Personal finance part 2 – Protect what is important

The next step to do is to have protection in the form of insurance.

Why everyone needs protection? One is bound to have dependent like parents, husband/wife or children. If one is the bread winner of the family, what would happen if disaster strike? Even you are single, what happen if unfortunate event like permanent disability happen? When that happens, would you have enough financial resource to cope with it?

If you don't have any policy, suggest you find an insurance agent to access your insurance need. Typically people would get insurance for

• Death
• Permanent disability
• Critical illness
• Hospitalisation

Get yourself enough cover. You can go through the calculation with insurance agent. Nowadays, Singapore insurance agents have morphed into financial planner/adviser. There are two types of adviser. One is tied to the insurance company, another type is from independent financial planning company. Depends on your preference, an ethical adviser won't just push product but to access your need. Typical insurance product like whole life insurance, endowment plan or investment linked insurance.

Seriously I don't like whole life plan, endowment plan or investment linked plan. I would advocate buy term and invest the rest in unit trust. What happen when you buy a whole life plan? The premium is split into two parts. First portion used to pay the term premium, another portion is used for investment. The investment portion is the part which they used to return you the premium after 20 years. But generally, the investment return for whole life policy is low, around 3-5%. A term insurance should be cheap and have a bigger coverage.

Rule 2 - Buy enough insurance coverage

In the next part, I would discuss about investment.

***Updated 26 Sep 2008