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PR Newswire
01-04-2012, 08:27 AM
The Straits Times
Apr 1, 2012
Affordable insurance to meet protection needs
By Joyce Teo
You will find that many people here have at least one insurance policy, but the question is whether the coverage is sufficient.
As Monetary Authority of Singapore (MAS) managing director Ravi Menon said recently: 'The average Singaporean is still grossly under- insured.'
Many people procrastinate when it comes to getting insurance as they do not see the urgent need to do so.
Some may not want to pay what they deem as high premiums while others want to buy only a product from which they can get a certain sum of cash back to make it worthwhile.
But insurance is something you don't need until it is too late. A major illness, an accident or a premature death may create serious financial problems for the family. And there are various products out there for your picking.
Those who need life insurance policies but complain that they are too expensive are probably looking at the wrong products.
There is a difference between pure protection plans and whole life insurance policies.
The former is what we refer to as term life insurance while the latter is a bundled insurance product and can come with premiums that can easily be several times higher.
Bundled insurance products are those that bundle insurance with an investment element.
What is term life insurance?
Term life insurance or term assurance, offers just the insurance protection and is the most cost-effective form of life cover.
It is a life insurance that provides coverage for a fixed period of time. It pays the sum assured should the assured person die or suffer from total and permanent disability within the policy term.
As such, it provides financial protection to dependants in the event of loss of income resulting from the death of the assured person, especially for those with dependants such as young children or a non-working spouse.
Some term assurance plans also protect you against covered critical illnesses within the policy term, but at a higher cost.
Whole life policies, on the other hand, cover you for life and you have to pay premiums throughout your life, though you can switch to paying higher premiums over a shorter period.
The key thing about term life insurance is that it does not offer a cash value.
It can give you a fairly substantial death cover but there is no bonus to collect at the end of the policy nor can you surrender it for a cash sum.
This is the reason the premiums are kept relatively low as you are paying only for the basic insurance protection.
Actual premiums will depend on your age, health and the size of the death benefit.
However, do note that term insurance gets more expensive as you get older, as the risk of death increases as you age. You are also likely to be less healthy.
You pay more for whole life policies because these plans bundle term insurance protection with investment. Part of your money goes into a fund that invests in various instruments, and if all goes well, you get your bonus.
Another thing to consider when deciding between a term and a whole life plan is the commission the agent gets for such plans.
Insurance agents typically earn their keep by taking a cut of the premiums you pay in the first year, and a smaller cut of it in the following few years.
As premiums for term plans are lower than those for whole life plans, selling a term policy will generate less commission for the agent. So, some agents may be more motivated to sell you a whole life plan as opposed to a term plan.
Insurance companies are required by law to reveal all costs and charges associated with the product you are buying.
You can find details about these costs in the benefit illustration portion of your plan.
You can renew your term assurance plan upon its expiry, subject to a maximum coverage age.
For level term life insurance plans, the coverage and premiums stay the same throughout the policy term.
But do note that premiums may rise significantly when you renew your policy as you will be entering into a new policy at a much older age.
There are also decreasing term insurance plans, where the sum insured decreases over time. These are suitable for those whose need for high levels of insurance decreases with age; for instance, when their children grow up, and certain liabilities no longer exist.
You can see from the table (left) that the premiums for term plans are significantly lower than those for a whole life plan. You can always opt for term plans by asking your agent about it.
In the future, you may even be able to buy simple term plans online.
The MAS announced a review of the financial advisory industry about a week ago to lower costs and raise professionalism.
In his speech, Mr Menon mentioned that he would like to see the sale of simple term life insurance through the Internet, as it could be a good way to help lower costs and make affordable insurance protection more readily available to a wider population.
'And simple term life insurance is sometimes all a person needs to protect against risk,' he said.
Before you buy a term assurance plan...
To find out how much term life insurance you will require, you should start with a needs analysis. Sit down with your financial planner and talk about your needs and objectives.
Be as open as possible with him, in order to allow him to have a good picture of the risks that you need to cover and for him to advise you on how much insurance to buy.
The adviser should ask you about your financial and personal circumstances. He should find out how many dependants you have, be it your children, spouse or aged parents, your type of work and your assets and liabilities, such as pay, investments and financial commitments.
He should also ascertain your attitude to risk.
You can do a review of your needs annually or as and when your objectives and personal or financial circumstances have changed.
Be aware of who your financial adviser is representing. An insurer's agent represents one insurance company, which means he will be selling you products only from his company. Also known as a tied agent, he will be able to help you come up with a financial plan but he may not be able to advise you on the products of other insurance companies.
Unlike a tied agent, a representative of a licensed financial advising firm does not represent any insurance company exclusively.
He should thus be able to market and advise you on various products by different insurers.
Banks and financial institutions also employ financial advisers. These advisers sell only the insurance products from the bank and the institutions and usually will not be able to advise you on the competition.
Consumers can check the legitimacy of the financial adviser by obtaining his or her representative number and checking it against the Register of Representatives on the MAS website.
You will find information on whether the adviser is an authorised representative, the regulated activities he or she can conduct, the financial institution he or she represents, and whether MAS has issued any suspensions, revocations or prohibition orders against the adviser.
