December 8, 2023 | Insurance
This is my journey as someone who once had no understanding of financial planning:
Around 22 I graduated from undergraduate studies, continued with a Ph.D., and had no awareness of insurance. Some former classmates started working in the insurance industry and recommended hospitalization insurance and life insurance to me, but I found it all rather confusing and thought it was too expensive, so I didn’t buy anything.
I opened my first credit card and received a call from the bank offering some kind of insurance auto deduct money from the credit card. I thought it was very cheap, just a few dollars a month, so I bought it without really knowing what I was buying. I now suspect it might have been accident insurance.
When I started working, I was contacted by an insurance agent who offered to review my insurance policies. Actually, I didn’t have any insurance policies, but I thought, why not meet and talk anyway to understand insurance better. I told the agent that I was saving for a house and didn’t want to spend too much on insurance. He conscientiously recommended public hospitalization insurance to me. Within two years, he left the job, and I received a letter saying my policy had been transferred to another agent. The new agent contacted me several times, but I was afraid of pushy sales tactics and didn’t respond.
Like most young people, I spent my 20s carefree, without any health or financial worries, and I never had to use insurance.
I got married and bought a house, which meant taking on a mortgage. A former colleague who had switched careers to become an insurance agent recommended life and critical illness insurance to my husband and me. I had a vague sense that we should buy it, even though I didn’t know the rationals. Our income was good enough to afford higher premiums, so I signed up for a complicated package: Whole life + term + CI riders. In hindsight, it was a very reasonable level of coverage for us at the time. My insurance agent continued to recommend an Investment-Linked Policy (ILP), but I had no investment knowledge and felt the withdrawal terms were inflexible at all, so we didn’t buy it.
Later, when we had a baby, the hospital where I gave birth provided insurance as a free gift. Without really knowing what it covered, I signed the documents. When our baby was four months old, we felt it was time to consider insurance for him. At this point, I still couldn’t distinguish between hospitalization and critical illness coverage, so I made an appointment with my insurance agent. Unfortunately, on the very day we were scheduled to sign the insurance, our baby developed a high fever and was hospitalized. He was diagnosed with a rare acute illness. Fortunately, we had MediShield to fall back on, so we didn’t face significant financial pressure, but getting insurance for him in the coming years wouldn’t be easy. The insurance provided by the hospital theoretically covered our baby’s illnesses for the first four months, but I didn’t even know where the policy documents were, so we never claimed it.
The Singapore government introduced CareShield, and my insurance agent suggested upgrading it using CPF funds. I thought at such a young age, who have extremely low risk being disabled, so I ignored the suggestion.
Because of our son’s hospitalization, I realized the importance of hospitalization insurance. I immediately purchased hospitalization insurance for my mother, who is a long-term resident in Singapore. Unfortunately, three years after she was insured, she was diagnosed with cancer, and the cost of treatment exceeded one hundred thousand dollars within three months. The fortunate part of our misfortune was that, thanks to this hospitalization insurance, we did not bear a heavy financial burden during our physically and mentally exhausting time. Through brutal personal experience, I realized the resource scarcity in the public hospital system. This private hospital insurance allowed her to receive the fastest and best treatment and care amid her illness.
At this point, I finally realized the importance of insurance and began contemplating its significance. I started looking back at my pile of policies: Is my husband’s hospitalization coverage adequate? Does our critical illness coverage match our income? Is Whole Life insurance not good? — It’s not that it’s entirely bad, it just no longer meets our needs and is not suitable for us. I’ve already started dollar-cost averaging for a few years, establishing my own financial and investment mindset, and no longer require high-cost insurance as an investment or savings tool. However, I do need higher levels of life and critical illness coverage, which can be achieved through cost-effective term insurance to maximize leverage; I need to ensure that hospitalization coverage for my family is the best within our means, as it’s an absolute necessity; I need to begin planning for my child’s education, but it doesn’t necessarily have to involve insurance as a financial tool, as there are many other financial instruments to choose from; I need to start planning for retirement, but I’m not in a rush, as CareShield and CPF Life essentially provide retirement security and should be maximally utilized. Beyond this, I can continue learning and comparing, exploring financial paths that suit me best, accumulating gradually.
If I could go back from my twenties to thirties, here’s how I would approach buying insurance:
Upon graduation, I would get the best hospitalization insurance within my budget and a decent accident insurance policy with my parents as beneficiaries. After all, during that time, I was into activities like mountain climbing and scuba diving, traveling all over the world.
As I achieved financial independence, I would focus on learning about personal finance, developing the right money mindset, and experimenting with various flexible investment options to find what suits me best. I’d make the most of CPF and stick to the principle of ‘buy term and invest the rest.’ I wouldn’t purchase cash-value or investment-linked insurance products without a clear understanding.
When getting married and buying a house, taking on a mortgage, I’d increase my term life coverage to an appropriate level. If my hospitalization insurance hadn’t been upgraded to the top-tier, I’d do that first. If budget allowed, I’d also consider adding critical illness coverage up to 3 to 5 times my annual income.
After having a child, I’d promptly get him enrolled in hospitalization and critical illness insurance.
When my parents came to Singapore, I’d ensure they have hospitalization and accident insurance right away.
With an increase in income, I’d contemplate purchasing standalone critical illness and cancer insurance to enhance my protection.
I’d start thinking about retirement but wouldn’t need to buy retirement insurance or annuity plans. Being young enough, I could tolerate more market volatility, maximize CPF contributions, invest in index funds, and stay in the market.
Once I’ve accumulated enough wealth and entered the next stage of life, considering retirement cash flow and asset planning, I might explore other insurance-based financial instruments like annuity insurance or universal life insurance as appropriate choices.
I told my current insurance agent that I felt Whole Life insurance was too lackluster for me, attempting to do everything but excelling at nothing, and that I intended to surrender it. She affirmed my thoughts, saying that it wasn’t inherently bad; it had served my needs when I purchased it. However, several years had passed, and my financial awareness and insurance needs had changed, making it no longer suitable for me.
In hindsight, I did encounter some pitfalls, but it wasn’t a complete failure. I should still be grateful to the insurance agents I encountered at each stage, whether they were credit card insurance salespeople, the elusive hospitalization insurance agent, or the maternity hospital promoter. In reality, they all recommended the coverage I needed when I needed it. However, the insurance industry always has this issue: the interests of agents and clients are often conflicted. Clients want to obtain the highest coverage with the least investment, but insurance agetns earn commissions based on the client’s policy premiums. Insurance agents are not obligated to provide financial education. Almost all the insurance agents I encountered didn’t approach me with the optimal ‘plan’ from a financial perspective; they were merely selling me ‘products.’ It’s essential to acquire basic financial knowledge, understand the underlying logic of insurance products, and conduct thorough due diligence to correctly construct your insurance portfolio.
You can take a cue from the insurance offerings that the Singaporean government provides to its citizens: Learn how to buy insurance from Singapore Government, guiding us on what is essential and what is optional. Based on this foundation, you can tailor a version that suits your individual needs.
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