3 Things You Should Watch Out For When Comparing Life Insurance
Updated: Nov 2
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Let’s start with the more obvious point that you should watch out for and that is price.
While everyone knows that there is a price difference between companies, I think the majority of people often underestimate how drastic these differences can get across the industry.
When it comes to insurance comparison, most people tend to only compare the products across the different companies that they are familiar with. As a result of this tendency, the scope of comparison is extremely narrow and the results will not be an accurate representation of what is available in the broader market.
To make matters worse, the companies that are often included in their comparison are companies that do a lot of marketing which often are the priciest companies as the marketing cost has to be absorbed somewhere.
For example, if I were to take a quick comparison of a whole-life plan across the 2 companies that do the most marketing in Singapore, what you will see here is that given a similar set of coverage across the 2 companies, the cost is also somewhat similar.
However, If I were to introduce another company that is also established but does little to no marketing, you will realize that there is a drastic cost difference for Company M as compared to the previous two companies.
Based on my previous market comparisons, you can see here that the price difference across the entire industry can go from anywhere between 10% to 40% which is quite a huge spectrum.
Now of course, just because a policy is cheaper doesn’t mean it is better, to understand if it is worth paying a higher price for said coverage, we have to look at the qualitative benefits of the plan which brings me to my 2nd point.
Generally, when it comes to insurance coverage, apart from the sum assured that you are applying for, it is also important that you watch out for the fine print that the different insurance companies use when deciding the scope of coverage.
By fine print, I am referring to
the type of events, conditions, and illnesses that they cover
how they define the events, conditions, and
Take critical illness as an example, you will notice that some companies cover up to 73 unique conditions while others cover 55 conditions or 35 conditions.
With regards to the point on definition, certain companies will have a narrower definition as to what constitutes disability or critical illness while others will have a broader definition and hence a broader scope of coverage.
The reason why you need to watch out for the fine print written in an insurance contract is because that is the key factor that affects whether you can or cannot claim when the time comes.
Ignoring the factor of cost, having a broader scope of coverage is better. Unfortunately, nothing is free in this world and having more benefits usually comes at the cost of a higher price.
The key thing is for you to know what you are paying for.
When comparing insurance, you have to understand what is being covered, what is the likelihood of you claiming on the things that are covered and how much are you paying for it.
The tricky thing here is that there are no right or wrong answers which is why you must know what you are paying for to avoid overpaying for unnecessary benefits.
That said, let us look at the last thing you should watch out for when comparing life insurance.
3. Behavior of Cash Value
On the point of cash value, it is only applicable to people who are comparing whole-life insurance.
That said, the thing you should watch out for when examining the behaviour of the cash value is
the estimated amount that you can expect to receive
the proportion between the guaranteed and non-guaranteed value projections.
For the first point on the amount, naturally, assuming that the price and the benefits are similar, the policy with a higher projected cash value is better than the policy with a lower projected cash value.
For the second point on the proportion of guaranteed and non-guaranteed value projections, assuming that the amount of the cash value is similar, the policy with a higher proportion of guaranteed amount would be better as you will be taking on lower risk as compared to the policy with a lower proportion of guaranteed amount.
So, there you have it, these are the 3 things you should watch out for when comparing life insurance here in Singapore.
To recap, the first is to watch out for the price differences across the entire industry instead of selecting a handful of companies for your comparison as the price difference across the industry can be pretty significant.
The second is to watch out for the fine print written in the insurance contract itself as that ultimately decides whether you can or cannot claim when the time comes.
The third is to watch out for the behaviour of the cash value for whole-life insurance as the amount and the proportion between the guaranteed and non-guaranteed amount differs across the industry.
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This article is meant to be the opinion of the author
This article is for information purposes only
This article should not be seen as financial advice
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