This column is sponsored by MoneySENSE, a national financial education programme for Singapore.
Apr 1, 2012
Affordable insurance to meet protection needs
By Joyce Teo
You will find that many people here have at least one insurance policy, but the question is whether the coverage is sufficient.
As Monetary Authority of Singapore (MAS) managing director Ravi Menon said recently: 'The average Singaporean is still grossly under- insured.'
Many people procrastinate when it comes to getting insurance as they do not see the urgent need to do so.
Some may not want to pay what they deem as high premiums while others want to buy only a product from which they can get a certain sum of cash back to make it worthwhile.
But insurance is something you don't need until it is too late. A major illness, an accident or a premature death may create serious financial problems for the family. And there are various products out there for your picking.
Those who need life insurance policies but complain that they are too expensive are probably looking at the wrong products.
There is a difference between pure protection plans and whole life insurance policies.
The former is what we refer to as term life insurance while the latter is a bundled insurance product and can come with premiums that can easily be several times higher.
Bundled insurance products are those that bundle insurance with an investment element.
What is term life insurance?
Term life insurance or term assurance, offers just the insurance protection and is the most cost-effective form of life cover.
It is a life insurance that provides coverage for a fixed period of time. It pays the sum assured should the assured person die or suffer from total and permanent disability within the policy term.
As such, it provides financial protection to dependants in the event of loss of income resulting from the death of the assured person, especially for those with dependants such as young children or a non-working spouse.
Some term assurance plans also protect you against covered critical illnesses within the policy term, but at a higher cost.
Whole life policies, on the other hand, cover you for life and you have to pay premiums throughout your life, though you can switch to paying higher premiums over a shorter period.
The key thing about term life insurance is that it does not offer a cash value.
It can give you a fairly substantial death cover but there is no bonus to collect at the end of the policy nor can you surrender it for a cash sum.
This is the reason the premiums are kept relatively low as you are paying only for the basic insurance protection.
Actual premiums will depend on your age, health and the size of the death benefit.
However, do note that term insurance gets more expensive as you get older, as the risk of death increases as you age. You are also likely to be less healthy.
You pay more for whole life policies because these plans bundle term insurance protection with investment. Part of your money goes into a fund that invests in various instruments, and if all goes well, you get your bonus.
Another thing to consider when deciding between a term and a whole life plan is the commission the agent gets for such plans.
Insurance agents typically earn their keep by taking a cut of the premiums you pay in the first year, and a smaller cut of it in the following few years.
As premiums for term plans are lower than those for whole life plans, selling a term policy will generate less commission for the agent. So, some agents may be more motivated to sell you a whole life plan as opposed to a term plan.
Insurance companies are required by law to reveal all costs and charges associated with the product you are buying.
You can find details about these costs in the benefit illustration portion of your plan.
You can renew your term assurance plan upon its expiry, subject to a maximum coverage age.
For level term life insurance plans, the coverage and premiums stay the same throughout the policy term.
But do note that premiums may rise significantly when you renew your policy as you will be entering into a new policy at a much older age.
There are also decreasing term insurance plans, where the sum insured decreases over time. These are suitable for those whose need for high levels of insurance decreases with age; for instance, when their children grow up, and certain liabilities no longer exist.
You can see from the table (left) that the premiums for term plans are significantly lower than those for a whole life plan. You can always opt for term plans by asking your agent about it.
In the future, you may even be able to buy simple term plans online.
The MAS announced a review of the financial advisory industry about a week ago to lower costs and raise professionalism.
In his speech, Mr Menon mentioned that he would like to see the sale of simple term life insurance through the Internet, as it could be a good way to help lower costs and make affordable insurance protection more readily available to a wider population.
'And simple term life insurance is sometimes all a person needs to protect against risk,' he said.
Before you buy a term assurance plan...
To find out how much term life insurance you will require, you should start with a needs analysis. Sit down with your financial planner and talk about your needs and objectives.
Be as open as possible with him, in order to allow him to have a good picture of the risks that you need to cover and for him to advise you on how much insurance to buy.
The adviser should ask you about your financial and personal circumstances. He should find out how many dependants you have, be it your children, spouse or aged parents, your type of work and your assets and liabilities, such as pay, investments and financial commitments.
He should also ascertain your attitude to risk.
You can do a review of your needs annually or as and when your objectives and personal or financial circumstances have changed.
Be aware of who your financial adviser is representing. An insurer's agent represents one insurance company, which means he will be selling you products only from his company. Also known as a tied agent, he will be able to help you come up with a financial plan but he may not be able to advise you on the products of other insurance companies.
Unlike a tied agent, a representative of a licensed financial advising firm does not represent any insurance company exclusively.
He should thus be able to market and advise you on various products by different insurers.
Banks and financial institutions also employ financial advisers. These advisers sell only the insurance products from the bank and the institutions and usually will not be able to advise you on the competition.
Consumers can check the legitimacy of the financial adviser by obtaining his or her representative number and checking it against the Register of Representatives on the MAS website.
You will find information on whether the adviser is an authorised representative, the regulated activities he or she can conduct, the financial institution he or she represents, and whether MAS has issued any suspensions, revocations or prohibition orders against the adviser.
This column is sponsored by MoneySENSE, a national financial education programme for Singapore.
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