Insurance 101: Get Rewarded for Living Well

Many people have misconceptions regarding insurance. Those who do not have dependents may assume that they do not need it, while others may assume that insurance is too expensive for them to afford. Yet others may have bought insurance long ago but have not received an updated review of their policies, thus exposing many gaps they may have as their personal circumstances change over the years.

It's time to debunk these myths and clear the air on the purpose of insurance and why it should be an important pillar in financial planning and budgeting.

What is insurance and why is it important?

Insurance, in its very basic form, refers to a form of protection being awarded to prevent one from suffering financial loss. As life is full of uncertainty and risks, insurance is a way to protect against these risks to ensure that one's financial well-being is safeguarded. Everyone desires the best care and protection for themselves and the people they care about.

Insurance coverage ensures that we have adequate financial resources to tap on should anything unexpected occur. These may include accidents, diseases or emergencies that crop up from time to time as life is unpredictable. The insured person will enjoy peace of mind and assurance that financial matters will be taken care of in the event of these unforeseen or unfortunate circumstances.

What types of insurance are available?

There are many different kinds of insurance policies out there in the market, so it may seem like a daunting task to choose an insurance provider and policy. However, there are general guidelines for the purchase of insurance -- start off first with insuring your life, as your dependents (spouse or children) may depend on you for financial support.

It's also important to ensure you have the right health insurance to protect yourself and your families against dreadful diseases, especially the three major ones -- heart disease, cancer and stroke. To give an example, if the breadwinner of the family gets struck down by a stroke and is hospitalized and unable to work, having the right health policy can provide some relief from the heavy financial burden such as the hefty medical expenses as well as loss of income.

The insured patient can claim for an amount under major illness coverage, while disability income insurance can cover his loss of income while he is recuperating.

Hospitalisation and personal accident policies come next. Hospitalisation coverage ensures that if we need to be warded for an illness or operation, we are able to offset the expenses by putting in an insurance claim.

Personal accident policies are also important as we may suffer from cuts, falls or bruises going about our normal routine. When we seek medical treatment, the personal accident policy will allow us claim for such expenses and therefore we will be able to save more money which will go to building up our retirement funds.

Disability income policies (like the one mentioned above) can help to mitigate the loss of income should we be unable to work for an extended period of time. Such policies pay out a regular sum of money based on our last drawn salary and help to tide us through difficult periods as we recuperate from an accident or illness.

Now that the health, life and wellness issues have been adequately covered for, it's time to think about growing our wealth. Endowment and insurance-linked policies help to instil good savings discipline while professional fund managers work to grow the insured's pot of money over time.

Budgeting for insurance policies

As part of prudent financial planning, it's important to budget adequately for insurance policy premiums. We will not want a scenario where we have a looming deadline to pay an insurance premium yet are tight on cash. If premiums are not paid in a timely manner, it could result in the policy being terminated, which could adversely impact coverage.

Budgeting involves knowing the quantum, frequency and payment types available for each policy. Ideally, this information should be summarised in a spreadsheet for ease of budgeting.

As some policies may require a large lump sum annual payment, it's important to ensure that one has the cash and resources to settle the premium. In order to smoothen the payments, one can opt to break up an annual payment into monthly instalment payments. This helps to reduce the cash flow burden, although this means that it will be necessary to maintain a monthly budget to track the payment flows.

With proper budgeting, it's possible to enjoy excellent insurance coverage and ensure adequate cash flow for spending on our daily necessities.

Time to take charge of your future

It's time to take charge of your financial future. Prudential offers a wide range of insurance plans and financial products that can help you to better plan for your insurance needs. With such a comprehensive range of plans, you should be able to easily find one that suits your personal needs and preferences.

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