5 Common Mistakes when Buying Insurance
Updated: Jun 14, 2022
There are lots of reasons to consider getting yourself an insurance plan. From starting a family to purchasing your own house, or even taking on a large debt, there will always be something that insurance coverage would be good for.
Insurance is a financial planning tool that protects us and our loved ones from financial insecurities caused by sudden death, terminal illness, and permanent disability. Think of it as financial safety for you and your family!
Whatever your reason is for deciding to get insurance, it’s important to take your time to know all the facts about what you’re getting before committing to a policy. Otherwise, you might end up with a life insurance plan that doesn’t really suit your lifestyle and long-term goals.
Anyway, here are the 5 common mistakes that people make when buying life insurance. Be sure to read until the end so you can avoid making the same mistakes!
It’s natural to want to put off such a huge and important financial decision. People often get overwhelmed when taking in a lot of information about insurance, which results in them putting off or delaying the decision.
Keep in mind that your age and overall health can affect your capacity to qualify for insurance or to get lower premiums. The longer you delay getting insurance, the more likely you are to develop illnesses and health problems, which in turn make your premiums more expensive and inaccessible.
Getting a life insurance policy sooner can work in your favour if you’re after lower monthly premiums, since you’re younger and have a lower chance of developing critical illnesses.
Just a reminder here that the rates of life insurance plans tend to increase as people age and their health deteriorates.
2. Purchase the wrong type of insurance
There are two main types of life insurance in Singapore: term life and whole life.
Under the impression that these are the same policies, people tend to not pay attention to their differences. But we’re here to help you understand them!
Term life is the simplest and cheapest form of life insurance. It gives a form of payout upon death or disability.
However, term life insurance comes with an expiry date of anywhere between thirty to forty years, depending on the policy. You won’t receive a payout if the accident or death happens after the policy expires.
On the other hand, whole life is permanent insurance that covers you until your death, unless you stop paying your premiums. Due to the length of coverage, this type of insurance is generally more expensive but will give you security and peace of mind.
Between term life and whole life, it’s better to go with the latter if you have dependents or a significant amount of debt. That way, your loved ones won’t have to struggle financially if something happens to you that renders you unable to work.
If you’re unable to shell out huge premiums every month and don’t have dependents, though, then opt for term life. At least you’re protected in some way, albeit temporarily.
It’s important to know the difference between the two to make sure you’re adequately covered and aren’t paying for something you don’t actually need.
3. Incorrect set-up of beneficiaries
A beneficiary refers to the person who will receive the payout or death benefit of your insurance plans. If you ask us, setting up your beneficiaries is as important as choosing the policy itself.
The purpose of getting insurance is to provide your loved ones with financial security, so it’s crucial to go through the procedure of naming a beneficiary. Obviously, you want the money to be received by those you intend it for!
It’s common for policyholders to name their children as beneficiaries. The problem with this is that a minor can’t receive proceeds from a life insurance plan until they turn 21.
If you want to appoint a minor as a beneficiary, we recommend appointing a will executor to make sure that your funds and assets are distributed according to your wishes.
4. Keeping health records to yourself
It’s important to fully disclose your health condition while in the process of purchasing your policy.
Insurance companies hold the right to reject your insurance claims if it’s discovered later on that you didn’t disclose critical health information during the contract signing.
Upon making a claim, you’ll be asked to present your medical records through a general practitioner, which include pre-existing medical conditions and family health history.
Since insurance policies come with strict conditions to prevent insurance fraud, it’s better to declare any relevant health conditions up front and pay a slightly higher premium than file a claim and have it rejected when you really need the money.
5. Depending solely on insurance from work
It’s tempting not to sign up for private insurance when you have insurance paid by your employer.
While there’s nothing wrong with relying on work insurance, it’s worth noting that this type of insurance typically doesn’t have enough coverage. It’s meant to be another layer of protection in case one of your insurance policies falls short, not replace your main insurance plan.
Plus, once you leave your current job, you may no longer be entitled to any payout or compensation. You can’t take it with you to your next job!
Instead, it’s better to get life insurance with extensive coverage and viewing your employer-initiated insurance as another layer of financial protection.
Making your insurance work for you
The key to purchasing insurance is finding the balance between not rushing into the first plan that you come across and not delaying your decision for too long.
Insurance is a broad, complex financial topic which can’t be fully understood in a single day, so don’t hesitate to take your time if you want to find the best policy for your needs.
If you want to learn more about life insurance plans, or simply need financial planning advice and wealth management tips, feel free to get in touch with us! We can connect you with experienced financial planning experts who can find the right insurance for you.