Business

Personal financial planning: insurance

Insurance is the most common risk transfer technique in risk management.

There are 3 layers of insurance protection.

First, the social layer, provided by national schemes. For Singapore, it will be the CPF insurance like DPS, HPS, Medishield, Eldershild, CPF Life. These are generally the most basic requirements and the premiums are the most affordable. Second, the group layer. This is coverage provided by employers, unions, or associations. Its premiums are also relatively affordable. However, they will no longer cover when they leave the organization and there is usually an age limit, resulting in a drop in coverage when it is most needed. Third, the individual layer. This is purchased from insurers on a personal level to complement the first two layers. Enhancing coverage in scope and depth.

Classes of insurance:

– Life insurance

– Investment related policy (ILP)

– Health insurance

– Personal general insurance

Life insurance

The 3 main types of traditional life insurance are term, life and endowment. The most basic term policy is CPF’s Dependent Protection Scheme (DPS). Premiums are the lowest in Singapore and can be paid by CPF OA. However, the limitation is that the coverage is up to $ 46,000 and the age of 60. Another falling term policy from CPF is the Home Protection Scheme (HPS). A mandatory mortgage insurance for those who use CPF to buy their properties.

Investment related policy (ILP)

ILPs are primarily annual renewable term insurance along with investments in unit trusts and the addition of more fees. They are subject to a different set of resolutions, do not need trustees, and the selection of funds is restricted to those within the insurer’s umbrella of funds. One advantage is that the charges are transparent. However, they are numerous, tedious to calculate, and allow so much variation that it is intended to be confusing. They include:

(1) Initial Sales Charge – This is a one-time charge that is included in the fund’s bid and price margin. Usually around 3-5% of the investment amount.

(2) Fund management fee: paid to the fund manager for the performance of the fund. Typically 0.5-2% per annum and is quoted (deducted) from the unit price.

(3) Charge for benefit: the premium for the insurance coverage, including all passengers, is financed by deduction of units. The premium usually increases depending on the new age bracket.

(4) Policy fees: A fixed monthly fee is charged, regardless of the premium amount, to cover administrative expenses.

(5) Administrative charges: additional charges paid for record keeping, transaction services, banking services, trust services, and miscellaneous charges. Usually between 0.2 and 0.4% per annum and it is also priced.

(6) Fund exchange fees: will be charged when investment funds are exchanged. Usually free for one change per year.

(7) Premium Vacation Charges – Will be charged when Premium Vacation feature is activated.

(8) Surrender charges: charges imposed upon termination of the policy.

(9) Allocation – The amount of premiums used to purchase units is generally not 100% during the initial years. Example: 20% for 1st year; 40% for the 2nd year; 60% for the 3rd year; 80% for the 4th year; before finally 100% from the 5th year onwards.

The ILPs will be suitable for those who have sufficient insurance coverage and have an excessive budget that they would like to use to support their agents rather than investing directly in mutual funds.

Healthy Insurance

(1) MediShield and Private Protection Plans

MediShield is the social security that provides the most basic coverage. The downsides are that it has many sub-limits for each of the covered expenses, expires at age 85, and provides coverage primarily for B2 / C classrooms. It is also subject to deductibles and coinsurance. MediSave pays for it. Some employers may provide the second layer of coverage. However, this coverage will end when you leave the employer. Health coverage is most necessary during retirement, as a result, taking a plan will be subject to strict underwriting conditions (i.e. existing medical conditions will not be accepted or excluded). Private protection plans allow coverage after age 85, but must be taken before age 75. There is generally no sub-limits, as it is “charge-based” coverage. Some insurers even cover deductibles and coinsurance if you buy a rider to the basic plan. The website of the Ministry of Health provides a comprehensive comparison of all available private protection plans. The plan is best suited to cover ongoing and medical treatments. With the increase in medical costs, this insurance is more necessary to avoid cost being a problem in seeking proper medical treatment.

(2) Critical illness

Provides a lump sum benefit if the insured is diagnosed with one of the 30 selected diseases or surgical procedures. The 30 diseases are chosen from a list of diseases from the Singapore Life Insurance Association (LIA). All of its definitions have been standardized by the LIA. The 2 types of coverage are accelerated and additional. Acceleration coverage shares the insured sum with the death / TPD benefit. Additional coverage is separate coverage in addition to the basic sum insured, so it may be greater than the basic sum. Variations include issuance as a standalone policy or rider, having an advance payment for the initial stages of the disease, and providing specific coverage for a single disease such as cancer. It is best suited to cover treatment costs that may not be included in HealthShield, such as expensive overseas or alternative / experimental treatments, as well as additional care expenses incurred when critical illness is diagnosed.

(3) Disability income

Provides monthly income in case the insured is unable to work as a result of an accident or illness.

The definition of disability varies in the sense that the inability to work is limited to the insured’s own occupation, similar occupation or any occupation. It is better suited to protect against loss of income to support living expenses in case of disability and differs from TPD in that the definition is less strict.

(4) Hospital cash

Provides a daily cash benefit for each day of hospitalization. It is usually limited to a specific number of days and a lifetime limit. It is best suited for the self-employed who will suffer a loss of income as a result of hospitalization.

(5) ElderShield and private plans

It provides a monthly benefit if the insured is unable to perform 3 of the 6 activities of daily living (ADL), namely, eating, bathing, going to the bathroom, dressing, moving and moving around. ElderShield is the most basic level of coverage and provides $ 300 or $ 400 per month for 60 or 72 months. You can pay with MediSave. Private plans enhance these plans to provide higher benefits and a longer payment duration. You can pay with MediSave up to a limit. It is more suitable to cover the disability of people over 40 years of age. TPD coverage generally ends at age 60/65, but this provides coverage for life. And it is usually limited premium payment.

General Personal Insurance

(1) Home packaged

Provides coverage for the building and its contents.

It is usually mandatory when a person applies for a home loan.

(2) Valuables

Provides coverage for items of high monetary value such as antiques, fine arts, etc.

It can be a detailed or general coverage.

It is usually for those who keep valuable items in their homes such as art or antique collectors.

(3) Personal accident

Provides coverage for bodily injuries caused by unique, direct, independent, external, violent and visible means.

It is best suited for those on a budget or involved in manual labor or unable to obtain any of the traditional insurance due to medical underwriting restrictions.

(4) Motor

It is a compulsory insurance available in 3 types: Third, Third against fire and theft (TPFT) and Comprehensive. Premiums will vary between insurers based on make, model, age of car, age of driver, occupation and experience. Be aware of the applicable excess amount and it is advisable to purchase NCD protection if the NCD has accumulated at 50%.

According to the risk management plan, those low-frequency, high-severity areas should be covered with the proper insurance. As insurance coverage and premiums vary between insurers, it will be wise to get quotes from as many as possible. Insurance is generally a lifetime commitment, it will be prudent to ensure that the most valuable and appropriate is purchased.

Leave a Reply

Your email address will not be published. Required fields are marked *