I’m sure that everyone has been pulled aside by an insurance agent at MRT gantries or shopping malls at least once in their lives. Most of us would then try all sorts of excuses just to get away from their seemingly incessant selling. Once bitten, twice shy, and we would avoid eye contact afterwards with anyone standing around wearing a lanyard and holding a clipboard. But, is insurance really such a scary thing and one that we should brush aside like an annoying housefly? You would be surprised at the answer, as we delve into a few examples of insurance that a young working adult would stand to gain from.
Most, if not all of us would agree that health is the most important aspect of life. As a young working adult, you probably would not have thought about this issue yet, but it certainly will be wise to start planning for it. An important point you should know is that life and health insurance premiums are inversely related to your age upon entry or renewal. This means that the younger you are, the cheaper it is. Hence, a clear advantage for young working adults is the option of purchasing such insurance early at a lower rate. The rationale behind this lies in the pricing mechanism of the insurance premiums. Two crucial factors that determine this are mortality and morbidity rates, which are the number of people dying or getting sick respectively, in every age group. By common sense, the younger you are, the less chance of you passing away and contracting an illness. Thus, insurance premiums for young people are lower. Another interesting fact is that for females, life insurance premiums are lower as compared to health insurance premiums. This price disparity is due to the longer life expectancy and higher susceptibility to health problems of females.
The second consideration for young working adults would possibly be savings and retirement. According to a survey conducted by Nielson, and commissioned by NTUC Income this year, two-thirds of respondents aged 25 to 59 thinks that retirement investment ensures sufficient savings for future needs. Even if retirement is too far-fetched, we can look at some life goals, such as getting a flat, a car, or both. Twenty percent of those surveyed believe that saving for a first property is a financial priority. The common point is that in one or more particular points in life, we would need a sum of money. A few types of life insurance can help you to do just that as they encompass a savings element alongside protection. Examples include whole life insurance and endowment plans. Whole life insurance provides death and total permanent disability coverage for life, where you will receive a death benefit in the above events. It also acts as a savings plan, as you will be to surrender the policy for a cash value after a given period. Endowment plans differ in providing coverage only for a fixed term. However, if you survive upon maturity of the plan, there is a maturity benefit paid out. An additional benefit is that the interest rates given by insurance companies are generally higher than that offered by banks. For young working adults, it is a good idea to start saving for a rainy day or for a milestone event in life such as forming a family.
After securing protection and savings, some of us may still have disposable cash at hand. For those with a larger risk appetite, you can consider an investment-linked life policy (ILP). ILPs provide minimal coverage, and the bulk of the premiums goes into investing in sub-funds provided by the insurance company. The returns correlate directly with the performance of the sub-funds, and the risks are borne entirely by the policy owner. The benefits of choosing an ILP include diversification, professional management, affordability and dollar cost averaging. A small and inexperienced investor can participate in large investment funds through ILPs. Furthermore, dollar-cost averaging allows the policy owner to capitalise on market cycles by purchasing more units when prices are low and vice versa.
After all that has been said, whether a particular insurance is beneficial or suitable is dependent on the individual’s life cycle and needs. Moreover, although the types of insurance are similar in nature, different insurance companies offer variations. Therefore, before making a purchase, do remember to approach different companies and understand the explanations given by the insurance agents thoroughly. Make sure that the policies you buy do not overlap as well, as there will only be one payout for the same claim across companies and policies.
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