Insurance or Investments - Which Should Come First?

Both insurance and investments are required in a holistic financial plan for your long-term well-being. While they can be seen to be equally important, a common question arises – which should come first?

To answer this question, you have to understand what you’re trying to achieve when you buy insurance policies and when you make investments.

Insurance, in essence, is primarily meant to protect your current wealth and your future earnings. In the event you are no longer around, injured or disabled, your insurance will enable you and/or your family to continue living a similar standard of life.

On the other hand, investments increase your wealth over the long-term. Your investments, as well as its returns, can be used to fund your retirement and other major life expenses, such as your children’s education, so you don’t have to always rely on the income you earn from working.

This means that we cannot do without either. Having insurance alone will mean that you need to continue earning a wage to sustain yourself and your family for the rest of your life, even if your wealth and income are protected in unfortunate circumstances. Having investments alone will mean that while you’re steadily building wealth and accomplishing financial goals, any unfortunate circumstances in the near-term will leave you and/or your family financially vulnerable.

Even though both insurance and investments are essential, you have to consider the implications each will have on you and your family’s well-being.

Simply put, you should ensure your insurance needs are taken care of before focusing on your investment needs. Think of it as building a safety net for you and your family with insurance first, before trying to reach for the stars with investment returns.

Insurance, once bought, protects you and your family immediately. On the other hand, your investments take a longer time to build up. Another way to look at this is that without adequate insurance, a health issue or unfortunate event early in your life would put you and/or your family at risk, no matter how well your investments may have performed.

To protect your wealth and income, there are three main types of insurance policies to consider – health insurance, life insurance and general insurance.

MediShield Life and Private Integrated Shield Plans (IPs)

The Singapore government mandates universal coverage via MediShield Life. Targeted at large hospital bills, the scheme incorporates a deductible amount of between $1,500 (for Class C wards) and $2,000 (for Class B2 wards and above) as well as a co-insurance portion of between 3% and 10%. Coverage is pegged to subsidised bills incurred by Singaporean Citizens at Class B2/C wards and subsidised outpatient treatments/ day surgery at public hospitals.

Beyond this, you can choose to purchase an IP to extend this coverage to private hospitals or at higher class wards in public hospitals.

For example, the AIA HealthShield Gold Max provides additional insurance coverage at private hospitals or Class A/B1 wards in public hospitals. It also offers an optional AIA Max Essential rider that covers your bills from the first dollar, by paying for the co-insurance and deductible portions of your medical bill.

Critical illness

Critical illness policies pay out a lump sum to policyholders when the person is diagnosed with an illness covered by the policy. AIA Power Critical Cover supports you extensively through the unpredictable event of multiple critical illnesses, from the pre-early stages to relapses.

This plan also covers you for 10 conditions under the Pre-Early Benefit, namely chronic diseases, cardiovascular diseases, and benign and borderline malignant tumours, so you’re better equipped to nip the signs of early critical illnesses in the bud.

Boosted with first-in-market features, high coverage and value-added medical services, AIA Power Critical Cover minimises the financial disruption to you and your loved ones while you focus on rest and recovery.

Disability income

Disability income insurance pays a fixed amount each month to replace any loss in income if you are unable to work as a result of an accident or illness.

Private disability plans such as the AIA Premier Disability Cover covers up to 75% of your existing salary up to the age of 65, or until you make a full recovery. Even if you were to find work subsequently, this policy will continue providing supplementary cover to make up for any shortfall in income as a result of your disability.