Life isn’t all sunshine and roses. For all the ups, there are also downs and unwelcome surprises — like medical emergencies and accidents or passing away of loved ones — which can disrupt plans and result in emotional distress and financial strain.
So what do we do? While preparing for every eventuality is impossible, insurance can help protect us and our loved ones from numerous risks.
What is Insurance, and Why is it Important?
Insurance is a contract between a person or policyholder and an insurance company.
Essentially, policyholders pay insurers a sum of money on a regular basis, and in return for these “premiums”, the former is provided with financial protection against losses or unforeseen events.
For example, you may be anxious about dying suddenly and leaving your loved ones in a financial bind. Some people, meanwhile, may worry about failing health in old age or protecting their cars, houses and other prized possessions from theft, accidents or damage.
With insurance, you and/or your named beneficiaries can claim compensation in the face of specific risks, losses or events without having to dip into savings or borrow large chunks of cash.
Insurance Can Also Help Financial Prosperity
Incidentally, while insurance’s primary function is to protect against unforeseen events, it can also indirectly create a stable foundation for financial prosperity.
Simply put, taking out an insurance policy won’t grow the money you already have. However, insurance can preserve the wealth you have accumulated. Plus, it can alleviate worries and concerns, affording you the peace of mind to focus on wealth-building activities.
Best of all, insurance also has tax benefits i.e., some policies provide tax-free payouts while others allow you to deduct insurance premiums from your taxes, thereby reducing your taxable income.
Types of Insurance
Here are some of the more popular types of insurance:
Life Insurance — This kind of insurance generally protects and compensates your loved ones in the event of your death. There are, however, several variations of life insurance, and some people take out policies that cover them only for a specific period.
Health Insurance — Medical treatment isn’t cheap. Hence, this insurance’s primary function is to help pay for most medical and surgical expenses. It can also cover disability and, in some cases, costs associated with organ donation.
Auto Insurance — In many countries, vehicle insurance is required by law. This not only protects drivers and vehicle owners against damage and loss, but also covers injury, death and/or property damage caused to others in an accident.
Property Insurance — This type of insurance generally safeguards one’s property and the assets within against loss and damage caused by disasters such as fires, floods and earthquakes. There are also property insurance policies providing coverage for renters.
Travel Insurance — Have you ever missed a flight, lost your luggage or fallen ill while on holiday? Travel insurance is designed to cover these mishaps and many others and ultimately, provide travellers with peace of mind on vacation.
Choosing the Right Insurance
Given the various types of insurance in the market, choosing the right policy can seem daunting. But it doesn’t have to be.
First, thoroughly research the available options. Then, speak with authorised agents of established insurance companies to advise you further.
Insurance agents and brokers represent insurance companies and can help you select the best policies to suit your unique needs. However, it’s important to recognise that not every agent is the same.
As such, check to see that agents are properly licensed, qualified and experienced. You could also ask friends, family members and even co-workers for references.
Finally, make sure to ask a lot of questions, among them:
1. What kind of policy should I get?
— Everyone’s situational and protection requirements are different. Hence, evaluate the risks in your life and what kind of policies you need. For instance, if you’re an expectant mother, you may want to consider a health plan that protects your child even before birth.
2. How much coverage do I require?
— Experts suggest life insurance coverage should be 10 times more than your annual income. Unfortunately, large coverage means extra expenditure in terms of insurance premiums, which could well affect your and your family’s budget. So, think about how much you can realistically spend.
3. What can I get for my insurance premium?
— Although most insurance companies tend to offer the same types of insurance, policies and related benefits can differ greatly between insurers. As such, you should definitely compare prices to ensure you’re getting the best possible deal(s).
4. What are the terms and conditions?
— Always pay attention to the terms of your insurance policies, and make sure you’re clear about coverage and what could potentially void an agreement. For instance, most health insurance policies clearly state that concealing pre-existing medical conditions or tobacco use could result in rejected claims. So, be alert.
Financial Literacy and Insurance Planning
Incidentally, financial literacy can be just as important in your quest for the perfect insurance plan.
At its core, financial literacy is about understanding finances and financial concepts and knowing how to use various skills and tools to manage, budget and invest money for ourselves and our loved ones.
Hence, a comprehensive financial education via a programme like QNET’s pioneering FinGreen initiative could be vital in affording you the necessary skills, habits and attitudes to assess and select the right insurance plans for your security and peace of mind.
