Buying Insurance for the First Time? This is the Perfect Starter Insurance Portfolio

Being an adult gives you a lot of freedom, but with that freedom comes responsibility. And as an adult, being responsible also means being able to meet your financial commitments, no matter what happens.

Yes, we’re talking about insura... wait, don’t go! Hear us out.

We know, we know. You already have enough on your plate, and the last thing you want to think about is buying insurance. 

Insurance isn’t exactly the most engaging topic. Worse, it forces you to confront unpleasant (but very possible) scenarios which nobody in their right minds would want to think about. 

But perhaps the worst thing is, you may even have to call up that annoying ex-classmate-turned-insurance-agent who’s been pestering you to meet up “for old times’ sake”.

But setting up your insurance portfolio needn’t be a pain, especially after you’ve read this article (wink wink).

From SingSaver’s own in-house insurance team, here is a blueprint for a can’t-go-wrong starter portfolio that will steer you in the right direction.

You’ll learn about:

• Four types of insurance plans you should start with
• Whole life insurance
• Critical illness insurance
• Integrated Shield plans
• Personal accident plans
• Building your own insurance portfolio

Let’s dive in!

Four types of insurance plans you should start with

Term or Whole life insurance 

Whole life insurance plans are the most basic representations of how an insurance contract works. In exchange for premiums paid, the insured receives protection against a defined risk. 

In the case of a whole life plan, the defined risk event is the death of the insured, and the protection takes the form of a sum of money (aka the sum assured) that is agreed upon by both parties. 

Therefore, upon the death of the insured, the insurer pays out the sum assured to the beneficiaries named in the policy. 

Although the most basic cover is death, many whole life plans also include total and permanent disablement (TPD) as a qualified event that triggers the payout of the sum assured. 

One thing to note for whole life insurance is that for those above 33 years old, the premium tends to increase significantly. For term life ins, the premium stay quite constant. 

Why you need whole life insurance

The primary purpose of a whole life plan is to ensure your dependents have enough financial protection in the event of your passing (or should you be rendered unable to work).

This shields aged parents, spouses and young children - and yourself, should you survive - from facing financial hardships arising from the loss of your financial support or ability to earn a wage.

You should think of a whole life plan as forward-looking, as it only benefits those left behind.   

Things to note about whole life insurance

Whole life plans have a cash component, which accumulates value over time. This allows whole life plans to fulfil both protection and wealth accumulation goals. 

You may access this cash component by taking out a policy loan - with interest -  against the eligible amount, but doing so will reduce how much you or your beneficiaries receive. This is resolved by paying back the policy loan. 

There is a close cousin of whole life plans, called term life plans. Unlike whole life plans, which remain in force for the duration of your lifespan (as long as premiums are paid on time), term life plans only cover you for a predefined number of years. 

Term life plans also do not accumulate cash value, so you need only pay for insurance protection, resulting in comparatively lower premiums.  

Critical illness insurance

A critical illness plan provides additional financial resources to help you deal with a serious disease or medical condition, such as to pay for medical treatment, or to cover living expenses during recovery. 

Commonly, a critical illness plan pays out a lump sum upon diagnosis of diseases such as cancer, stroke, heart disease or kidney failure, and the policy ends when it is paid out. 

However, there are certain types of critical illness plans that offer multiple payouts, although subsequent payouts will only be triggered for a different disease than the initial one. That’s to say, if your first claim was for a heart attack, your next claim can only be for cancer, or an unrelated stroke.   

However, there are specific conditions to be fulfilled before the payout is triggered. Primarily, the condition must fall under the policy’s defined list of qualifying diseases. Reaching a certain stage of progression may also be required. 

Why you need critical illness insurance

Suffering a serious disease can be devastating, and can severely tax your financial resources, as you may require specialised care, or require a prolonged recovery period during which you may not be able to return to work.

Hence, having a critical illness plan can help keep you and your family financially afloat during this difficult period. It can also allow you to pay for more expensive treatments that improve your odds. In case you succumb to the disease, the payout can also be used to help your dependents.

Things to note about critical illness insurance

You should not conflate critical illness insurance with healthcare or hospitalisation insurance, although they may seem to overlap. Critical illness insurance pays out the sum assured independently of the cost of your hospital bills.

Critical illness policies only cover strictly defined medical conditions, and some of these definitions may not match layman terms. Hence, always be sure to check the policy documents carefully before subscribing. If the condition you are concerned about is not included, you will need to approach your insurer for it to be included. 

It is important to note that critical illness plans do not cover pre-existing conditions, which means you will not be able to get coverage for say, cancer, after being diagnosed with the condition. 

Depending on your policy, you may also need to take note of: 

• Waiting period - a predefined number of days before your protection kicks in
• Survival period - upon diagnosis of a covered disease, a predefined number of days you need to survive in order to qualify for the payout.

Integrated Shield Plan 

An Integrated Shield Plan (IP) is a private insurance plan that sits on top of your existing Medishield Shield, giving you more options for healthcare and hospitalisation needs. 

IPs are offered by all major insurers in Singapore, and you are free to choose any insurer you prefer.

