Whether its life insurance, health insurance, or even car insurance, one thing is for sure: premiums rise over time, if for no other reason than your age, and simple inflation. But that’s not a good reason to let your insurance lapse – however high the premiums get, paying them is almost always cheaper than being unprotected.
Here’s how you can maintain your life insurance, even as your premiums climb:
1. Let your insurance agent know if the premiums are becoming unsustainable
There may be situations where your insurance premiums climb too high to handle. This can happen to due to rising premiums, as well as declining income (e.g. if you have been forced to find a lower paying job after retrenchment).
Rather than just allow your insurance to lapse, you should immediately contact your insurance agent for help. They will usually conduct a policy review, and there may be ways to minimise the financial impact while still keeping you protected.
Be careful when choosing to switch policies by yourself.
Remember that some forms of life insurance, such as term life insurance, have no surrender value. Meanwhile, the surrender values for whole life insurance, or Investment Linked Policies (ILP), are highly variable. You might not get back the amount that you expect.
There’s a risk of surrendering your policy to find a cheaper alternative, but instead ending up with an equally expensive (if not pricier) policy with worse pay-outs.
It’s always best to get a professional opinion if you need more help.
2. Don’t go overboard with the coverage
Life insurance is meant to provide for your family if you can’t work, or pass away. It’s not supposed to turn your demise into a winning 4D ticket. While you can choose to insure yourself for huge sums, it doesn’t always make sense to do so.
The Life Insurance Association of Singapore (LIA) suggests 11 times your annual income as sufficient coverage. If you want to insure your life for more, consider the practical reasons:
Insuring yourself for more could make sense if, say, you have dependents who cannot work for life (e.g. a child with special needs). However, if you’re single and have no dependents, then it’s probably unnecessary to insure yourself for a few million dollars.
Consider if you can afford the premiums over a long term before you buy; don’t buy more than you need to begin with.
3. Consider the length of time you need to be protected, to save on premiums
Not everyone needs lifelong protection (and higher premiums) of a whole life policy.
For example, if your children are 10 years old, you could decide to insure yourself for just another 15 years. By that point, your children will be working-age adults who are financially independent; they can take care of themselves if anything should happen to you.
This means you can settle for the lower premiums from term insurance, and you only pay for the period of protection you need.
(Money saved from simple term insurance can be invested in other financial products, for retirement).
Suggested reading: 3 Things You Need To Do To Build A Retirement Portfolio
4. Get whole life insurance with limited pay period
A limited pay period means you only pay premiums for a certain number of years, in exchange for whole life coverage. For example, you might pay premiums for only 20 years, after which you are covered up till the age of 90.
This ensures that, in your twilight years, you don’t need to worry about paying premiums, or how much they’ll cost by then.
This can be helpful for people in physical lines of work. For example, if you’re an athlete or a pipeline worker, you may face a loss of income as you age. It might be a good idea to pay for lifelong coverage, while you’re still in your prime.
5. Budget for the future
As a rule of thumb, plan for your overall expenses – including insurance – to rise by around three per cent per annum. We use three per cent because, in most developed countries, including Singapore, this is the rate at which the cost of goods and services tend to rise (the inflation rate).
You should aim to grow your money at or above the three per cent rate. A qualified wealth manager / financial advisor can give you the right investment advice to manage this.
In short, don’t simply hoard your money in a bank account, without regard for inflation. Speak to a professional about how to grow it and keep pace with rising costs – you’ll need to do this to retire well, not just pay for your insurance.
You may also like:
- The Psychology of Money: Why Credit Cards, Lotteries, and Insurance Exist
- Direct Purchase Insurance in Singapore: 9 FAQs Answered
- 7 Reasons Why Millennials Need Insurance and Should Get It Early
- Insurance 101: Beginner’s Guide to Understanding Term Life Insurance