“You need to plan for the future. You have no idea what tomorrow will bring, but you can deal with it today.” — Anthony Anderson
When is the right time to get insurance? This is a question I’ve always been asked whenever I meet someone for financial planning or during talks. Despite it being an important aspect in having a good financial foundation especially during the working years, insurance is most often the last thing in people’s minds. So here’s a guide based on what profile you are in the type of insurance you should consider at that stage.
Single without dependents. The general rule in getting insurance is that you should have one when you have dependents. So in this case, it may seem it is not necessary. Having said that, the advantage of getting insurance while you don’t have dependents is: one, you probably get it cheaper assuming you are fresh out of school or have been working for just a few years; and two, your preparation starts earlier that by the time you have dependents, the gap between your insurance needs and your current coverage is smaller. The challenges of getting insurance during the early working years is that your income may not be enough to get a comprehensive insurance. So, consider getting a traditional ordinary life or variable life insurance and add riders as you move up the income ladder. If there are budget constraints, at the least consider getting accident and critical illness term insurances.
Single with dependents. If anyone is dependent on you, life insurance is a necessity. So in this stage you need one. What’s good about getting one already at this stage is that dependents will grow especially if you plan to get married and have kids. The reality is, the more dependents you have the less your focus will be on getting insurance because the bills alone can be overwhelming. So the best way to not get overwhelmed in the future is start planning now. Still a term life insurance with accident/critical illness riders can be considered in case the budget is a challenge. But traditional ordinary life insurance or variable life insurance would be recommended since there are living benefits in these types of insurances that can be used for eventual retirement as well.
Married with kids. Life insurance is definitely a necessity. I’ve always said that I never valued insurance until I got married and had my own kids. My regret is not getting more while I was single. The advantage of having one at this stage is pretty obvious. The challenge of getting one will be a lot; that is why I always encourage people to get insured earl. Expenses at this stage will probably be at its peak so it will be a challenge to balance the tangibles (milk, food, necessities) and the intangibles (insurance, investments).
Approaching retirement with no more dependents. Ideally, if you’ve planned early and got good coverage during the early years, you might not need one. However, whatever coverage you have will now be for a different purpose. During the working years, insurance is needed for income continuation in case of death, accident or critical illness occurrence. Now, the insurance is needed for wealth protection, estate tax purposes and still financial protection from accident and critical illness. In case you don’t have one at this point the challenge will be the cost of insurance. Insurance premiums will be significantly higher as we get older. The approval process will also be more stringent given that getting older would mean higher risk of having pre-existing conditions. Term insurance will still be the cheapest option. Single Pay variable insurance is usually used for wealth and estate tax protection.
Although I’ve categorized insurance needs into life stages there is really no one size fits all solution to getting insurance. Whatever the solution is, one thing is certain; insurance planning should be done at the earliest possible time. Because much like in investment planning, time passes by fast and before you know it, you are a day too late.
Jeremy Jessley Tan is a Registered Financial Planner of RFP Philippines. Learn more about personal financial planning, attend the 58th RFP program on November 5 —December 10. To inquire, e-mail email@example.com or text <name><e-mail><RFP> at 0917-9689774.
JEREMY JESSLEY TAN, RFP