IFL Webinar On Insurance – 21 July 2017
TYPES OF INSURANCE
For Life: Whole Life (WL), Endowment, Investment Linked Product (ILP) and Term.
For Health: Medical expenses, Criteria Illness (CI), Disability Insurance (DI), long term care, Hospital Income and Personal accident.
These are supplementary plans to enhance the benefits of the basic insurance plan.
Health insurance covers medical treatment costs. Some health insurance are on a reimbursement basis. Life insurance is on a benefit basis.
Adequate medical insurance is essential. Choose a plan that is affordable in the long run.
ADEQUACY OF LIFE INSURANCE
The amount varies widely. It can be anything between $8,000 (for a simple send-off) to more than $60,000. Consider other expenses such as probate cost and emergency funds for your loved ones as your estate will.
Consider other expenses such as probate cost and emergency funds for your loved ones as your estate will need some time to be distributed. Use the Insurance Estimator to help you calculate. Insurance companies can make an initial pay out of up to $150,000 while the estate is being processed. Approach your Financial Adviser for help.
Question 2: What is the amount of coverage needed against death, Total Permanent Disability, Terminal Illness and Critical Illness (normal + early)?
There are several considerations when deciding what you need and how much, such as:
- the age of your dependents (the duration should be long enough until the youngest child becomes financially independent)
- If there are alternative sources of income (from spouse’s income or investment) should you lose capacity to work,
- the standard of living you wish to provide;
- importantly how much premium you can afford (average about 10% of income).
You will need to prioritise your needs when you have a limited budget with permanent loss of income of a higher priority. Use the Insurance Estimator on CPF website to help you gauge how much insurance you require. The typical ROT industry or FA uses is 10 times annual income for death & TPD and 3 times for CI but this is highly inaccurate without going through a thorough fact find of your current/future financial situation, other financial goals you may have and what other resources you have to replace lost income.
Question 3: What are the minimum types of insurance that an individual should have to be adequately protected at any one time? What are the main concerns? Any dependents? Who are they? Their age?
a) Should all get life insurance?
Life Insurance protects you against large-scale financial loss due to an unfortunate event such as premature death, Total Permanent Disability, chronic illness. Financial loss refers to the loss of future income to cover one’s own living expenses including one’s family.The pay out from the policies will replace this income; it provides an instant estate when the covered event happens in exchange. The pay out from the policies will replace this income; it provides an instant estate when the covered event happens in exchange for a small premium which is paid to an insurer.
Hence, Life Insurance provides peace of mind that even if the unfortunate event occurs, it will not bring about financial stress and burden to the family. Whether all should get life insurance is a matter of checking if there are
Whether all should get Life Insurance is a matter of checking if there are alternative sources of income to support the livelihood of loved ones and if this amount is sufficient and sustainable in the long term. Without insurance, one has to accept and retain the risk of a possible financial loss.
b) How much coverage at least of life insurance should I get?”
Use the Insurance Estimator to help you
ADEQUACY OF HEALTH INSURANCE
Question 1: What is the difference between having a Total Permanent Disability (TPD)/Critical Illness (CI) rider on my Life Insurance policy, and having Disability Income (DI) Insurance? How do I know which is right for me, and that I am adequately covered for Health Insurance (apart from hospitalisation)?
TPD, CI and DI policies are different in terms of their definition, pay-out and duration. A waiting period of 3 to 12 months applies before claims are made (check your contract under “waiting period”)
TPD usually pays out a lump sum. In older policies the pay-out is over a period of 5 years (10% each for the first 4 years and 60% in the last year; you can check your contract for details). It is normally bundled together with death benefit rather than as a rider and coverage is usually until age 65. The objective of TPD benefit is to replace the permanent loss of income.
