Insurance policies exist if something catastrophic happens and you are suddenly buried in debt. While you may not be able to afford every type of insurance available, you should consider 5 key types of policies to protect your finances and your family.
1. Life Insurance
Scenario 1: You die, and your family inherits your debt and lose the primary source of income
Life insurance is the best safety net for this situation. This type of insurance is a contract between the insurer and the policyholder. Life insurance guarantees payment of a death benefit to your named beneficiaries, typically your spouse or family members. This death benefit is a pre-determined amount.
There are two types of life insurance plans. The main difference is how long the policy will cover you and how much money you get back if you don't use it.
Term life coverage does not have a cash element. As a result, it is not an investment but a preventive measure. All of the premiums go into coverage that protects you until you are age 65. After that, the plan expires. It is suggested to have, at least until your youngest child finishes tertiary school.
Whole life insurance is a combination of coverage and savings. There is a cash value associated with your policy. It covers you until you die, as long as you continue to pay the premiums. Of course, whole life insurance is naturally more expensive than term life. However, it has the potential to grow the money you pay into it.
Whether you choose term life or whole life, it is recommended to purchase a policy that is approximately five times your yearly income, or based on your debts and liabilities. Your recommended coverage will vary depending on if you are your family's primary source of income, number of dependents, the age of dependents, and outstanding debts.
2. Critical Illness Insurance
Scenario 2: You are diagnosed with a critical illness and require expensive medical treatment
Critical illness, ordinarily cancer, is a grim but common reality. Critical illness insurance should reimburse you for medical expenses for 37 critical illnesses listed by the Life Insurance Association. Critical illness differs from terminal illness, which should be covered by most life insurance policies, because the patient is expected to survive for at least a year after receiving the diagnosis.
This insurance also pays out in a lump sum when you are first diagnosed. Critical illness insurance is advantageous because you can spend the money on what you may need, as opposed to financial assistance for medical bills exclusively. Your family will be able to continue to pay for daily expenses, despite the loss of your income.
3. Health Insurance (Hospital and Surgical)
Scenario 3: You get into an accident and are hospitalized
Hospital, surgical and outpatient care can be extremely expensive. A hospital insurance plan dispenses daily cash payouts for every day that you are in the hospital as a result of an accident or illness. It will cover you as long as you are receiving medical treatment or surgery.
Some insurance policies will even give you an additional lump sum upon discharge to help with your recuperation period. This type of insurance is useful because you do not receive any life insurance payout because you did not die. On the other hand, you are not entirely healthy to continue working the same way as before the accident.
It is important to note that this insurance is usually an enhancement to Medishield Life. Medishield Life is a basic subsidized healthcare plan for public hospitals up to B2 wards. It is recommended to find an insurance policy that reimburses for private hospitals or at least public A.
An additional benefit of this policy is that it gives you cash in addition to your other benefits under MediShield Life or the Integrated Shield Plan. As a result, this type of health insurance is extremely beneficial if you find yourself in this situation.
4. Disability Insurance
Scenario 4: You are suddenly disabled and no longer able to work
Medical bills aside, if you abruptly find your disabled and unable to work, your family will probably be in dire straits. If you were the sole breadwinner with regular monthly income, your dependents would likely find it difficult to pay for day-to-day expenses.
Disability income insurance is not a long term solution. However, it will pay out a maximum of 80% of your average monthly salary for a number of years. This cash benefit will help ease the financial burden for some time while your family finds an alternative solution. The recommended coverage for this type of insurance is at least S$3,000 per month, or according to your existing income and financial need.
5. Personal Accident Insurance
Scenario 5: You get into an accident and require outpatient care
As indicated by its name, accident insurance plans cover expenses, such as an MRI or CT scan, due to an accident. This insurance provides a cash benefit for medical and out-of-pocket costs either in a lump sum or as reimbursements.
One useful feature is that this insurance can have a weekly cash benefit for temporary total disability after an accident. It may also have free coverage for your children if you and your spouse are insured. You can always add more benefits to your plan as you see fit.
We never want to be in an accident, get sick, or die. However, the reality of the situation is these unfortunate events are possible. Preparing for the future is essential to protect your family from the loss of your income, inheriting your debts, and paying long term medical bills.
Some of these insurance policies overlap in coverage. Be sure to mix and match plans, identify areas that you may need additional benefits, and check for any lapses in coverage. Strong financial planning includes having proper insurance policies in place, which can also serve as investment opportunities. Plan for your future and protect your family.