Why you need an Integrated Shield Plan

Through Medishield Life, you already have a basic level of medical and hospitalisation in place. However, due to the need to keep Medishield Life affordable for all, there are limits placed on the claims and benefits you are entitled to.

For instance, you will not be covered if you opt for consultation and treatment at a private hospital, or if you wish to stay in a higher-grade ward for better privacy.  

This means that you will likely have to pay some expenses out of pocket for hospital bills or medical treatment. Depending on your needs, this amount can turn out to be quite substantial.

With an IP however, you will be able to cover most of these out-of-pocket expenses, as well as enjoy subsidised rates for higher-grade wards. IPs may also provide coverage for items not covered by Medishield Life, which could expand your healthcare options without increasing your medical expenses.

Things to note about Integrated Shield Plans

While Medishield Life offers the same set of universal benefits to all who qualify, IPs are not standardised. Each insurer offers a different mix of benefits and coverage in their IPs, and may even offer different tiers of IP for a greater range of options. 

Hence, when reviewing IPs, you should take your time to choose one that suits your needs and preferences as closely as possible. Also, you are free to pick any IP you want, so don’t be afraid to update your IP in tandem with your life stages.

Another important thing to note is that unlike Medishield Life, IPs cannot be paid using your Medisave. Instead the premiums have to be paid from out of your own pocket, so you’ll need to make room in your budget for this.   

Like many health insurance products, premiums for IPs get more expensive with age. This is another reason to regularly assess whether your current IP is a good fit for you.  

Personal Accident Plan

Last but not least, you should also consider adding a Personal Accident Plan to your insurance portfolio. 

As its name suggests, a Personal Accident plan provides a lump-sum payout for accidental death or total and permanent disablement, after which the plan terminates. In addition, partial disablement such as loss of limbs or use of senses may trigger a payout or part of the sum assured.

Personal Accident plans can come with a variety of different features and additional benefits. These include increased sums assured for accidental death on public transport, loan or mortgage protection that pays up any such outstanding financial commitments, or children’s education grant to help pay for the educational needs of surviving children.

Why you need a Personal Accident plan

Just like a Critical Illness plan, a Personal Accident plan provides an added layer of financial protection for your family and dependents should you lose your life or your ability to earn an income due to an accidental injury. 

Ultimately, as no one can predict when an accident will happen, or how bad the outcome might be, many consider having a Personal Accident plan as a prudent choice.

Things to note about Personal Accident plans

While the primary function of Personal Accident plans is to protect against the financial fallout of a serious or fatal accident, that’s not all they can be used for. 

Personal Accident plans can also provide benefits for temporary disablement (such as having to use crutches or a wheelchair while your broken legs heal) thereby acting as a form of income replacement. 

Some plans also offer outpatient treatment coverage, which can offset your expenses for follow-up treatment and rehabilitation.  

Building your own insurance portfolio

Assess your own needs first

When it comes to choosing which insurance plans to include in your portfolio, the first thing you should do is assess your own needs. 

Admittedly, this can be easier said than done, especially if you’re not familiar with financial planning or how to manage your money.

It can be beneficial to seek the advice of a certified financial planner, or even a friend or relative experienced in this area, to sketch out the basic framework of your overall insurance and financial needs.

At this stage, it is probably best not to purchase anything yet, as you should give yourself some time to digest and debate your framework. Also, the insurance agent who is advising you may have a vested interest in pushing a particular plan (read: higher commission), depriving you of the chance to survey the market for options best suited for you.

Make use of riders, if suitable

While we have listed four types of plans in this article, that doesn't mean you need to sign up for four separate policies. Instead, you can choose to add riders to a plan, to gain the benefits and coverage you need.

For instance, it is very common for whole life plans to also offer riders for critical illness and personal accidents. This allows you to have three areas of coverage on one policy. 

Even better, riders may cost you less than if you were to sign up for the same benefits under a different plan and/or insurer, which means riders can allow you to achieve greater cost-efficiency while lowering your insurance expenses.

Having said that, riders may be limited in their scope, and may not provide certain benefits or coverage you may seek. Hence, be sure to strike a balance between cost-saving and getting the protection you need. 

Know when to buy your plans

Insurance is all about hedging your risks, and not all risks are made equal. For example, the likelihood of coming down with cancer is much lower for someone in their 30s than say, someone in their 60s.

Also, your insurance coverage should reflect your financial responsibilities, which change as you enter different life stages. For example, a single and carefree 21-year-old just stepping into adulthood probably doesn't need all that much insurance coverage, compared to a married 40-year-old with two young children.

Therefore, you do not need to rush to buy every single insurance plan you deem necessary, especially if you do not have the ability to afford the premiums. 

You can start with, say, a whole life plan to give it a head-start accumulating cash value, and then add on other types of insurance as your circumstances call for them.     

Read these next:
Whole Life Insurance: Reasons Why People Choose It Over Term Life
Personal Accident vs Life & Medical Insurance: What You Need to Know
What Happens If You’re Under-insured Against Critical Illness?
Best Personal Accident Insurance Plans In Singapore
5 Types Of Insurance You Can Get For Free In Singapore