Insurance is a crucial aspect of financial planning that offers protection and peace of mind for individuals and businesses alike. In Singapore, where the insurance industry is well-regulated and diverse, navigating the various policies and terminologies can be overwhelming, especially for beginners. To help you understand and make informed decisions, this beginner’s guide will demystify common insurance jargon prevalent in Singapore.
1. Insurance Policy
An insurance policy is a contract between the insured (policyholder) and the insurer (insurance company). It outlines the terms and conditions of coverage, including the scope of protection, premium amount, policy duration, and any exclusions. Understanding the policy thoroughly is essential, as it forms the basis of your insurance relationship.
The premium is the amount you pay to the insurance company in exchange for coverage. It can be a one-time payment or paid periodically (monthly, quarterly, or annually). The premium amount is determined based on various factors, such as the type and amount of coverage, the insured’s age, health condition, and risk profile.
Coverage refers to the protection provided by an insurance policy. It specifies the risks or events for which the insurer will provide financial compensation. Common types of insurance coverage in Singapore include life, health, motor, property, and travel insurance.
4. Sum Assured
The sum assured is the maximum amount the insurance company will pay out in the event of a valid claim. Life insurance represents the death benefit or the amount paid to the beneficiaries upon the insured’s death. In general, the higher the sum assured, the higher the premium.
Exclusions are specific circumstances or events in the insurance policy for which coverage will not be provided. For example, in health insurance, pre-existing conditions or injuries resulting from certain activities may be excluded from coverage. It is crucial to review the exclusions carefully to understand the limits of your policy.
A deductible is the initial amount the insured must pay before the insurance coverage kicks in. For instance, in motor insurance, if your policy has a deductible of S$500 and you have an accident resulting in S$3,000 in damages, you will have to pay the first S$500, and the insurance company will cover the remaining S$2,500.
A claim is a formal request made by the insured to the insurance company to seek financial compensation for a covered loss or event. The insurer will review the claim and, if approved, provide the agreed-upon benefits or reimbursement.
8. No-Claim Discount (NCD)
NCD is a discount given to policyholders who have not made any claims during the policy period. It is commonly offered in motor insurance and rewards safe drivers. The NCD percentage increases yearly without claims, leading to lower premiums in subsequent policy periods.
9. Grace Period
The grace period is the extra time the insurance company provides to pay the premium after the due date has passed. If the insured fails to pay the premium within this period, the policy may lapse, and coverage may be lost.
10. Surrender Value
In specific life insurance policies, the surrender value is the amount the policyholder can receive if they decide to terminate the policy before its maturity. It may be lower than the total premiums paid, as the insurance company deducts charges.
Riders are optional add-ons to an insurance policy that provide additional benefits or coverage. For example, a critical illness rider may offer coverage for specific acute illnesses on top of the base death benefit in life insurance.
Underwriting assesses an applicant’s risk and determines the premium and coverage terms. Insurers evaluate various factors, such as age, health, occupation, and lifestyle, to decide whether to accept or reject an application.
Navigating the insurance world can be challenging, especially for beginners in Singapore. However, understanding common insurance jargon is crucial to making informed decisions and securing appropriate coverage for your needs. Take the time to review and compare different policies, consult with insurance professionals if necessary, and ensure that you fully comprehend the terms and conditions before committing to any insurance plan. Armed with this knowledge, you can protect yourself, your loved ones, and your assets more effectively in the face of unforeseen events.
Subscribe to our mailing list for the latest updates and learn more about our 2023 programs!