CI provides a lump sum benefit in an event of a covered illness (commonly between 33 and 36 types of major illnesses). There are policies that pay out upon early onset of the illness but the premium will be much higher than those that pay out only when the condition is more serious. Such policies also allow policyholders to claim more than once until the insurer fulfils the pay out obligation in the contract. Check with your Financial Adviser or your contract to find out what you have. Coverage is usually until age 75 or whole of life depending on whether it is purchased as a standalone policy or as a rider onto a whole life plan (check with your Financial Adviser). The objective of CI policies is to replace the temporary loss of income while you recover from your illness. At the same time, the payout can also be used to cover unconventional treatments that usual medical plans such as Medishield Life and Integrated Shield plan do not cover.
DI replaces a percentage of your income (usually 70%-80%) in an event of a disability which can be temporary or permanent for a period of time. Coverage is usually until age 65. The purpose is to replace the loss of income or a decrease in income while you work in other occupations due to the disability.
It is ideal to have critical illness cover early when you are healthy. Most CI plans offer level premiums hence it’s cheaper when bought early. It is difficult to say who needs them as some illnesses are hereditary while some are related to lifestyle. Our environment may also have an impact on the chances of them happening. Paying for one that is within your budget simply provides a safety net and some peace of mind.
Every insurer will have a different business model and risk tolerance. The premium will be adjusted base on their loss ratio and medical cost inflation.
Question 2: When I ask for a good investment plan, I am always offered an 'endowment' type plan (from banks, insurance agents, etc). Why this focus on endowment policies? Is this a good investment?
Financial Advisers will commonly recommend Investment-Linked Policies (ILPs) or Endowment Policies to meet certain financial goals depending on the client’s risk preference. One possible reason Endowment Policies is offered could be that the client wants to have some certainty of the cash value when the policy matures and Endowment Policies provide a guaranteed cash value as well as an additional potential return (depending on the performance of the insurer) which is usually called the bonus or dividend. The cash value for ILPs is non-guaranteed and there are different types of charges which can be quite complex. Consumers may shy away as there is also more risk.
Group insurance policies tend to be cheaper than non-group products due to the economy of scale when the insurer decides on the premium. Check that the features of these policies meet your needs; such as the coverage period. More importantly, check if they are portable. This means your coverage will continue even when you leave the organisation or after you have retired.
Question 4: I have aged parents with existing chronic disease and no insurance apart from MediShield Life, what else can I buy for them.
Probably none depending on the type of chronic disease. It is best to check with your Financial Adviser or the different insurers.
Question 5: Why do insurance agents want to sell things that are more expensive, compared to those which we really need, e.g. Term plan (customer) VS whole life/ILP (agent)?
Whole Life policies provide cash value and protection and Financial Advisers may think that it can double up as a long term savings plan. Customers always have the right to decide on what type of insurance to buy after comparing the pros and cons of these products.
Question 6: Do you really need to will your insurance payout or is it better to let the Interstate Act come in?
A will is not necessary to distribute your payout. You can complete the Nomination form provided by the insurer to distribute the payout. There are two types of nominations: Revocable (Form 49M) or Irrevocable (Form 49L). Do seek the advice of your Financial Adviser before deciding on which is most suitable for you. The Intestate Succession Act has its pros and cons. It’s best to attend our Estate Planning talks/workshop to find out all you need to know about estate distribution.
Question 7 - What are the reliable insurance companies that I can fall back on as some may reject your claims at their whims and for minor non-disclosures?
All insurance companies are reliable and are strictly monitored by the Monetary Authority of Singapore. You can seek help from FIDREC or MoneySENSE regarding disputes or when you find the rejection to be non-justifiable.
Question 8: If I do not buy any travel insurance, can I still claim from my life/health insurance if anything happens to me while I am in overseas?
It depends on the type of insurance. E.g. accident plans coverage is worldwide but covers only accidents but not illnesses. MediShield Life and integrated shield plans do not cover overseas treatments. Travel insurance is still a necessity as it provides other important benefits such as loss of baggage, flight delay etc.
Question 9: How much should we be insured under critical illness insurance for people in their late 40s?
The rule of thumb is 3 to 5 times your monthly income. Your budget is an important consideration as premiums can be very high for those above 40, especially for CI.