Navigating Insurance: A Guide for the Fresh Graduate

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This fresh graduate’s guide will help kick off your financial protection journey, from insurance types to why financial protection should be your top priority.

Your first few steps after becoming a fresh graduate include securing a job, getting paid, having fun, and kick-starting your financial goals. While it’s an exciting (and enticing) time, it’s important to approach adulthood with careful steps to protect your future. 

Insurance protection is crucial in financial protection, as it acts as a buffer and helps maintain financial stability during challenging times. In this guide, we’ll navigate the world of insurance for a fresh graduate, empowering you to make informed choices that protect your present and future self.

Let’s delve into the essential considerations and options tailored to your unique needs as a recent graduate.

 

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Why insurance is vital for a fresh graduate

As a young graduate, your ability to work is your greatest financial asset. It may seem that by being young and in relatively good health, nothing can go wrong, and the entire career ladder is there for you to climb.

However, an unforeseen situation can inhibit your capability to earn and grow wealth. Imagine a young person in their early 20s disabled after a personal accident. It not only affects their health but also their income source if they don’t have a personal accident plan.

Securing comprehensive coverage while you’re young is the best way to ensure a robust insurance foundation for your long-term financial well-being.

 

Five Types of Insurance A Fresh Graduate Should Secure

  1. Basic health insurance and Integrated Shield plans (IPs)

The Ministry of Health offers basic health insurance, MediShield Life, to all Singaporeans and Permanent Residents (PRs). The insurance scheme covers basic treatments in public hospitals, particularly in class B2 and C wards. If you prefer to stay in class A and B1 wards at public or private hospitals, you will need to pay the extra amount not covered by MediShield Life. This basic health insurance scheme is ideal when you’re young, healthy, and do not want to spend on health coverage.

If you’d prefer to boost your coverage from MediShield Life, you can complement your CPF coverage with an Integrated Shield Plan or IP. This supplementary health insurance with an insurance provider gives you a wider range of healthcare with a better claim limit (coverages vary as this depends on the insurer you pick).

Integrated Shield Plans include coverage for pre- and post-hospitalisation expenses and extend the range of ward types you can stay in public and private hospitals. Do note that IPs do not cover pre-existing conditions, so all the more you should consider having this coverage in place while you are still young and healthy.

 

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  1. Critical illness and disability income insurance

Based on the Ministry of Health’s principal statistics on the causes of death in Singapore, it’s sobering to know that 23.9% out of 26,891 deaths in 2022 were because of cancer, a critical illness. It highlights a need for critical illness protection.

Critical illness insurance offers a lump-sum payout in the event of a critical illness diagnosis or a covered surgery. This insurance type is generally more affordable when acquired at a younger age. Covered diagnoses can include major conditions like cancer, heart attacks, and stroke. Given the advancements in medical technology that enable early detection, obtaining critical illness insurance is advisable for a fresh graduate.

If you’re considering critical illness protection, aim for a coverage sum equivalent to three to five years of your annual salary. The lump sum payout for critical illness insurance can serve as a vital income replacement during recovery or rehabilitation periods. This can provide financial support during a challenging time.

Disability income is another financial safety net that provides monthly fixed amounts if you’re unable to work because of an illness or accident. Compensation typically covers 75% to 80% of a person’s income, which helps mitigate the financial impact of the inability to work. While this policy eases financial losses, it does not fully replace your income prior to the accident or illness occurrence.

 

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  1. Investment-linked policies for a fresh graduate

An Investment-Linked Policy (ILP) is a hybrid financial product that offers life insurance and wealth accumulation. With an ILP, you gain access to basic life insurance coverage. This includes payouts in case of death or total permanent disability (TPD). ILP policies provide a degree of flexibility in premium payments and withdrawals over the medium term.

When you invest in an ILP, your premiums are strategically utilised to acquire units within various sub-funds. These sub-funds, effectively portfolios of assets, are professionally managed by financial experts dedicated to generating returns for policyholders.

Beyond generating returns, the units in the sub-funds may be liquidated to cover costs from  insurance. This can include administrative charges, and other incidental expenses. It eliminates the need for separate premium payments, specifically for life insurance coverage. Instead, the units within your sub-funds play a dual role. They not only generate returns but also contribute to the financial coverage provided by the policy.

 

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  1. Endowment plans

An endowment plan provides a balanced investment option, giving investors two things: a combination of protection against multiple insured events and a predetermined maturity period that yields a specified cash benefit.

These plans come with varying maturity periods, each associated with its own set of investment benefits and shortfalls. Short-term endowment plans tend to require higher premiums (for example Single Premium lump sum upfront). Long-term endowment plans extend the duration for your savings to grow, enabling insurers to offer more favourable guaranteed returns. 

Some endowment plans also provide greater flexibility for withdrawals starting from the end of the second year onwards. However, do note that withdrawal will dilute/reduce the final terminal maturity benefits due to compounding effects. 

It’s important to grasp the risks and benefits linked to various maturity periods. This helps when choosing an ILP plan that fits your financial goals.

 

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  1. Micro-insurance and micro-investments: SNACK by Income

SNACK by Income provides a fresh approach to conventional ILPs. By setting the minimum investment and premium amount at just S$1, SNACK enhances the accessibility and flexibility for investors and insurance seekers. The absence of additional fees and accidental death coverage (sum assured set at 105% of the net premium paid) complements SNACK’s innovative approach. 

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How to save effectively as a fresh graduate

As you navigate the early stage of your career and adulthood, you should inculcate money-saving strategies into your financial decisions. Begin by creating a realistic budget to keep track of essentials like rent, utility bills, and groceries. 

You can embrace the power of automation and apply automatic transfers to a separate savings account. This ensures that you are consistently contributing towards your short and long-term financial goals. You can also use budgeting apps to track and manage your spending.

Prioritise building an emergency fund to cover unexpected expenses and, ultimately, find a balance between enjoying life and making prudent financial choices. This is your pathway to securing a sturdy financial foundation for your future.

 

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Disclaimer: Protected up to specified limits by SDIC. This is only product information provided. You may wish to seek advice from a qualified adviser before buying the product. If you choose not to seek advice from a qualified adviser, you should consider whether the product is suitable for you. Buying an insurance product that is not suitable for you may impact your ability to finance your future financial needs. If you decide that the policy is not suitable after purchasing the policy, you may terminate the policy in accordance with the free-look provision, if any, and the insurer may recover from you any expense incurred by the insurer in underwriting the policy.

 

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