No one likes cold calls from insurance agents and companies, especially when they are young, rockin’ their career and taking over the world.
Why hand over hard-earned cash to some company for the rest of your life for circumstances that are never going to happen anyway?
Delicate balancing act
The truth is, insurance is an essential item. It is better to be prepared for, say, an accident than to tear your hair out when faced with the financial strain that comes with one.
But insurance can be a difficult topic to discuss. Too often, the insurance industry and agents use jargon that the layman does not understand.
It is actually up to you to determine what kind of insurance you need and the amount of cover – too little and the policy will fail to insulate you from a financial emergency; too much and your wallet is stretched to breaking point.
Here is what you need to know about insurance.
What and how much?
Every person is different; one person’s perception about a threat is different from their BFF’s. Insurance requirements are different and choosing the correct policy is a highly personalised task.
Based on your lifestyle and your estimation of certain threats, make a list of events that are likely to occur. Granted, the future cannot be foreseen, but you must make sure you are not too scared or unreasonably “this won’t happen to me” brave. Stick to the golden middle path.
Next, prepare a rough estimate of the financial effects of these events. Comparing this figure with your income will give an idea of the amount of insurance cover needed.
As general rule, you will need the following:
- Life insurance for the main breadwinner of the family to safeguard dependents in case of unexpected death or disability.
Life Insurance is the No 1 insurance priority for those with young children and other dependents, who are still repaying mortgages or student loans.
Term life insurance is inexpensive but provides compensation only if a person dies within the policy duration. It is a good choice for coverage for a short duration of say five years, after which the children will be financially independent.
Whole life insurance covers you for your entire life and you can withdraw the entire cash value of the policy or borrow from it.
- Health insurance is something almost everyone needs as the cost of healthcare gets higher and higher.
While a major illness or accident cannot be predicted with absolute certainty, check your family history for hereditary disorders and estimate the age when these conditions develop.
Get health insurance at an early age before these disorders creep in and multiply the cost of health cover.
People who travel a lot are more likely to be involved in an accident, so, a Medishield Integrated Shield Plan and other hospital plans are useful.
Long-term disability insurance covers the income lost when you are unable to work due to a disability. Choose one that covers 60% to 80% of your income.
Long-term care insurance is very expensive. For those aged over 70 who need nursing care, this cover does help maintain financial independence without burdening the family. If you can afford it, you should purchase it
- Home insurance is necessary for those living in a region prone to natural disasters. Choose a policy that covers replacement of the structure and the belongings in the house in addition to the expenses of living at a temporary residence until the home is safe to live in again.
- Car insurance, or at least the liability insurance part of it, is required by law. People are increasingly interested in filing lawsuits and one might end up paying for more than the repairs to the car.
Purchasing car and other insurance from the same company usually saves money. Shop around though.
Consider income, net worth, driving habits, the amount of health coverage and whether the car is leased or under financing before getting car insurance.
- Business insurance can make the difference between a successful enterprise and a bankrupt one. For entrepreneurs, it literally pays to have business insurance to guard against legal liability, property damage and employee-related risks.
Good to have insurance
While focusing on what you need, do not forget what you do not need. Here is what you don’t usually need:
- Travel insurance
- Disease insurance
- Unemployment insurance
- Rental car insurance
- Wedding insurance
- Credit card insurance
- Private mortgage and mortgage life insurance
- Accidental death insurance
This article first appeared in The New Savvy
The New Savvy is Asia’s leading financial, investments and career platform for women. Our bold vision is to empower 100 million women to achieve financial happiness. We deliver high-quality content through conferences, e-learning platforms, personal finance apps and e-commerce stores.
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