The 7 Commandments of Insurance every person should follow
1. Thou shalt keep in mind that only Medical Definitions of an Illness count (not the Layman ones)
Ever heard of stories from your friend or your friend’s friend of insurers refusing to pay even after they met with an accident or developed an illness? The number of such cases might make it sound more common than reality. One reason for this is the variance between insurers’ medical definition of illness and our layman understanding of illness.
Cancer is one good example to illustrate this difference. It is part of the 37 illnesses that are covered by critical illness (CI) insurance, but there is a difference between early stage cancer and late stage cancer.
To a layman, any tumour is considered cancer, regardless of where the tumour is located, its size, or which stage of cancer tit is in. But when you first bought your policy , the medical definitions of cancer would have been clearly stated in the policy contract. And payout of the claims depends on the fulfillment of those definitions. Here is such an example:
2. Thou shalt always be honest when applying for Insurance
White lies may be the lubricant of social interactions, but Insurance companies take the absolute truth very seriously.
They practice the common law principle of utmost good faith. Legally, it means that anyone who enters into the contract has a legal obligation to act in a completely honest manner. Neither party should mislead each other with false information or withhold critical information, especially information that can change the outcome of key contract provisions.
For example, smokers are associated with higher health risks and are given a higher risk by insurers. As such, smokers tend to pay higher premiums due to the additional risk that insurers have to take on if they insure the lives of smokers. But what if you are a smoker and you choose to mislead your insurer by claiming you are a non-smoker? Yes, you will enjoy lower premiums. But when you need to make a claim someday, that rejection could sting hard.
3. Thou shalt know the benefits of Online Purchase vs Offline Purchase – and choose accordingly
Most of us are familiar with the idea of buying insurance from an insurance agent. But buying insurance online is not a strange concept anymore.
Today, most insurers offer some for of online insurance (direct term insurance) to consumers. There are also two online-focused insurers in Singapore that have started in recent years: FWD and Singapore Life.
The biggest advantage of buying insurance online is that it usually means a lower premium. When you buy from an insurance agent, part of your premium will be paid to him/her as a commission.
Yet some people swear by the top notch service provided by their agents, which is something that money may not be able to buy. Regular financial reviews, market updates, and personalized touches are still big reasons why the traditional method of insurance purchase is still popular today.
4. Thou shalt understand the economics of Regular Premium plans vs Single Premium Plans
Regular Premium (RP) plans are those that require you to continually pay “regularly”, usually on an annual basis. (but monthly, quarterly, or semi annual periods are also possible)
Single Premium (SP) plans are those that only require a lump sum of payment, after which the plan is considered fully paid for.
Some plans come only in RP versions, and vice versa for SP. So while your overriding concern should be if the plan is suitable for you, it wouldn’t hurt to understand the difference in economics between the two.
From an initial cash outlay perspective, RP plans are way lower than SP plans. (Think of paying for a car in installments vs a full payment)
From a total (absolute) amount of premiums to be paid, SP plans tend to be lower than RP plans. This is because of the time value cost of money – a dollar received in future is worth less compared to a dollar received today. And insurers depend on that money to generate investment returns.
5. Thou shalt do well to use credit cards to pay for Insurance – carefully
2 words: Cashback. Also: Rebates, discounts.
There are tie ups with various insurers and banks that give preferential rates/discounts for policies. As a rule of thumb, I personally don’t track these – the policy’s suitability should be my utmost concern, any discounts given are a welcome bonus (see also the 7th Commandment below)
Oh yeah just be careful though when it comes to credit cards. Two words: Late Charges. Also: Financing charges.
Not fun at all when you miss your payments.
6. Thou shalt understand that the Ideal Age for buying Insurance is…. now
Ah. the eternal struggle that exists within all of us.
Purchase insurance too early, and the premiums are “wasted”.
Delay it too late, and health circumstances may not be that favorable for purchase. Additional premiums have to be paid – even more “wasted” premiums.
So really, what gives?
In the absence of a fully functioning crystal ball (check your local gypsy for stock, never hurts), then the best time to start getting cover is now, at least when you have the financial ability to upkeep the premiums. It is possible to start with something small, so at least you have something to cushion the financial blow if life hits you hard.
For most people, 24-30 is the indicative ideal age for their first policy, especially life insurance. Many of us start earning an income at this time (you can’t depend on mummy and daddy forever) and health conditions are usually good, before all that chicken rice catches up with our arteries.
Key thing is to start as early as you can afford it.
7. Thou shalt bear in mind that free Gifts can be the most costly
Fitbits, power banks, vouchers, lucky draws etc are common perks to induce Insurance purchases.
Lets face it, Insurers and Agents and Bankers understand the Singaporean psyche well.
Yet Insurance is meant to offer protection for your loved ones so that they can continue to live their lives without worrying about finances, in the occurrence of an unfortunate event.
So the key consideration for every purchase should be: Do I need the policy? (And don’t go about inventing a reason just to scoop up that free toaster!)
The policy (and its premiums) stays with you for many years, long after thrill of the fitbit/powerbank/yakun vouchers have worn off. Now that is quote worthy indeed.
Go forth and spread the wisdom!
www.ClearlySurely.com aims to eradicate the knowledge gap between consumers and Life Insurance. Our Vision is that one day, every Man, Woman, and Child will be properly insured.
We are equally religious when it comes down to two other things: Food and Doggies in all shapes and sizes.
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