO or reno.
With that said, here’s how most people can normally plan their insurance:
For Life and Critical illness
|Your Salary||Basic Coverage||Moderate Coverage||High Coverage|
Personal accident plan: As per your lifestyle.
Integrated Shield Plan:
- Going without integrated shield plans – Basic
- Getting ‘A’ ward in a public hospital – Moderate
- Getting coverage for private healthcare – High
Mistake 4: Waiting too long to get covered
Generally, insurance is cheaper when you’re younger. Why? It’s a business model thing. Young people tend to have less health conditions/die less vs older people.
Because insurance is a business where profits are centred around probability, younger folks are more affordable to cover and project. As a result, young people pay less!
So the idea here is to lock in your insurance at a low price when you’re young, healthy, and haven’t developed any major health ailments yet.
If you wait till you’re older, insuring the health problems you develop later on in life (trust me, this will happen) will cost a lot more, or you can’t get covered.
Now, we get that in your early 20s you won’t be earning a lot, so money tends to evaporate relatively quickly.
Getting the full spread of plans at one shot can be quite painful financially, so we don’t expect you to have all of these when you graduate.
Our opinion is that you can get the usually cheaper Health and Personal accident plans first, then sort out life insurance when you have your emergency fund settled.
I did so approximately one year after I started working, but your mileage may vary.
Finally, we know buying insurance is painful because you don’t really see the product or the outcome until far into the future – unlike say, a staycation, new clothes or even a brand new car.
But to paraphrase Warren Buffett: Your future self will be able to sit in the shade today because your younger self planted a tree a long time ago.
Time to start planting those seeds, my friends.
Stay woke, Salaryman.
Consider SNACK microinsurance for a flexible way to start coverage
Microinsurance is a type of insurance that provides coverage for people who are looking to start their insurance journey in a low-cost way – where people pay insurance in small amounts instead of bigger payments in traditional insurance policies.
So we’re thinking students, fresh graduates or those who don’t have stable income who are struggling to build up emergency savings.
On the SNACK app, you automatically add on small amounts of insurance coverage ($0.30, $0.50, $0.70) every time you do stuff like..
- Pay for your meal and groceries using your Visa card
- Book a movie ticket online with your Visa card
- Take public transport using your EZ-Link card
- Walk 5,000 steps with your Fitbit
Of course, because the cost is low, the coverage isn’t that high too – $0.30 gets you an estimated $321 in coverage. That said, if you stack em, the coverage can be quite substantial – taking the bus 5 times and eating out 5 times (5 + 5!) a week will give you $3,210 in coverage.
Each policy lasts only 360 days, and they stack until they expire. So if you buy one $0.30 policy today and one tomorrow, you’ll have ($321 x 2 in coverage) they will expire one day apart.
You can also stop, start, or adjust your insurance within the app – so if you want to be a baller and pay $0.70 instead of $0.30 for insurance, that is also possible.
Here’s how your coverage might look like, assuming you make enough payments for $10,000 coverage a month – which is 32 payments of $0.30, $9.60:
TL;DR: this is not a substitute for regular coverage. You’ll still need to get covered next time. BUT, it’s still a decent way to start getting protected while your finances are still unpredictable
PS: Did we mention that SNACK is owned by NTUC Income? So it’s not like you’re buying from some no-name insurer.
PPS: SNACK has also given our readers a promo code <SNK500> which gets you a $10 Foodpanda voucher to kickstart your journey with SNACK (no purchase required).
To use it, download the SNACK app here, link any ‘lifestyle trigger’ to any product and key in the promo code before you check out.