Most experts will say that sound financial planning begins with a solid and comprehensive medical insurance coverage. If you have gotten your medical plans sorted out – that’s great! What’s next then? The unequivocal answer would be a Life Policy, which is also commonly known as a wealth protection or income replacement plan. A financially savvy individual would understand the importance of setting aside 5% to 10% of their income, in order to safeguard 100% of their assets.
Put simply, a life policy covers the life assured with a lump sum of money e.g. 300k SGD, should the individual be met with the unfortunate situation of death, disability, terminal illness and critical illness. The lump sum claim allows the individual to focus on recovering, as they will be guaranteed a lump sum payout of cash during their most vulnerable moment. Should the life assured pass away, the family or nominated beneficiary will receive the amount of money stipulated by the policy owner. Hence, this particular policy is popular as a form of legacy planning tool amongst family man as well as individuals living with dependents.
Please do not be mistaken, this does not mean that an individual without a family or dependents would not require a life policy or medical insurance. I believe everyone would agree that being financially independent IS a crucial part of being self-dependent and independent. If this is the case, it would be equally important for this group of individuals to partake in holistic financial planning. We all need a safety net to make sure our future would not be jeopardized by any unforeseen medical emergency that might give a huge blow to our financial health.
With regard to the amount of coverage needed in a life policy, ample fact finding will be required to derive at the protection sum required. For instance: the sole breadwinner of a family of five will certainly require a much higher coverage, as compared to a fresh graduate who has just stepped foot into the working society. A simple consultation will be able to give the individual a clearer idea of how much money will be required for him to sustain a certain standard of living even during their most vulnerable moments.
Naturally, the premiums of a life policy correlates with the sum assured – the higher the sum assured, the higher the premium will be. Factors such as age, smoker status, gender as well as occupation will also affect the premiums of a life policy. It is useful to note that the premiums of life policies are typically level – meaning, it will not increase over time. Hence, it would be wise to commit to a life policy at a younger age in order to secure a lower premium for the desired protection plan. Most important of all, it is crucial to enter into a contract with an insurer as a standard life (no pre-existing conditions) to make sure that there will be no exclusions of any medical conditions in times of a claim.