Financial planning is one of those topics that many Singaporeans know they should take seriously, but often push to the side. Between juggling work, saving for a BTO flat, planning a wedding, and looking after parents or children, setting aside time to think about “insurance versus investments” may feel like a problem for another day.
Yet, rising living costs and inflation in Singapore mean this decision is more pressing than ever. A plate of chicken rice that once cost $2.50 is now closer to $4, and healthcare costs are climbing year after year. At the same time, young Singaporeans are encouraged to start investing early to build wealth, while financial planners warn about the risks of being underinsured. So which should come first—insurance or investments?
Let’s break it down.
Why This Dilemma Matters in Singapore
In Singapore, financial planning is not just about “growing money”. It’s also about protecting yourself and your family from the unexpected. Unlike in some countries, healthcare costs here can be significant if you don’t have adequate insurance. A single hospitalisation bill at a private hospital can easily run into five figures. On the other hand, if you delay investing for too long, you risk missing out on the magic of compounding interest—the earlier you start, the greater the potential returns.
This tug-of-war between protection and growth is one of the most common questions financial advisers in Singapore get from young professionals:
“Should I buy insurance first, or should I start investing now?”
The answer depends on your situation, but understanding the roles of both insurance and investments will help you make smarter decisions.
The Role of Insurance: Protection Before Growth
Insurance is often described as the foundation of financial planning, and for good reason. Without it, even the best investment plan can collapse if life throws you an unexpected curveball.
Types of Insurance to Know in Singapore
- Health Insurance
- MediShield Life provides basic coverage, but many Singaporeans opt for an Integrated Shield Plan (IP) for wider hospital coverage.
- This is crucial, because hospitalisation costs can easily derail your savings if you’re not prepared.
- Life Insurance
- Provides a payout to your loved ones in the event of death or total permanent disability.
- Essential if you have dependants—whether that’s a spouse, children, or even ageing parents.
- Critical Illness (CI) Insurance
- Pays a lump sum if you’re diagnosed with major illnesses like cancer or stroke.
- This covers not just treatment, but also income replacement if you need to stop working.
- Accident and Disability Insurance
- Often overlooked, but valuable if your work or lifestyle exposes you to higher risks.
Why Insurance Matters First
Imagine this scenario: a 28-year-old professional starts investing aggressively in ETFs and stocks without insurance. Two years later, he’s diagnosed with a serious illness. Without CI coverage, his treatment wipes out both his investments and savings.
Insurance doesn’t make you money, but it prevents you from losing everything. Think of it as the seatbelt before you hit the accelerator.
The Case for Investing Early: Let Your Money Work
While insurance protects you, investing grows your wealth. And in Singapore—where retirement expenses are rising faster than CPF payouts—investing is not a luxury, it’s a necessity.
Why Start Early?
- Compounding Returns
A 25-year-old investing $500 monthly at 6% annual returns could have nearly $1 million by age 65. Delay starting until 35, and the amount drops by almost half. - Beating Inflation
With Singapore’s inflation hovering around 4–6% in recent years, keeping money in a savings account erodes its value over time. - Time Horizon
The earlier you start, the more risk you can afford to take—and the greater your potential returns.
Popular Investment Avenues in Singapore
- ETFs (Exchange-Traded Funds): Affordable and diversified. Many young Singaporeans use robo-advisors to access these.
- REITs (Real Estate Investment Trusts): Attractive for dividend income.
- CPFIS (CPF Investment Scheme): Lets you invest CPF savings, though with restrictions.
- SRS (Supplementary Retirement Scheme): A tax-saving tool that also allows investments.
Investing is about building long-term wealth. But remember—investments carry risk. Which is why jumping in without financial protection in place can backfire.
So, Insurance or Investments First?
The truth is, it’s not really an either-or. Most financial planners in Singapore would agree on this order:
- Build Protection First (Insurance).
- Secure basic health and life coverage. These are non-negotiable.
- Supplement with CI or accident coverage depending on your needs.
- Then Grow with Investments.
- Once your safety net is in place, start investing early—even small amounts.
- The key is consistency, not timing the market.
Avoiding Common Pitfalls
- Over-insurance: Some people overpay for expensive plans they don’t actually need. Insurance is for protection, not investment returns.
- Under-investment: Others buy all the right policies but forget to start investing, missing out on years of growth.
- Skipping Emergency Savings: Before insurance or investments, set aside at least 3–6 months of expenses. This prevents you from having to liquidate investments or rely on high-interest debt during crises.
A useful framework is “Protect, Save, Grow”:
- Protect: Secure insurance coverage.
- Save: Build your emergency fund.
- Grow: Invest to build wealth.
Practical Guide for Singaporeans
Here’s a step-by-step approach if you’re just starting out:
Step 1: Build Your Emergency Fund
- Keep this in a high-interest savings account or cash management account.
- Avoid tying it up in investments.
Step 2: Secure Essential Insurance
- At minimum: Health (IP) and Life Insurance.
- Add Critical Illness if you have dependants or are at higher risk.
Step 3: Start Investing—Even Small
- Begin with robo-advisors or index ETFs.
- Automate monthly contributions, even if it’s just $100–200.
Step 4: Balance with Life Goals
- Saving for a BTO? Consider allocating a separate pot of cash for short-term goals, as investments carry risks.
- Planning a wedding? Don’t dip into investments; keep those funds safe.
Step 5: Review Regularly
- Life stages change your needs. Your insurance at 25 may not be enough at 35 with kids.
- Investments also require rebalancing as you grow older.
Conclusion: It’s Not Insurance or Investments, It’s Both
Financial planning in Singapore doesn’t have to be a tug-of-war between insurance and investments. Instead, it’s about sequencing them wisely. Insurance provides the safety net, while investments grow your wealth. Neglect one, and the other cannot fully serve its purpose.
For young Singaporeans, the best approach is to:
- Build an emergency fund.
- Secure essential insurance coverage.
- Start investing as early as possible, even if it’s a small amount.
By protecting first and then growing, you give yourself both stability and momentum. That way, you won’t just survive unexpected shocks—you’ll also thrive in the long run.
