​Insurance basics

mother daughter park

01 Nov 2018 | 6 min. read

Insurance protects you, your family and things you value from financial loss. Learn how insurance works, what to look out for, and why you should compare first before buying.

Key takeaways

  • Insurance policies help you cover your loss should something happen. What they cover depends on the specific policy.
  • Know your protection needs.
  • Strike a balance between coverage and affordability - buy only what you need.

What is insurance for?

Insurance is meant to protect you, your family and things you care about. The insurance you buy depends not only on what you want to protect but also what you can afford.

Some insurance policies are must-haves. You can’t drive without car insurance or get a mortgage without fire insurance in most cases.

With so many types of policies out there, how do you choose the right one? What do you look out for? Even if you can afford it, you don't have to buy them all.

Types of policies

Here are 3 main types of insurance policies and their purpose:

Life insurance

Purpose Examples

For your dependants (to receive financial support in the event of your death or total permanent disability)

  • Term life insurance
  • Whole life insurance
  • Dependants' Protection Scheme
  • Home Protection Scheme

For your savings and investment

  • Endowment policies
  • Investment-linked policies

For a regular income during retirement

Learn more: Guide to types of life insurance

Health insurance

  • Purpose: For yourself (helps pay medical costs due to illnesses or accidents)
  • Examples: MediShield Life, Private Integrated Shield Plans (IPs), Critical illness, Disability income, ElderShield
  • Learn more: Guide to types of health insurance

General insurance

  • Purpose: For yourself and the assets that you own
  • Examples: Car insurance, travel insurance, property insurance, work injury compensation insurance
  • Learn more: Introduction to general insurance

How insurance works

Here's how the insurance process works:

1. Assess your needs and choose a policy

The first question to ask yourself is, do you need insurance at all? If you're unsure, take a look at what you have now — your work, life, family and everything you worked hard for. Which part of it do you want to protect if something untoward was to happen to you? Your answer can lead you to the type of insurance you need.

Your insurance policy is a contract that lists exactly what you want to protect against. For example:

  • Death of the breadwinner
  • Total and permanent disability
  • Critical illness
  • Loss of belongings
  • Damage to your car
  • Damage to your house

2. Pay the premium

Premium is the amount you pay for the insurance. It could be monthly, quarterly or yearly. It could also be a one-time payment for travel insurance.

Tip

Generally, it costs less if you pay the premiums annually instead of monthly or quarterly.

The amount of premium depends on the risk and on the value of the potential loss you’re being insured for. For example, you may want your family to continue to receive your monthly income if you pass away prematurely so your insurance policy will cost more for this benefit.

3. Make a claim

If something happens that’s covered by the policy, you can claim on your insurance. Tell the insurer what happened, they'll investigate and if the claim meets with what you’re protected against, then they'll pay you as agreed.

Before you buy: Things to look out for

Before committing to an insurance plan, run through this checklist to make sure you know what you’re buying.

Can you afford it?

Life insurance policies are long-term commitments. Make sure you buy what you need and what you can afford. It could be a costly mistake if your policy fails to meet your expectations or gives you insufficient coverage when you need it the most.

Some life insurance policies build up cash values over time. If you cancel or surrender such policies before maturity, the cash value that is payable to you may be zero or less than the premiums paid.

Remember, you'll have other expenses and financial commitments. If you're unable to keep up with the premiums, your insurance policy may lapse or be terminated.

Is it a bundled product?

Some life insurance products, such as whole life or endowment participating policies or investment-linked plans (ILPs), have a savings and investment element bundled together with insurance protection. These are known as bundled products. They cost more than pure insurance protection products for the same amount of coverage.

If you don't need to build up cash values (and prefer to invest in other financial products yourself), buy term insurance.

If you want insurance with investment features, make sure it covers your insurance needs first. Part of your premiums will pay for insurance coverage and the rest will be invested (after meeting specific charges).

If you wish to keep premiums low, do not accept lower insurance coverage in return for building up cash values — or your dependants may not be adequately protected.

What about short-term policies?

Some policies may be of a shorter term or meant to be renewed upon expiry. Such policies may not guarantee automatic renewal. Also, you need not renew the policy with the same insurance company. Consider if your needs are sufficiently met by these type of policies. Shop around to see if you can find better terms somewhere else.

Can you switch policies?

If you're thinking of replacing a life or health insurance, make sure the new policy covers all the same conditions as your previous one.

Your health may have worsened since you bought your old policy. Check to see that your current medical or health conditions are not excluded in the new policy before terminating your current policies.

Are there limitations?

Find out the terms of the policy and if the policy has exclusions. For health insurance, ask about the co-insurance and deductibles that you have to pay before the policy reimburses your medical bill.

Do you know what you're signing?

Never sign blank or incomplete forms. Do not give your NRIC without first clarifying why it is needed.

Be careful of verbal promises and guarantees of high returns. Insist on written confirmation before committing to buy a product.

Have you disclosed everything?

You must disclose your details truthfully in the application form. Ask if you are not sure of whether something needs to be included. If you spot inaccurate or missing information, you must ask for the document to be amended immediately before you sign.

Do not accept an insurance policy based on inaccurate or missing information. It could lead to the policy being voided (or invalidated), and the insurance company will not pay out in the event of a claim.

Check with your insurer if and when you need to tell them of changes in your circumstances.

After you buy: 14-day free look

After you've bought a policy (any policy except travel, car and maid insurance), you have at least a 14-day free look or cooling-off period for you to review it. The free-look period starts from the date you receive your policy document.

Read through the documents carefully and see if the policy meets your needs.

If you decide not to keep the policy, write to the insurer to cancel it within the cooling-off period. The insurer will refund all premiums less medical and other expenses incurred. For investment-linked policies, the insurance company may work in any change in the market value of the policy.

Always check if the policy you're buying has a free-look period.

Making a claim

It's good to know how to make a claim, just in case. Ask your insurer or visit its website to see how that works. Depending on the type of claim, documents needed usually include:

  • A completed claim form.
  • NRIC of the person claiming.
  • Supporting documents.

Once you've submitted the documents, the insurer will process the claim, and advise you on the outcome. For some types of general insurance, the insurer may appoint a loss adjuster to look into the case.

How to avoid high-pressure selling

If you don't want to receive calls on goods or services from telemarketers, tell your insurer to place your contact details on its Do Not Call list.

See also: High-pressure selling: What you should do

Before buying, compareFIRST

You should always compareFIRST before deciding which life insurance product to buy.

compareFIRST is an information portal on insurance products. It allows you to compare the premiums and features of life insurance products available to the retail market in Singapore.

You can customise your search by selecting:

  • The coverage you want
  • Premium type and coverage duration
  • Inclusion of critical illness riders

After that, you will get a list of life insurance products for you to compare side by side.

Tip

Don't buy an insurance product based on the premiums alone. Also look into the benefits, features and coverage of the product and assess if it meets your needs.

Last updated on 07 Nov 2018