Scheduling a regular review of your insurance policies with your financial advisor is a prudent habit. This provides an avenue for you to uncover new protection gaps and decide to cover them if you wish to.
Protection gaps can arise in many forms, when you get married, buy a home, have a child, and various other life milestones. It can also occur when you take on a new job or a promotion, when your parents retire, or even when you decide to keep a pet. Similarly, you may find that you have more coverage than required once your children are financially independent.
Undertaking an annual financial planning review, including a review of your insurance policies can be a worthwhile habit to cultivate. Even if you haven't been greatly impacted financially over the year, meeting with your financial planner will keep you on track towards your long-term financial goals and allow them to incorporate any changes such as your income or family situation to your current plan. Here are four reasons not to skip your annual insurance review.
1. Addressing changes in your life
Read this as new life milestones = potential insurance gap.
When you get married, you need to think of a combined retirement plan for you and your spouse. When you buy a home, you need fire insurance, home contents insurance and possibly more life insurance to protect your family members in case something untoward happens to you. When you have a child, you need to buy health insurance and consider saving up for his or her future education (which you know is going to be expensive).
Beyond getting adequate health plans for yourself and your family, which should be covered in the first year after you start working, get married or have your child, it is also critical to have sufficient life insurance coverage to ensure that your spouse and children are financially covered for added peace of mind. This can be fluid as your means and quality of life may change as you climb the corporate ladder or wind down towards retirement.
2. Uncertainty in the economy and job market
Singapore's job market remains tight, significant uncertainties in the economic outlook could result in layoffs becoming increasingly inevitable for some sectors. According to the Ministry of Trade and Industry (MTI), Singapore's economic growth is expected to slow to 0.5 to 2.5% in 2023, down from the projected 3.5% growth in 2022. The Ministry of Manpower (MOM) also revealed in its October 2022 report that a deteriorating global economic environment, higher global inflation and geopolitical tensions could affect the labour market outlook.
With that being said, you should take the time to review your protection needs and figure out if your insurance coverage and premiums are still affordable, especially if your job or income were to be affected by the pandemic. Right-sizing your policy during your insurance review may be an option. As a base case, you should always buy insurance with affordability, in both good and bad times, in mind.
Another option would also be to defer your premium payments. The Life Insurance Association of Singapore (LIA) announced measures where policyholders could leverage on an initial six-month Deferred Premium Payment (DPP) scheme until 30 September 2020. A second Deferred Premium Payment scheme was announced for a further six months between 1 October 2020 and 31 March 2021. However, only policies which are not already on the initial DPP are eligible.
For those who have tapped on the initial DPP and are still facing financial constraints, the LIA recommends that you approach your life insurer for further deferred premium support, which may include:
- Instalment payment plan of 3 months;
- Extension of policyholder's DPP by 3 months; or
- Existing options stated in the policy contract, for example, automatic premium loan, conversion to a paid-up policy, premium holiday
You should talk to your financial advisor to ensure you understand the specific implications on your policy.
3. Volatile and unpredictable financial markets
Especially during times of global economic uncertainty, you should keep tabs on your investment portfolio together with your financial advisor. He or she should be able to explain to you the rationale for purchasing the investment policy in the first place, and whether it still makes sense to keep your policy.
Your financial advisor should have already created a personalised investment portfolio that takes into account your financial goals and risk tolerance from the start. During your annual review, he or she should also help you take a closer look at individual investments in your portfolio and keep up with the latest changes in these investments.
Keep in mind that it is easy to be swayed into making emotional decisions about your long-term retirement portfolio, especially when markets are volatile, but your advisor is there to remind you of the reasons you initially invested, review if your investments have or have not changed fundamentally, and optimise your asset allocation.
As you enter new life stages, the amount of risks that you can take on may also be affected. Those entering the final stretches of their career or have a new child may require to take on less risks, while those who have received substantial pay raises may be able to take on slightly more risks in the market.
4. Changes in the insurance industry
Finally, meeting your advisor will also help keep you up-to-date with the latest changes in the insurance industry. One such example is CareShield Life, which is a national long-term care insurance scheme that provides basic financial support for Singaporeans in the event they become severely disabled.
This change took effect from 1 October 2020 and is compulsory for all Singaporeans and Permanent Residents born in 1980 to 1990, and when later cohorts turn 30. CareShield Life is primarily meant to replace ElderShield – and those on the old ElderShield plans may choose to switch to CareShield Life.
While CareShield Life provides additional cover for long-term care, it is not a replacement for disability income insurance which provides coverage for a worker who is unable to perform his or her job function should he or she become disabled. Your financial advisor should be well-equipped to answer any questions regarding these two different types of insurance if you require clarification.
Another thing you should note are the changes to critical illness definitions which determine whether you are eligible to claim from your policy when you are diagnosed with a particular illness. This will not affect your existing critical illness plan but you should be aware of the changes if you decide to increase coverage to your existing policy. The important thing is to ensure is that you get the necessary coverage as soon as you can because you never know when the unexpected will strike.
Individual insurance companies may also have introduced new policies during the year that may be useful for you to consider, such as AIA Multistage Cancer Cover, providing policyholders greater peace of mind with 100% payouts regardless of the stage of their cancer diagnosis.
Prioritising your well being
While you may have a lot on your plate this year, your insurance review with your financial advisor is not one of the things you should neglect. Think of it as an annual check-up where your financial advisor can help to assess whether you are on the right track for your finances and to make necessary adjustments to ensure that you feel confident and secure about your finances.
At the end of the day, he or she is the person that you can count on to ensure that you are making the right financial decisions for yourself and your loved ones. Make an appointment with your financial advisor today, or contact us to schedule an appointment with an AIA Financial Services Consultant.