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Am I Overpaying For Insurance?

At some point in our lives, many of us would consider getting insurance. It helps us to mitigate risks and protects us against dreadful situations. In Singapore, we get ourselves covered with insurance for various reasons however many of us are complaining about spending a large sum of money to pay for insurance premiums. One reason might be because we are over-insuring ourselves. It may sound bizarre but there are actually people who are over-insured.

Signing up for more policies, getting higher coverage does not necessarily equate to being better off. As all of us have different needs and the level of coverage we require differs too. Not only is being over-insured a waste of money but it may result in complications when we file for claims. With this in mind, how do we know if we are over-insured and paying for more than what we need?

Here are some signs that you can look out for.

1. Overlaps in Your Insurance Coverage

Overlaps in your insurance portfolio simply mean having more than one insurance policy that has very similar coverage. The most frequent scenario would be life insurance policies that you bought on top of the group insurance provided by your employer.

This does not mean that you should cancel your personal insurance plans.

However, you can potentially lower the cost of your premiums by discussing with your financial advisor to make adjustments to your coverage accordingly based on your group insurance.

2. Spending a Huge Percentage Of Your Income on Premiums

Let’s take a look at a simplified scenario.

I am a fresh graduate earning $2,500 a month. I am looking at a life policy with sum assured of $1 million in the event of death, terminal illness of total and permanent disability. Based on rates across insurers, the average premium for a term policy with $1 million sum assured is $3,600 per annum, which is 12% of a fresh graduate’s income. The question here is when one has just embarked on their career, is it feasible to set aside 12% of the income on a single policy. On top of that, would a fresh graduate without debt commitments require $1 million coverage?

There is no hard and fast rule on how much we should spend on insurance premiums, however, we need to strike a balance between the amount we pay for our premiums and the coverage we get.

3. Too Much Coverage

Based on a study conducted by Prudential, 70% of Singaporeans have not increased or updated their life insurance policies to match rising income levels.

While the majority of us are under-insured, there are still some of us especially the upper-middle-class that is over-insured.

In the life insurance industry, the general role of thumb for coverage is 10 times of your annual income so that your loved ones will be financially protected for the next 10 years. Having said that, other factors i.e. the number of dependents you have and debt commitments will affect the coverage required too. However, if your net worth is worth more when you are deceased, you should consider reviewing your portfolio.

At the end of the day, buying insurance is not merely about coverage and investments; we should use it to our advantage without having the need to break our banks. Regular review of our portfolio will help to ensure that our coverage is met despite the changes through our various life stages.

However, being the busy Singaporeans we are, it is a feat to clear our schedule and meet our financial advisors on a regular basis for a portfolio review.

We aim to simplify this process by bringing the tools for financial review online. We adopt a proprietary process that rates and optimises your insurance portfolio, giving you a glimpse of how to stretch your dollars and save the differences. Find out how you can optimise your portfolio and maximise your savings here today!

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This information stated herein is provided for illustrative purposes only to provide an example of our firm’s process and methodology. Past performance is no guarantee of future results. The results portrayed in these case studies are not representative of all of the firm’s clients or the clients’ experiences. Different types of investments involve varying degrees of risk, and actual results may vary materially than those portrayed herein. Therefore, it should not be assumed that the future results of any specific investment or investment strategy (including the investments and/or investment strategies recommended or undertaken by the firm) will be profitable or equal the results portrayed herein. An individual’s experience may vary based on his or her individual circumstances and there can be no assurance that the firm will be able to achieve similar results in comparable situations. No portion of our resources is to be interpreted as a testimonial or endorsement of the firm’s investment advisory services and it is not known whether the clients referenced approve of the firm or its services. The information contained herein should not be construed as personalised investment advice. Please contact us for additional information with respect to the strategies and/or investments described herein.

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