When we graduate and enter working age, it’s time to take full responsibility for our lives. We will easily achieve financial success if we make a financial plan once we start working. One of the financial plans that can secure your life is a life insurance plan.
Many “first workers” or people who are “starting to work” may think that insurance is not necessary because they are still young, healthy and at low risk, or may think that they do not do not have enough money to pay a monthly allowance. premium, and they still have to pay for other things. Either way, the COVID-19 pandemic may have changed those attitudes. Many people care more about their health and realize that illness or unexpected situations can occur without age limit. however, if these challenges occurred, they would affect their life and financial situation. Therefore, planning for proper insurance is considered important.
Things to be concerned about insurance for the first jobber
1. The purpose of insurance: Since there are many types of insurance, we need to know why we are applying for it, such as to protect life, to collect savings, etc. When we know our purpose, we can choose an insurance that mainly meets our demand.
2. Ability to pay the insurance premium: Money is essential for the first jobber because he does not earn much when he starts working, so he needs good financial management. This is why it is important to choose affordable premiums and the ratio of good premiums should not exceed 10% of total income per year.
What type of insurance is suitable for First Jobber
1. Whole life insurance is an insurance that protects the entire life of the insured (the protection lasts between 90 and 99 years depending on the type of insurance). The insurance company will provide benefits to the beneficiary under 2 cases.
a. In the event of the death of the insured, the insurance company will pay the sum insured to the beneficiary.
b. If the insured remains alive until the end of the contract, the insured will receive an insured sum.
The important point of whole life insurance is that the sum assured is high and its premium is low, and the tax can be deductible if the income reaches the tax threshold. This insurance is suitable for those who need a high sum insured to protect expenses and debt burden in case of unforeseen situations. Therefore, it is suitable for First Jobber who needs life protection with affordable insurance premiums.
2. Endowment Insurance is insurance that emphasizes savings and protection. If we pay a full premium for the duration of the policy (10 years, 15 years or 20 years), the insurance company will pay us a benefit either in a lump sum or in cash throughout the contract. If we die while the policy is in force, the beneficiary will receive a sum of money called the “sum insured” as stated in the contract.
Compared to whole life insurance with equal premium, the sum insured of endowment insurance is lower because the insurance company will take part of the premium and generate it later to be our savior. So, endowment insurance is suitable for first-time buyers who are looking for security as they will get savings including death protection. However, the advantage is not high compared to investing in other assets like a stock, fund or real estate. The average profit from this insurance is around 1.5-2% per year and the tax may be deductible.
3. Health insurance is insurance that is intended to provide protection for the existing expenses of insured medical treatment arising from sickness or injury resulting from an accident. At present, the health risk no longer occurs in the middle or old age group. Emerging infectious diseases or serious illnesses can be harmful at all ages.
Many people may think that the health insurance premium is wasteful and not worth paying, so they don’t care. In fact, health insurance is all about managing the risk of the unforeseen event and we never know if this situation will cause damage. For example, if we pay the premium of 10,000 baht per year every year, we will know the total amount of payment and protection coverage. Once we get sick, we will feel relieved that the insurance company is responsible for some expenses (according to the protection coverage).
If we do not have health insurance, we will have to take all the risks. In the event of an unexpected event, our expenses may be 50,000 baht, 500,000 baht, 1 million baht or much more than we can handle, and it will definitely affect our financial situation.
Considering current benefits before planning to purchase health insurance; for example, company group insurance or social security entitlements, then compare our claim like the medical costs of the hospital we regularly visit and check if there is any difference. We can add additional insurance coverage that we lack.
In summary, First Jobber must select insurance that suits each individual within an appropriate budget. Most importantly, study the terms and conditions applied to each type of insurance before making a decision to get the maximum benefit.
Nipaphan Poonsathiensap CFP®, ACC
Freelance financial planner, writer and speaker