Do you really need insurance in Singapore?

Singapore is a country with a high quality of living.

But did you know that we also pay more than twice as much as people in other countries for health care?

That's why to avoid living the "Singaporean Nightmare" (as opposed to the Singaporean Dream), everyone is advised to have some form of health or life insurance in Singapore to safeguard against any unforeseen incidents.

But even then, a 2018 study showed that 80% of Singaporeans have no idea of the level of insurance they have. That's pretty amazing when you think about it. We've got doctors, hospitals, an excellent health care system, average life expectancy of 80 plus years, but we have no idea what we're covered for.

On the other hand, many others think they don't need insurance in Singapore because the country is relatively safe or they are too young to become a victim of any major accident or illness.

But, of course, that's not true. Things can happen on any day at any age. And (touch wood) if you are ever unfortunate enough to become seriously ill or injured, it will be hard for your family to cope with the financial burden if you're not medically insured.

But how about the other policies like savings, investments, or retirement? Do you really need that kind of insurance in Singapore?

For Singaporeans, it has become a reflex to run when you're approached by friends who are insurance agents. Either that or you've bought so many insurance policies from them, you've become numb and you don't have the slightest idea what policies you own (as the above-mentioned statistic reflects).

So if you think about it, few people actually know which are the right kind of insurance policies to buy and which kind you should stay away from. 

What insurance do I need in Singapore?

Insurance in Singapore is made to cover three major life risks. So depending on your needs, you should buy your policies according to the risk you're attempting to protect against.

Risk #1: Gone too soon

Let's face it, human life is more fragile than we care to admit and the scary thing is, no one knows when our time to go is. And when we do, what will happen to our family?

However, if you have an Accident or Life Insurance Policy in place, your family members will be taken care of financially, and at least for a while, they do not have to worry about where to get the money.

As they say, always "prepare for the worst and hope for the best."   

Risk #2: Too ill to bring income

As people age, we tend to get more susceptible to sickness. And, of course, these illnesses don't just kill you, it also robs you of your ability to work and support yourself and your family. With the cost of healthcare escalating out of control, it is not difficult to rake up a hefty medical bill.

That's why it is more important than ever to have a Critical Illness or Medical Insurance Policy in place for yourself. By preparing for this possibility, it could alleviate a potential financial strain on you and your family, especially if your illness requires long and constant treatment, e.g., cancer.  

Risk #3: Outliving your wealth

Contrary to the first two risks, the third risk struggles with longevity and the lack of wealth to sustain it. As much as it sounds like a first-world problem, "living too long" is a real and painful challenge.

See also: Is early retirement in Singapore a possibility?

You're old, you can't work to bring income, and you don't have enough savings to sustain yourself. What then?

Having a Savings or Investment Policy in place in your younger years can be one of the ways to tackle this problem early. These policies usually have a decent return rate and you can take your money out when you reach a certain age.

But of course, if you are savvy enough, you can also invest in other things such as stocks and property to grow your wealth.

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Should you buy all these insurance policies?

Hang on. It sounds like ALL insurance policies are important then.

Should you then buy all these policies now? Thankfully, no.

According to our expert, you should buy your policies in 5 stages.  

Stage 1: Protection

Above all things, we should first protect ourselves and the things we own – our income, our assets, and our family. By having insurance, such as Accident, Critical Illness, and Hospitalisation in place, we are protecting the assets we already have and making sure our family is taken care of in case of unfortunate incidents.

This, however, does not grow your wealth over time, and this is when we move to Stage 2.  

Stage 2: Savings

It doesn't matter how much someone earns, it matters how much they can save. So, this is where a Savings plan comes in.

It may seem counter-intuitive to pay for something to save but, using a savings policy can add up to big bucks over time. Granted, the returns are not over-the-top fantastic, but it is decent (close to CPF returns) and it is much better than the banks' savings interest.

Still, this does not compound your money over time and that's where Stage 3 policies come in. 

Stage 3: Compounding

It's a great start to have money saved up for the future but are you prepared for the little thief called inflation?

The only way to protect against this is to have some sort of "anti-inflationary" strategy and this is where asset diversification comes in.

By owning a variety of investments (investment policies may be one of them), the collective value of all your investments will go up over time and help you to achieve financial freedom more quickly.

Now, how do we ensure this compounded wealth is safely tucked away until you need them? 

Stage 4: Preservation

It's not only crucial for us to build wealth, but also to preserve and sustain it.

Most people don't realise it but, having a well-thought-out retirement policy can provide a measure of financial security in your later years.

And the best part is, it has an automatic component where you will get consistent passive income no matter the economic situation. 

Stage 5: Legacy

As much as some of us may want to, we can't live forever. But what do you do with your accumulated wealth when you go?

Enter Legacy Planning. This can be especially important for those of us who want to "pass the baton" to our kids or other loved ones so they can carry on growing what you've built. Without proper planning, your family may be left in a pinch as to what to do with your wealth afterwards. 

Up until today, a lot of people still view insurance in Singapore as an unnecessary expense or a waste of money. After all, there's no guarantee that you'll ever need it and you can't touch it nor see it.

However, this is a detrimental mindset.

What you should do is to understand your needs and review your policies each year so you can control the amount of premium you're paying each year. This way, you and your family are protected in the most optimal way and you're not pandering to unnecessary expenses.

Watch this week's episode of Money Money Home on meWATCH as husband and wife, Jia Daren and Zhen Xianren, talk about insurance and life protection. And is Xianren attempting to kill Daren for the insurance payout?!

Money Money Home is an edutainment series that takes reference from Malaysia’s TV programme of the same title.