I had always been a staunch DISbeliever of insurance. When I first started a temp job before undergrad studies when I was 18, I started to read about insurance and what I had to prepare for the illusive "work life" that was about to begin in a few years.
Firstly, we work for money. Insurance companies and agents work for money too. As such, I saw them as a casino banker where premiums are just odds in the game of life (and death and accidentals and whatever-insured) priced such that they will earn enough to pay their shareholders. In other words, we will likely be at the losing end unless we become an insurance agent to benefit from the system. (It did cross my mind to be an insurance agent at some point, but it was just against my conscience.)
Secondly, nobody will look after our interests more than ourselves. If I were to spend 8 hours a day working hard to earn my salary, I will likely feel more interested to safeguard my money than someone else who did not have to work for it. Imagine how many parents complain about their children spending money without knowing how hard it is to work. Insurance is similar. The agent you engage, may not even earn more than you do, lest have your interest at heart. His priority is probably his commission from the sale because it translates to his livelihood.
With these two reasons, I was sufficiently convinced that I had to be my own financial planner to insure my livelihood. After planning for myself and achieving desired outcomes, I am even more convinced that insurance is a luxury product.
There are different areas of insurance, but most people will likely "need" the same few bare minimum. The "wants" begin at #6. The following is in order of importance (from my point of view).
1. Basic medical insurance: In Singapore, this is called Medishield, which is the bare minimum that every citizen needs and are subsidised to buy by the government. When you do claim, it's a fixed sum, and you have to pay the balance, which can be substantial. Hospitalisation charges are not covered for private hospitals. Premiums are payable through Medisave (under Central Provident Fund CPF).
2. Private medical insurance (top-up of Medishield): In this top-up version of medical insurance, the insuree pays the first $3,000 and co-pays 10% of the balance. The premiums are payable through Medisave. If I earn a gross <$3,000 a month salary, this was the most I will buy.
3. Savings: Save money in your piggy bank. After having your medical expenses covered, a saving regime is essential if you intend to continue to live in expensive Singapore. For this, the cheapest savings plan is to be self-disciplined and set aside a fixed sum every month. For the ill-disciplined, the banks have some savings plan that help you to lock up your money. If you have someone you can trust, do a recurring monthly transfer to their bank account and ask them to hold the money for you. If all options are out, I will say volunteer at an old folks home or any charity organisation for a few months to gain enlightenment. Maybe listening to a few bankrupt or gambler re-tell their stories and regret may make you a little more aware of the importance of savings. Endowment plans are NEVER entirely equal to a saving plans, because you need to have savings that are liquid -- you can draw on them in rainy days. A sizable piggy bank for day-to-day use is 3 months of your monthly salary.
4. Personal development: After you have succeeded in a savings plan, work on improving your own worth with constant skills learning and upgrading and make it a habit, a life long one.
5. HDB mortgage: If you have to take up a mortgage loan, choose the HDB loan whenever possible because it comes with a (mandatory) mortgage insurance that is cheaper than commercially available ones, and more importantly, allows premiums to be paid with your CPF money, which means there will not be additional cash outlay, assuming you do not overstretch your loan in the first place.
The "needs" will end around here, and the "wants" will begin.
6. Term life insurance: At this point, if you are the sole breadwinner for your family, and have children, a term life insurance will become essential. This premium should not be more than 1% of your income. If the sum insured sounds too little, you should start cutting on expenses whenever possible.
7. Emergency Fund: This is for use on rainy days. This amount should be over and above whatever you have set aside for #1 to #6, and be between 9 to 12 months of your monthly salary.
8. Education: Your children's education is important and will likely cost more and more as the years go by, so you might be tempted when the bank or insurance agent tries to sell you endowment policies for education. This will be about the right time to learn how to invest in stocks.
9. Opportunity Fund: Stock markets have cycles and you will not want to miss the party or the boat when it comes, so having a stash of cash for such opportunities will go a long way.
10. Retirement: The Supplementary Retirement Scheme (SRS) allows you to top up your retirement fund with a maximum of $12,750 a year in cash and enjoy tax reliefs. You can withdraw your money from this fund at the statutory retirement age. Topping up your non-working spouse/parents CPF accounts will entitle you to have tax reliefs, so max these out if you are feeling rich.
11. Whole life insurance: Finally, you have sufficiently insured yourself from key areas of your life and if you still feel that you have "spare" cash in the bank that you want to insure more parts of your life, then yes, I will say that it's probably the right time to consider whole life insurance.
I bought my whole life insurance at 31 years old. I actually did not want to buy the whole life insurance, but the product that I wanted to buy ("female medical illness cover") was a "rider" for a whole life insurance plan. After doing my sums, I settled for the lowest plan that had $100,000 sum assured, so that I could buy the "riders". I ended up with other "riders", such as "waiver of premium", "early critical illness cover" and I cannot remember what else. It was also an investment-linked policy, which I did not like, but it came as a package. I did not like it that I could not choose what funds to buy because I did not meet some criteria about "financial knowledge proficiency" because I didn't have a finance degree, finance certifications or work in finance.
Argh! the regulations to safeguard consumers! In any case, I hope this will help you make an informed choice about whether to buy a whole life insurance.
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