Never too young to get critical illness coverage

Go for policies that provide good coverage if anything happens and ensure peace of mind

Image source: Getty Images

Insurance might seem like yet another drag on a young person's wallet when the income stream from the first few years of work does not extend very far, but it can still be a vital investment, say experts.

And this doesn't mean buying the first policy touted by a friend who recently joined the industry, they warn.

I have always been a hypochondriac, afraid of illnesses and the toll they can take, both physically and financially.

But they are inevitable, as I realised to my horror after turning 25 and the aches, pains and eye problems began kicking in.

I realised that I was heavily dependent on company insurance, which would not cover me if I changed my line of work.

I also depended on an IncomeShield policy bought for me by my parents when I was a child, which I now pay for.

But what other policies will I need especially as my parents near retirement age?

Young adults can look at life insurance plans and critical illness coverage from the start, experts say, and if you also want to accumulate wealth, consider endowment plans that are designed for regular savings needs.

Endowment plans with a shorter maturity such as three to five years can help you with short-term goals like planning for a wedding.

An OCBC survey found that people between 21 and 29 years old here have critical illness coverage of about $250,000.

About half of those with critical illness policies have coverage of about 3.9 times their annual income, while 73 per cent bought additional medical insurance coverage and 35 per cent indicated that they are on track in ensuring their dependants are financially taken care of after they die.

OCBC's head of bancassurance Samuel Wang says: "We've noticed a steady increase in young working adults purchasing insurance plans geared towards regular long-term savings."

He adds that a fifth of customers in that age group now have regular premium plans, compared with a sixth in 2015.

"These customers may be drawn to savings plans which enable them to save over a long-term horizon, providing them the flexibility to withdraw funds from the plan to meet changing life goals like getting married, owning a home or furthering education as the plan matures."

Image source: Getty Images

More than 80 per cent of OCBC's young adult customers have started to accumulate wealth and have some basic form of insurance protection through this type of insurance plan, Mr Wang says.

But a DBS study found that while over half of respondents say investment and insurance are equally important, they would prioritise investing due to a lower cost of entry.

Meanwhile, 16 per cent view insurance premiums as an opportunity cost and see investments as more important.

1. What types of insurance should young people buy?

Young working adults could consider a life insurance plan to cushion any financial burden on their loved ones in the event of death, terminal illness or disability, says UOB's head of group personal financial services, Ms Jacquelyn Tan.

"Critical illness coverage is also important as it covers different types of illnesses and the stages associated with them," she adds.

She recommends that young working adults opt for a comprehensive plan that provides coverage for early-stage critical illnesses so that the insurance payout will cover them from the point of diagnosis, freeing them of unnecessary financial stress during recovery.

DBS' head of financial planning literacy Lorna Tan says critical illness coverage is a priority because such plans provide a lump-sum payout in the event of illnesses such as cancer, heart attack and stroke.

They can also provide a few years of income replacement during recuperation.

Mr Wang says: "A hospitalisation coverage plan will always be important. Singaporeans have some of this coverage via MediShield Life, but young people may wish to upgrade to an Integrated Shield Plan for additional coverage."

2. How much should my insurance cover?

The amount of coverage you need will have to take into account what you can afford and the number of dependants you have, Mr Wang says.

Premiums for a term life insurance plan from OCBC can range from $128 to $730 a year for $100,000 of coverage, depending on the customer's age, gender and whether they smoke.

Mr Wang advises consumers to have critical illness coverage of about 3.9 times their annual salary. "This is because major critical illnesses could take about three to five years to stabilise or heal, and while you are attending to the illness and are unable to work or generate any income, this coverage will tide you over financially."

People should also have about 10 times their annual salary in life insurance, he says.

Those with budget constraints can start with micro-insurance plans, DBS' Ms Tan says.

These are insurance policies that are priced even lower than term insurance as they have a lower sum assured. They allow young adults to start small with lower cover at affordable premiums.

3. What to take note of when buying insurance plans

"The more the merrier" is not an adage that applies to buying insurance, experts say.

UOB's Ms Tan says having multiple insurance policies might not mean a consumer is sufficiently protected. "That may not be the case as the type of coverage and insured amount differ across insurance plans.

"For instance, while a hospitalisation plan covers medical expenses, it does not cover the loss of income during the recuperation from a critical illness," she adds.

And while we all get by with a little help from our friends, this might not hold true when it comes to buying insurance policies just because the agent is a pal, says Mr Wang.

"One thing to consider is how buying a financial product from their friends may not be a straightforward process as they may not agree with their friends' recommendations, but feel a sense of obligation to buy from them anyway."

A DBS poll last year found that around 45 per cent of young adults get financial advice from family members or their partner, 33 per cent from a financial planner and 32 per cent from a friend.

As Ms Tan says: "Whether the insurance adviser is a stranger, a friend or a family member, it is prudent to check on their background, competence and track record, as well as the basis of recommending the insurance product, before making the decision.

"This will help to avoid future headaches and potential disputes."

Hence, as the saying goes, it is better to be safe than sorry.

As someone who wants to be ever prepared and vigilant, buying more suitable insurance policies will ensure better coverage for me should anything happen.

And if that means channelling some of that YouTube Premium subscription money into insurance premiums instead, I am ready and willing to pay the price for peace of mind.

Article repurpose from The Straits Times by Sue-Ann Tan, Business Correspondent