I will talk further on the different types of insurances required for personal financial planning. I will not go in depth in each of the products as that would make this article exceptionally long and no fun to write.
Another point to note is that many Singaporeans hope to make money from insurance. If you are one of those, please correct your thinking. Insurance is to provide financial protection against risks which might render a person unable to earn money. If you think insurance is for you to make money, that is the wrong concept for insurance. Go read more about insurance here.
Health and Hospitalization
There are affordable insurance plans from many of the insurance providers in Singapore. These are the Shield plans. They come in the form of (Prushield, Incomeshield, Myshield, etc etc). This insurance will cover the bulk of your hospitalization expenses if you get admitted. This is a primary requirement. The government has a Medishield plan but that is inadequate coverage. Go talk to any financial planner to find out more about private shield plans. They aren't very expensive and most of them are about the same. Pls get yourself covered. Furthermore, you do not need to fork any cash out as these can be paid via your CPF funds. (CPF is a forced savings plan for Singaporeans to set aside funds for retirement, medical care and housing.)
This plan pays you money if you stay in hospital. One of the most useless plans if you are employed. As this is supposed to protect against loss of income due to not being able to work. Most people are employed and will still get their income from their employer even if they are hospitalized. This helps people who are self employed and will suffer loss of income if they are hospitalized as they are unable to generate income. Remember, insurance is to protect against certain scenarios. You are not trying to make money from insurance you are trying to financially protect against potential loss. In this case, you are protecting against loss of income due to inability to work. If you are concerned about medical expenses, read the above on the shield plan.
A basic form of life insurance. There is no money back from this policy. You pay a small fee every mth/yr and upon death or disability when the policy is in place, the policy will pay you the sum assured. This is to protect against sudden death/disability and loss of future income. Particularly for people who are supporting a family. The loss of a parent will see a decreased income. Thus for the living partner to raise a family without help might be challenging. As compared to Hospitalization Cash, this policy provides protection against permanent loss of income due to death/disability. Whereas Hospitalization Cash provides protection for loss of income due to being hospitalized only.
DTA (Decreasing Term Assurance)
Similar to Term Life but not commonly available. This insurance works the same way as Term Life. However, the sum assured decreases as the years go by. This is useful for individuals who might have high savings rate or might want to retire early. I've bought this. Reason being that in a few years, I will not be working any more. Thus, I am not protecting against loss of income. My income will be derived from investments. So as my investments increase, my need for insurance decreases as I do not see the need to protect against loss of income due to being unable to work. The premiums for this policy is cheaper than Term Life as the sum assured decreases during the course of the policy life.
Sold to people who want to make money from insurance. There is a stored value to this policy. More expensive than Term Life. Policy premiums are paid til the individual dies or reaches 100 yrs old. The family members will get the sum assured. As many Singaporeans are unwilling to take the expense of insurance. They want to make money or get something back from their purchase. Thus, this product is for those people. That's a very large population who have this policy. Folks, please note, the insurance company just splits your premium paid into 2 portions. They help you buy a Term Life and help you save/invest the rest. Upon maturity, the company will pay you back the saved/invested portion. Similar as if you did it yourself, IF you did it yourself.
Similar to whole life but with an earlier maturity. Marketed as a savings plan. Useful for people who want a stable return but are unwilling to invest in the stock market. Most endowment policies give about 3% return per ann over a 25 yr period. Basically works the same way. Difference is that policy premiums are paid til the individual dies or reaches XX yrs old, where XX is the length of the policy determined when you enter the policy. Most people complain that endowments are expensive. Naturally they would be. As the company would similarly split up the money to help you buy a Term Life and save/invest the 2nd portion for you. As there are less years before maturity, for you to "save" the same amount of money, you would need to pay more in the short time frame of the policy life.
Investment Linked Policy
Works pretty similar to Whole Life. However, investment risk is borne by the insured. Company splits up the premium paid into 2 portions. Buys a Term Life with one portion. Takes the 2nd portion to invest in funds which you can select from. Insured person will bear the risk of the investments. Unlike Whole Life where the company will guarantee a certain amount to be returned upon maturity. An expensive option as the funds which you are investing in usually charge about 1.5-2% management fees. That's about 25-30% over a 25 year period worth of management fees. If you're going to buy this might as well buy your own Term Life insurance policy and buy a tracker fund with low management fees.
Basic Critical Illness
Works similar to Term Life but pays out ONLY during the onset of the stated 30 Critical Illnesses stated in the policy. ONLY when the definitions are fulfilled. Meaning if its close to the illness but not exactly what is stated in the policy, no payout will be paid. This is a term policy or rider. Both do not have cash value and you get nothing back. If it is a rider on your Whole Life/Endowment policy. What you get get back is the amount from the Whole Life/Endowment. You will get nothing back from this policy/rider.
Early Cover Critical Illness
Works similar to Basic Critical Illness. However, the definitions are broader. Thus it is more expensive is it is easier to claim upon onset of early Critical Illnesses. This includes early stage breast cancer which is usually not covered in the Basic Critical Illness policies.
This policy covers for accidental issues. Pays out the sum assured when the insured meets with an accident, loses a limb/finger, etc. Typically more useful for people who work in high risk for accident environments. But this is a pretty cheap policy and many people buy it just for the sake of it. Debatable on the necessity of it.
The above are the more basic insurance covers which are usually introduced by financial advisers/planners. There are other types like Whole Life which pay only for 25 years but cover til death, covers only for female illnesses, etc etc. I'm not selling any of these and this is just an introduction to some products.
Total financial planning requires assessment of your goals and what you hope to achieve in future. Insurance is to help protect against issues which might arise which may prevent you from reaching your goals. Please consult with a reliable financial planner for your planning needs. Although I am able to provide financial advice as I have worked in the industry before, different people have different needs and only upon further analysis can any recommendation be made.
Just a reminder. Insurance is to financially protect against potential loss of finances due to certain circumstances. It is not like buying chicken on discount. Buy protection for what you need or feel that you need protection for.
Example. There are some Term Life products which give larger discount for larger sum assured.
SGD80 per month for SGD500k sum assured. Or SGD130 per mth for SGD1 mil sum assured. It is tempting to buy the SGD1 mil policy. However, we are not talking about buying chicken/eggs on discount where we can eat one today and eat another tomorrow. If you do not need the SGD1 mil in coverage, do not buy it as you are just wasting the additional SGD50/mth. If you require the coverage, by all means buy the policy which gives you greater peace of mind.
ALSO when financial planners talk about protection, they do not mean you will be protected against it. Doesn't mean you buy a Critical Illness cover you will not get an illness. They mean you will get financial compensation if you get such an illness so that you might use this money to pay for medical bills, potential loss of income due to long illness etc etc.
Insurance is actually a very interesting topic. What do you feel about it? Do you plan your finances holistically? How much do you like to discuss about insurance? Is the older generation of Singaporeans more unwilling to discuss such topics? And has that fear of financial discussion been passed on to the current generation as well?
Leave your comments/views below so that we might have fruitful discussion.
<<PREVIOUS POST // NEXT POST>>