Young Adults Need To Narrow Their Protection Gap

Insurance is a topic many young Singaporeans try to avoid. According to the Life Insurance Association (LIA), close to 42% of Singaporeans and Permanent Residents (PRs) aged between 20 and 34 do not have a single life insurance or critical illness policy.

Even though many of them may understand the importance of insurance, they could be dodging such conversations due to several reasons, including:

(1) not wanting to talk about morbid topics such as injury, illness and death;

(2) thinking they’re young and healthy enough to delay insuring themselves;

(3) having difficulties ascertaining the level of insurance coverage they require;

(4) assuming insurance is too expensive or complex for them to start buying;

(5) fearing financial advisors may try to upsell or mis-sell insurance products

While some of these are valid concerns, it does not justify ignoring insurance coverage altogether. Doing so leads to a negative consequence for young Singaporeans – living with a protection gap.

Your protection gap is the estimated difference between your protection needs and the combined amount of your total savings (including CPF savings) and existing insurance coverage. When you have a protection gap, it means you may not have sufficient insurance coverage for you or your dependents to pay for expenses and continue at the same standard of living if anything happens to you.

For the underinsured, this means that dependent family members, especially young children, spouses and elderly parents, may not be able to continue their current lifestyles without your income. For insurers, this not only means a lower client base, but they are also unable to apply an optimal level of risk pooling for its clients.

There are two main forms of protection gaps an individual may face – mortality protection gap and critical illness protection gap.

Mortality protection gap

Mortality protection gap is defined as your financial gap to cover the needs of your dependents over a defined period in the unfortunate event of your death. According to LIA, the mortality protection gap in Singapore is estimated to be nearly $355 billion, or 2.1X annual income, as at 31 December 2016.

In the event you are no longer around, you want your dependents to be able to continue living similar lifestyles, and not have to worry about the debt and financial commitments left behind.

Critical illness protection gap

Critical illness protection gap is defined as your financial gap to cover the needs of your dependent as well as yourself, assuming a critical illness recovery period of five years. According to LIA, the critical illness protection gap in Singapore is estimated to be nearly $538 billion, or 3.1X annual income, as at 31 December 2016.

In the event that you are diagnosed with a critical illness, you will unlikely be able to work but still retain all your financial commitments. Further, you may even have to incur additional expenses, such as healthcare costs, a domestic helper as well as other related costs. Covering your critical illness gap will enable you to replace your income and focus on recovering with peace of mind rather than stress over your financial obligations at a crucial time.

LIA defines your insurance protection needs in three broad categories.

(1) On-going expenses for dependents

This includes expenses for your children, including basic living necessities, education, allowance, entertainment and others. Expenses for your spouse and other adults, including basic living necessities and others. Expenses for your elderly parents, including basic living necessities, allowance, healthcare and others.

(2) Personal and housing loans

This includes your personal and housing loans, as well as any other debt that you will be leaving behind, including credit card debt or motor loans, which your surviving household members may be liable for.

(3) Additional expenses

This includes your funeral expenses (in such a scenario) as well as any unpaid services your dependents will need to incur in the future, such as hiring a domestic worker.

In the scenario you are diagnosed with a critical illness that prevents you from working, an additional consideration for your basic living necessities and other relevant expenses need to be taken into consideration.

Carrying a substantial protection gap is a big risk, as you could be jeopardising your, and your family’s, financial futures if you do not have sufficient funds to tide through a sudden loss in your income.

Insurers have also taken up the responsibility to ensure young Singaporeans start understanding the importance of narrowing their protection gap from an early age.

Training

AIA Singapore (AIA) is committed to training our financial advisors via mentorship programmes and ensuring they complete relevant certifications before being allowed to advise clients or distribute our products. In addition, we have a highly experienced management team that mentor younger financial advisors.

Recruitment

To engage younger Singaporeans, AIA has been reaching out to students in universities to educate them on the importance on financial literacy and to recruit interested graduates.

They will form the next generation of financial advisors who understand the unique situation of young Singaporeans and who are able to meaningfully engage them by offering crucial insurance coverage to close gaps in their insurance coverage.

Life Matters blog

AIA also manages our own Life Matters blog aimed at engaging and educating Singaporeans about living healthily, planning for the future and experiencing life. This is another resource for young Singaporeans to tap on to continue building their financial and insurance literacy.

Improving Singaporeans’ health and lives

To create more meaningful engagements with policyholders when it comes to living healthier, longer and better lives, AIA Vitality, a science-backed wellness programme, rewards Singaporeans for making healthier lifestyle decisions.

Through AIA Vitality, policyholders are incentivised to look after their health, go for regular health screenings, upkeep an active lifestyle, eat right and quit smoking.

More recently, AIA introduced its AIA Quality Healthcare partners, a mobile app offering AIA HealthShield Gold Max policyholders easy access to quality healthcare specialists in a few simple clicks. This not only provides customers better service, but also acts as a deterrence to overcharging in the industry.

AIA has also partnered KidZania Singapore to encourage children to lead healthier lives and minds from a young age with two establishments, the AIA Insurance Office and the KidZania Singapore Stadium. KidZania Singapore opens children to explore different professions in the real world. This includes many areas of interest from sports commentators to financial advisors.

FinTech solutions

With changing consumer preferences when it comes to purchasing products and services, onboarding Fintech, or InsureTech, solutions is key.

Our two-pronged approach focuses on utilising technological solutions to inspire our customers to healthier living and streamlining our customer experiences by boosting the productivity of our distribution channels.

Via the AIA Vitality mobile app, we are able to create meaningful interactions with our customers by partnering them in their efforts to boost their physical wellbeing. By tracking their health decisions and improvements, AIA is able to adjust their insurance premiums based on AIA Vitality member’s Vitality status. This platform has also enabled us to encourage more active lifestyles by implementing fun and interactive challenges on a weekly basis.

In 2017, we saw a seven-fold increase in AIA Vitality members and distributed close to 1.7 million rewards to members who participated in healthy living activities.  Active AIA Vitality members together took almost 60 billion steps towards better health in 2017, which is equivalent to walking around Singapore almost 200,000 times.

Our AIA Healthcare mobile app offers policyholders exclusive access to our AIA Quality Healthcare Partners within three working days. This app also facilitates seamless appointments with specialists by providing medical details of our insured members.

The company also revolutionised insurance purchasing with its Digital Underwriter on the AIA Interactive point-of-sales (iPoS) system introduced in 2015. Providing instantaneous approvals for standard insurance applications, a far cry from the industry average of two to three days.

Our client-facing app, AIA eCare, empowers our policyholders with on-demand details on their policies and does away with cumbersome paperwork and forms. This gives them an overview of their policies encouraging them to kick-start new conversations with their trusted financial advisors to close new coverage gaps.

A first step to narrowing your protection gap is asking yourself “What’s Your Why?”. Why are you living the best you can, working as hard as you can or caring as much as you do. You’ll realise that you’re doing all that because of the people most important to you.

This is why narrowing your insurance gap is important, as you are able to give your loved ones financial security for their future rather than leave it to chance. You need to understand how much you, your family and other dependents would require in an unforeseen situation where you are unable to work anymore, and plug any gaps in your coverage. 

You can utilise the key inputs that the LIA has include in its online calculator to start estimating your protection needs. Taking into consideration what you’re already insured for and certain assets that you own, you’ll be able to figure out your protection gap.