Choosing An Insurance Policy

From Financial Literacy Wiki

Choosing an insurance policy is a financial decision most people have to make. The ideal policy would be one where the benefits of the policy matches your needs perfectly. Needs vary from person to person and the factors that will affect the needs of individuals include (but not exhaustive) age, marital status, employment status of spouse and number of children.

Singles

Since the basic purpose of buying insurance is to ensure that your dependents are financially secure, singles will have less need for life insurance protection. Singles may consider a mortgage reducing policy to cover outstanding housing loans and insurance coverage for critical illness and loss of income due to unemployment.

Young Families

Families with young children would have a great need for protection, especially those that has only one sole breadwinner. One big financial burden of young families is the repayment of housing loan. Thus getting a mortgage reducing policy would be a good idea and it is mandatory for households purchasing HDB flats.

Additional insurance purchase should be thought out carefully as the budgets of young families are stretched. If your budget allows, buying a whole life policy would be a sound decision as premiums are relatively lower at a younger age. However, one must note that this is a long-term commitment and the consequence of early surrender is the loss of protection as well as premiums. Do take note of the event of economic recessions and job retrenchments before committing to a large insurance policy.

Buying a child education policy is a sound decision as well. Single premium policies are cheaper in the long run but may not suit families with tight budget. An alternative would be to purchase a regular premium policy but again this is a long-term commitment.

Mature Families

Mature families refer to those in the 40-50 age group. By this time, these families would have accumulated a sizeable amount of savings in preparation for retirement. Those who have bought whole life policy earlier in life would have sizeable cash surrender value in their policies. You might want to use your cash surrender value to purchase a paid-up policy with a smaller sum assured, thus improving your cashflow and allowing your dependents to still enjoy some protection.

As retirement age draws near, the emphasis should shift towards preservation of wealth, meaning one's portfolio should be moving towards investing in safer assets, thus investing in Investment Linked Policy is not advisable. One should consider instead, to invest in annuities.