​Imagine yourself planning an amazing holiday with your friends, only to be hit by dreadful food poisoning overseas! Just like that the holiday is almost ruined as you spend most of the time in the toilet, fork out money to seek treatment and possibly expensive hospital bills.

However, if you have insurance, most of the unexpected expenses will be covered because of the financial safety net that an insurance policy can provide.

But insurance is not only about emergencies, it’s also a very good way to save money in the long run. There are lots of myths around insurance out there, but when you understand how insurance works, it’s possible to improve your financial stability.

Here’s how different types of insurance can help save you money.

#1: Risk mitigation and financial protection

Health Insurance: It is very expensive to be hospitalised. The cost of medical care is soaring. But if you’re insured, your health insurance will cover most if not all of your hospital bills, even if you are hospitalised for a week.

Make sure that you have the right coverage so that ideally you don’t need to touch your savings if you get sick.

Travel Insurance: With the onset of Covid-19, buying travel insurance is almost a no-brainer for most people.

Travel insurance helps cover unforeseen losses while travelling, either internationally or domestically. It saves you from forking out expensive hospital bills in a foreign country - emergency medical expenses such as cost of treatment and getting you home.

Most insurance also include coverage for lost or stolen bags and luggage.

Life Insurance: Have you thought about the financial security of your loved ones if something happens to you?

It’s usually an uncomfortable conversation but having a life insurance policy secures your family financially if you unexpectedly pass away, most especially if you’re the breadwinner.

The payout they receive can cover school fees, household bills, and other essential expenses.

Home and Auto Insurance: What happens if you get into a car accident? Or if your house catches fire?

Home insurance and car insurance can save you from paying for repairs out of pocket. For example, in the event of a car accident, your auto insurance will cover most repair costs, and you will pay only a small deductible amount, rather than the full cost.

#2: Cost management and budgeting

You might think that it’s difficult to pay premiums on a regular basis. But it’s easier to budget for a steady, predictable, and small amount of money for insurance premiums than to deal with large, unexpected payments.

Setting aside $50 a month for your health insurance premiums is more manageable than an unexpected $5,000 hospital bill!

Insurance companies often offer discounts for specific behaviours and activities. Car insurance premiums tend to differ according to the age and driving experience of the car owner or driver. 

New drivers who just passed their driving test usually pay a higher premium compared to drivers who have obtained their licence for more than two years.

For drivers who are older (usually from the mid 20s) car insurance premiums are also lower than younger drivers.

You could even get bundled discounts if you take your car and home insurance from the same company. 

Some health insurance companies also give discounts if you can prove you took a certain number of steps in a month, or for certain other behaviours that demonstrate you are taking good care of your health. 

These discounts can add up and significantly reduce the cost of your insurance premiums, thus saving you money. 

#3: Endowments, a primary way to save money 

Endowment policies are a combination of savings with protection. Here, you pay premiums regularly (monthly, quarterly, or annually) and, after a set number of years, a lump sum is paid out. This helps you create a habit of putting aside part of your income for future use. 

For example, imagine that you begin a 20-year endowment policy when you’re 25. By the time you are 45, you will have accumulated a lump sum which you could then use for big expenses, such as a child’s education, or a downpayment for a house, or even to kickstart an early retirement.

#4: For long-term financial planning

Having a good insurance policy is like your security blanket – it protects your savings and investments from being affected by unplanned expenses. That way, you can stay on track with your long-term financial goals.

There are also insurance policies that build cash over time. This means that your whole life or universal life insurance policies can accumulate enough cash value that you can borrow. You could use the amount to invest, or to boost your savings.

In the future, insurance can also help with estate planning. If you have properties or other assets that you will pass to your heirs, having life insurance can cover taxes so that they can receive their inheritance without the need to pay estate taxes themselves. 

So, does insurance really help you to save? 

Having insurance helps to reduce or avoid unplanned expenses, while managing current costs and bills. It can also support your long-term financial goals, even if it doesn’t seem like it now. 

Make sure that you choose the right insurance policy that aligns with your circumstances and goals. This is important so that you get the most out of your money. With the right coverage, you can have peace of mind and a future that is secure financially. 

Insurance is often a tough topic to discuss. After all, thinking of the worst things that can possibly happen – and preparing for them – is not always fun. 

However, when you understand the benefits of having an insurance policy, you will realise that you can actually save money while helping to secure your future financial health and stability.

This content is part of the Temasek – Financial Times Challenge, a financial literacy education series in Singapore for youths.