Myths & Facts About Life Insurance

by Phebe Yeo

Myth 1: I’m already covered by MediShield Life for hospitalisation; I don’t need life insurance

Many Singaporeans have great faith that the government is there to care for our basic needs.

While MediShield Life does indeed provide you with a basic level of coverage for in-patient treatment, hospital stays, and a range of out-patient care, life insurance plays a completely different role. 

Life insurance aims to provide your beneficiaries with a lump sum payout in the event of your death or total permanent disability. In this way, your loved ones will not have to worry about their finances if you, a breadwinner for the family, is unable to provide any financial contribution to the family. 

Whether it’s your spouse, children or ageing parents, you can provide them with financial security should you suffer from an untimely death. Life insurance addresses a different type of financial gap and should be part of your insurance portfolio along with health insurance.

To keep it simple:

Hospitalisation covers only if you stay IN the hospital. There will be no coverage OUTSIDE of the hospital.

Myth 2: I don’t have dependents, so I don’t need life insurance coverage

People may think that life insurance only leaves behind money for lives once. If your loved once don’t need the money, it’s ok to leave nothing behind. 

It may be true to some, but there are other factors to consider as well…

1. Financial implications of your passing. 

Have you ever considered who would take care of funeral expenses or any of your outstanding personal debts after your death? 

The death benefit from a life insurance plan can go towards such expenses. 

2. Beneficiaries to charitable organizations or religious institutions 

3. You could also designate a portion of the death benefit as part of your estate to be distributed to your named beneficiaries or to charitable organisations.

3. Being in a “ sandwich generation”

If you are in a sandwich generation,  you’re supporting your aging parents during their golden years, then they are technically your dependents. As such, any financial planning you do should take into account their future financial needs in case you’re unable or not around to take care of them. 

If you’re keen on getting a financial head start as you move through life, getting insured is one of the smart financial moves you should make in your 20s.

Myth 3: I’m still young; I’ll wait until I’m older before I buy life insurance

The myth that young and healthy individuals do not need to buy insurance is not accurate. Although it may seem a logical deduction from the outset, there are deeper considerations you need to think about.

Buying life insurance earlier in life means paying a lower premium and high probability of being pink of health. You also have to accept the fact that even young and healthy individuals can unexpectedly become ill. Once diagnosed with a major illness, you may not be eligible to buy or have strict exclusions on future life insurance policies when you decide to purchase it.

One common grouse with life insurance is that when the time comes that you need it, it’s often too late. Eliminate this regret by getting covered while you’re still young and healthy. Young people can benefit from buying life insurance early in life.

Buying a life insurance policy while you are young can ensure that you enjoy full coverage for your lifetime, even if you develop health conditions later on in life. 

In general, life insurance premiums for the young tend to be cheaper than those who are older. And if you purchase a whole life plan, you get more years of coverage and your policy has a longer time frame to accumulate higher cash value.

Myth 4: Life insurance is too expensive

Another common misconception is that it costs too much to be insured. This myth comes about due to two possible reasons: people don’t actually know how much it costs to have life insurance and they’re not convinced of the value of being insured. 

Interestingly, it’s those who think they can’t afford life insurance that really do need it the most. After all, if you are unable to allocate at least 10 percent of your monthly income to life insurance, imagine how financially devastating it could be on you and your family if you were to unexpectedly die or become permanently incapacitated? 

In terms of actual costs of premiums, not all life insurance is expensive. Term life, as a pure protection-focused product, is able to provide you with high cover for death and total permanent disability at an affordable premium. 

Before dismissing life insurance as a high and unnecessary cost, you should learn about how it can enhance your financial security and find out exactly how much it would cost for you to get sufficient coverage. 

You can use online tools such as quote generators to estimate premium costs, or you could speak to a financial adviser for guidance.

“BUY TERM AND INVEST THE REST?”

There are three main weaknesses to this line of thought. Firstly, it assumes you will invest the “rest”, rather than end up spending it. Secondly, it assumes that you know how to invest the “rest” and lastly, it also assumes you will successfully invest the “rest”.

For starters, many may procrastinate or are daunted to start their investment journey. This means they will never end up investing the “rest” of the money even after buying term insurance.

For those who do start investing, they will need to faithfully re-invest any returns as well as a portion of their future salaries over the next 20 to 30 years. This takes decades of discipline and vigilance, as the repercussions of neglecting investing will only be felt in retirement rather than instantaneously.

Even for those have the discipline to invest over the long-term, there’s a chance that they let their emotions negate their efforts. This is because markets are volatile, and rather than take a long-term stance, many could end up buying or selling investments impulsively.

Another downfall of the “buy-term-invest-the-rest” mantra is that if an unforeseen circumstance occurs early on in your life, you may not have had the time to accumulate enough for your loved ones’ futures. Similarly, even if you had been conscientiously investing over several decades, if an unforeseen circumstance befalls you during a deep recession, your loved ones may not have the expertise or financial muscle to allow your investments to ride out market volatility.