Introduction To Insurance – A Beginner’s Guide

They’re the people whose calls you don’t want to pick up, whom you would run away from at MRT stations, ah, insurance agents. They’re the necessary evil that pounces on you when you least expect it. Between all the technical jargons and intimidating sales techniques, many Singaporeans don’t completely understand insurance in general, so we’ve whipped up a comprehensive guide to understanding insurance.

Introduction to Insurance

What is insurance?
Any discussion of insurance would be moot, if we didn’t understand what insurance was. Basically you can think of insurance as a kind of shield, protecting yourself financially from unfortunate events, for example critical illnesses, car accidents or even death.

The person buying the insurance, i.e. the Insured, pays a sum of money, i.e. the premium to the insurance provider. The provider in return agrees to pay a sum of money out to the insured or the person that the insured chooses, i.e. the beneficiary, in the event of a financial loss based on terms and conditions that are stated in a contract called the insurance policy.

Basically there are three different types of insurance: Life insurance, Medical/Health Insurance and General Insurance, each type is used to provide a different kind of protection.

Life Insurance

Life insurance is used to protect you by providing a sum of money for yourself or your dependents, for example children, elderly parents, etc in the event of Permanent disability, critical illness or death. In recent years, life insurance has also evolved into a part of retirement planning, as they are increasingly used for savings and investment purposes. Investment Linked Policies (ILPs) which have an investment portion, as well as endowment plans which have a savings portion are generally considered a part of this category.

Most Singaporeans are unaware that they already have basic life insurance in the form of the Dependents Protection Scheme, or DPS which is a scheme under the CPF board.

The DPS is an automatic opt-in scheme, meaning that unless you choose to opt out, you are already enrolled in it. The scheme is extended to Singapore Citizens of Permanent resident, CPF members between 21 – 60 years of age when they make their first CPF contribution. DPS covers members who have not chosen to opt out from the time they begin coverage till the age of 60, with a maximum sum assured of $46,000.

Medical/Health Insurance

Medical/ Health insurance is used to financially protect yourself, from potential health problems such as illnesses or disabilities that may force you to incur medical costs as well as the income lost as a result of being unable to work during your recovery. Some employers already provide their employees with a basic form of medical insurance – think your AIA or AVIVA card, though an individual may choose to purchase more coverage.

General Insurance

General insurance is used to protect yourself from financial losses against a possible broad swath of events or losses and is a broad category that includes everything from travel insurance to car insurance. Locally, car insurance is mandatory for all car owners and HDB flat owners who use their CPF savings to pay for their flat are generally required to be insured under the Home Protection Scheme (HPS).

Who/Where can I buy insurance from?

Government-run insurance schemes such as the DPS and HPS generally fall under the purview of the CPF board, and Singaporeans who would like to clarify their doubts can approach the board directly. However, outside of government schemes, insurance is generally purchased from Independent Financial Advisors, Financial advisors or Wealth Managers.

Financial advisors and wealth managers are usually tied to a specific insurance provider or financial institution. As a result, each financial advisor or wealth manager generally only sells products carried by that institution/provider. Speaking to advisors or wealth managers from different institutions/providers will give you more choices and perhaps even get you a better deal.

Independent financial advisors (IFA) on the other hand tend to sell policies from more than a single instituition/provider. Theoretically speaking, this allows the IFA the advantage of picking only the best products for their clients. However, potential customers should be aware that different products provide different levels of commission to IFAs and this may cause some bias in product recommendation as well.

Free Look Period

Generally all local insurance companies provide for a 14 day free look period, which begins from the date of receipt of you policy document. During this time, you may choose to terminate a purchased policy and get a refund.

Read more on the kind of insurance you need and purchasing your policies.