You will be able to explain why some products can wait and to question an adviser's recommendation.
Before you agree to meet anyone about a policy, take out the ranking of risks you made in lesson 6.2 and look at what sits at the top and what sits near the bottom. That ranking tells you which insurance decisions need your attention now and which can wait, and it gives you something to hold on to when someone puts a product in front of you and asks you to sign soon. Nothing below recommends or rules out any particular product. The aim is to help you decide at your own pace.
Hui Min is a first jobber. Over coffee, her friend, who sells insurance products, saves his favourite product for last: a plan that "protects you and grows your money at the same time". She would pay a monthly premium for 25 years. The plan would cover her life, and she would get a lump sum at the end. He shows her a chart with a line going up. The plan sounds like it solves two problems at once, and he would like her to sign this week.
Like any first jobber, Hui Min does not have to decide on a pitched product this week, or even this year.
Some policies combine protection, meaning insurance cover, with saving or investing. Three types work this way, in different forms: whole life policies with a cash value, endowment plans and investment-linked policies. These are products that mix insurance and investment: part of each premium pays for cover and part goes into savings or investments that grow over time.
For a first jobber, the feature that matters most is how long the commitment lasts. These products are designed to run for decades. In the early years, much of each premium goes to costs and charges. If you stop early, the surrender value, which is the amount you get back when you end a policy early, can be far less than the premiums you paid. A product that suits you at 23 may not suit you at 28, when you might be buying a flat or changing careers, and leaving it then can cost money.
None of this makes these products bad. They need a slower decision, and before you buy one you need a clear answer to what you would do if your situation changed.
Waiting is reasonable for cover you have no current need for. If no one depends on your income, life cover for dependants can wait until someone does. If you have no savings goal planned decades away, a long savings commitment can wait until you have one.
Waiting has a cost as well. As lesson 3.2, "The gaps: cover that ends when the job ends", explained, insurers decide whether to cover you based on your health when you apply. If you develop a health condition while you wait, a later policy may exclude it, cost more, or be refused. In lesson 6.2, hospital cover and cover for losing your income ranked near the top of most first jobbers' lists, and that health risk is a reason not to wait too long on these two.
A rough rule follows. Risks at the top of your ranking deserve attention now, especially hospital cover and income-loss cover. Products for lower-ranked risks can wait until those risks move up. Write down which is which, and why.
Ask these, in this order, whenever anyone recommends a product to you.
What is the premium over the whole term? A monthly premium sounds small but becomes a large commitment over 25 or 30 years, so ask to see the total, not just the monthly figure. Can you see the surrender value table? A policy's benefit illustration includes a table showing what you would get back if you stopped at different points. Look closely at the early years. What happens if you stop paying? Policies behave differently: some lapse, some convert to reduced cover, and some use the cash value to keep going for a while. Know the answer before you sign, not after a bad year. How is the adviser paid? Advisers are often paid commission on the products they sell, and the pay can differ between products. MAS has noted that commission on life policies is often heavily front-loaded and can create a bias towards selling products that pay more, even when another product may suit you better. Commission does not make advice wrong, but ask how the adviser is paid, and check MAS for what advisers currently have to disclose to you. What need does this product meet in your situation? If it covers a risk you ranked low, ask why it should come before the risks you ranked high.
Do your own research first, using sources that sell nothing. compareFIRST is an online portal for comparing life insurance products in Singapore, and it lets you compare term and whole life policies from different insurers side by side. MoneySense, Singapore's national financial education programme, publishes plain guides on insurance, on financial advisers and on what to ask them. Both are free, and neither sells anything. Compare premiums yourself on compareFIRST, including term against whole life across insurers, and read the MoneySense guides that apply to you before you meet anyone.
The evening after the coffee, Hui Min reads the MoneySense guide on whole life and term policies and looks up term premiums on compareFIRST. When her friend messages to follow up, she replies that she is not ready to decide and has some questions first. She has not written them down yet.
Write down five questions to ask any adviser before you agree to a product, including how they are paid.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).