I'm sure you probably have a basic idea of what insurance is, so I'll spare you a long introduction. We've all seen the neat office building housing insurance companies, but many people don't have a clear understanding of how insurance works.
In so many words, insurance shares the cost of unexpected expenses over a large group of people. If your $200,000 car is wrecked in a freak accident, the insurance company can afford to pay out money because the rest of its customers are paying for your misfortune.
Because your insurance is a pool of money that you hope to dip into when disaster strikes, it's very important to choose an insurer that you know will be around to pay up when the time comes.
A life insurance policy won't do you much good if the insurance company closes just before you kick the bucket.
In Singapore, insurance providers have to be licensed, and are governed under the Insurance Act. To help protect you from losing your insurance coverage, a Policy Owners' Protection Scheme (PPF Scheme) has been set up. If an insurance company fails, this scheme can help you not to lose your insurance coverage.
Now that we've got the basics out of the way, here are examples of the most widely used types of insurance:
Health insurance. This is a like-it-or-not insurance in Singapore, thanks to government efforts to provide at least basic health insurance through schemes like MediShield. Private health insurance takes coverage to a whole new level, filling in many of the financial gaps. For example, private health insurance may cover class A hospital wards, or private medical care.
Car insurance. If you are lucky enough to ever have even considered getting a car, you have probably heard of this insurance. There are many different types of coverage involved. This makes sense because you will not only want to be covered for any damage to your car or yourself if you have an accident, but you will also want to be covered if you damage another person's property (or put them in the hospital). You may also want coverage for other damage to your car like storm damage or vandalism (not as uncommon as it once was).
Life insurance. As its name suggests, this insurance covers you or a loved one in the event of death. Why would you want money after you die? In most cases this money would go towards providing for your loved ones, since you won't be around to do it. there are different types of life insurance, so you have a lot of options here. For example, you can get a form of life insurance that covers you while travelling outside the safety of your own country (this travel accident insurance comes free with many credit cards). You can also get policies that cover you for your entire life, and some that even grow your wealth over time.
Of course there are a lot more types of insurance than this. Insurers have hardly left a stone unturned and you can now get anything from pet health insurance to alien abduction insurance (this really was offered by a UK insurance company).
How much insurance coverage do you need?
Make sure that you aren't already covered by another policy. Your phone or tablet may be covered by your home insurance, for example. You may get free travel insurance when you pay for a flight with your credit card.
Try to keep to policies that have a proven track record. For example, if you have friends that were paid out a hassle-free benefit by a certain insurance company, you might want to use the same insurer.
Before you sign, always read the fine print of a policy and make sure there isn't a catch you don't know about.