Why is insurance so important for your family?

What is Insurance and why it matters for your family

As a parent, it is pretty common to find multiple things vying for your attention, all at the same time. From your newborn crying for milk to your mortgage knocking at the door for payment, there are 101 things that parents have to take care of.

If you find yourself being spread too thin, you are not alone. Parents often find that they don’t have time for themselves, let alone think about reviewing your insurance plans.

But here’s a tip from parents to parents: Neglecting the insurance component in your family’s financial planning IS a deadly mistake you want to avoid at all costs. So, no matter how busy you are, you need to start taking thinking about insurance. Here’s why.

Insurance is for life’s curveballs

Insurance is protection against unwanted events

When you were younger and fitter, it was natural to think that “it won’t happen to me”. But as parents, you know that nothing is predictable. Give your child some coloured markers, and you a masterpiece on the sofa. Or the wall. Or on their faces.

The benefit of insurance, by definition, is protection against unwanted events that could occur. Curveballs are being thrown at us every single moment. Sometimes, they come from the most unexpected source.

Insurance acts as a financial safety net for your family’s finances. With the right insurance, you can be assured that your loved ones won’t be saddled with financial burdens if anything happens to you.

A comprehensive insurance policy helps to cover the immediate bills and defray the cost of daily living expenses . More importantly, it doesn’t throw your dependents into financial disarray as they won’t have to scramble for money to pay the household bills. The loss of a loved one is already a lot to handle. Don’t add financial burdens to their minds.

Endowment is another type of insurance plan that allow you to accumulate your wealth steadily towards achieving a financial goal, such as education funding for your child. These plans also offer some protection element, to help ensure that your beneficiary receives financial compensation should the unfortunate happen during the tenure of the policy. With the attachment of protection riders, the financial goal could also be secured against unfortunate events.

Start by asking yourself these questions

What insurance does your family need?

So, where should you start? The easiest way is to first consider your priorities and needs in life. Here are some questions that will help you decide which type of insurance to consider at your current life stage.

  • Just had a baby and wondering if your new born needs insurance?
  • Just took on a financial commitment to purchase a new home?
  • Are you looking to increase your hospitalisation coverage so that you don’t pass on the financial burden to your children?
  • Are you looking to set aside a lump sum for your child’s education needs?

Here are some of the common types of insurance that most people start off with:

  • Whole Life insurance: Whole Life insurance covers you for life, or usually up to age 99. It is a protection plan with either a savings or investment portion. Depending on your coverage plan, it provides you with a lump sum pay-out if you are permanently disabled or critically ill, or to your loved ones if you pass away.
  • Health insurance: As medical and hospitalisation costs are rising, a plan that integrates and complements the benefits of MediShield Life is useful if you need wider and higher coverage for medical expenses incurred. And if you want something specific to critical illness or cancer, that’s available in the market too. This can be useful in avoiding passing on the burden of your medical bills to your children.
  • Personal accident insurance: This is for the times when you’re injured. For instance, ankle sprains, back sprains, or if you’re knocked down by a rogue e-scooter rider. For your children, there are also kid-specific policies that cover the common playground injuries and diseases that they might pick up at school, such as Hand, Foot and Mouth Disease (HFMD).
  • Term insurance: Provides protection from death and/or illnesses for a pre-set period of time, e.g. 10, 15, 20 years. Because of the shorter coverage period and the lack of cash value, premiums are usually lower than life plans.

Alternatively, if you are looking for disciplined savings, you can consider an endowment policy. This type of insurance plan helps you set aside a certain amount each month. Upon maturity, you will receive a lump sum pay-out from the plan which you can use to fund things such as your child’s university tuition fees. Some examples of endowment plans are:

  • Regular endowment plan: A term plan of fixed tenure, which has insurance coverage against Total and Permanent Disability and death, plus yearly cash benefits and a maturity pay-out. It can also be a way of saving for a big family trip to see the Northern Lights, just before the kids go off to university or enter the workforce.
  • Education endowment plan: An endowment plan that specifically helps you to save for your kids’ education in advance, so that you can afford the best education for your child.
  • Retirement plan: To get retirement-ready, so that it puts less financial pressure on your child to support your retirement lifestyle. Because planning for your future is planning for your kids’ future.
  • Short-term endowment: This can help you save for short-term goals or to make your money work harder against the forces of inflation. It provides a lump-sum payout, and you can typically get it with a one-time upfront payment.

How much insurance is enough?

How much insurance is enough?

A standard rule of thumb is to be insured for 10 times your annual earnings. However, there are other factors to consider such as:

  • Your kids’ age and their life stage
  • Your remaining life expectancy
  • Any large expenses that you expect in the next 5-10 years such as your child’s education fees
  • Any outstanding liabilities such as mortgages, car loans
  • Any inheritance or assets that you will like to set aside for your children.

While you’re at it, don’t go overboard. It’s like knowing how much to feed your child: too little and they don’t get enough vitamins; too much and you end up with ‘poonami’.

In the same way, getting different policies will give you more comprehensive coverage, but being overly protected isn’t a good thing. Always be prudent when deciding on a plan, as switching or terminating a plan prematurely usually does not yield financial benefits.

To avoid unwanted financial stress, compare the policies that you have against this checklist.

And if you’re still unsure about what you’ll need, how much, or the type of insurance to get, consult a financial advisor. A good financial advisor will be able to:

  • Help you verbalise what your family needs;
  • Analyse the policies you’ve already bought or are considering;
  • Any large expenses that you expect in the next 5-10 years such as your child’s education fees
  • Identify any overlaps in the various policies; and
  • Come up with an action plan that’s within your budget.

Because insurance coverage doesn’t have to be too expensive, or too confusing.

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