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.

 

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 policies pay out a lump sum to policyholders when the person is diagnosed with an illness covered by the policy. AIA Absolute Critical Cover offers one of the most comprehensive coverages, protecting against 150 multi-stage critical illnesses as well as future unknown diseases due to hospitalisation. This is also the first plan in the market to cover pre-early conditions such as thyroid disorders and sleep apnoea.

 

For ultimate peace of mind, AIA Ultimate Critical Cover (UCC) stands out with unlimited claims for major stages of covered critical illnesses. The plan resets your full coverage amount every 12 months, enabling multiple claims to ensure continuous protection for you and your family. You can enhance your plan to cover relapses and catastrophic critical illnesses.

 

 

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.

 

Term life insurance provides life coverage for a fixed period of time (typically between 5 and 30 years) and pays out the sum assured upon death. This policy type is mainly purchased by people who prefer saving and/or investing on their own.

 

AIA Secure Flexi Term offers policyholders the flexibility to draw up a protection plan for their needs with affordable options that safeguard their loved ones' future.

 

 

Whole life insurance provides life-long protection and pays out the sum assured upon death. These policies are meant for people who prefer saving and/or investing via their life policy at the same time, as it has a cash component tagged to the policy.

 

AIA Pro Lifetime Protector provides comprehensive coverage against death and disability, as well as the option to purchase Double Critical Cover rider for critical illness coverage. It also enables policyholders to retain added flexibility to reduce their focus on protection once their children are financially stable, and pivot towards wealth accumulation for their retirement.

General insurance includes fire insurance or home contents insurance for your property, car insurance for your vehicle, as well as other types of insurance including travel insurance or pet insurance.

 

These can be important policies to purchase to ensure you have an adequate safety net to cover additional risk areas in your life.

Even after you have purchased your insurance policies and committed to your investments, you have to continue monitoring them. This is because your insurance needs are always changing, as you enter different phases in life.

 

Similarly, you need to monitor how your investments are performing, decide whether to switch to less risky investments, especially if you require the sum of money in the near-term. You also need to monitor how the underlying investments are performing and decide whether to rebalance your portfolio.

 

An advantage of accumulating your wealth with an insurer with plans such as the AIA Pro Achiever 3.0, is the option to add a critical illness premium waiver. Should you become critically ill, AIA will continue to put money (on your behalf) into your accumulation plan to invest. This way, your retirement goal will not be disrupted, even if it means you are unable to work for a while to get your health back on track.

 

Over time, such plans also allow you to make periodic withdrawals to fund your children's education or make big-ticket purchases, as well as make regular monthly withdrawals when you retire.