Confused by the whole range of insurance plans out there? We feel you. It can be tempting to catch em’ all and get a peace of mind knowing that you are 100% covered.
But don’t fall into the trap of being over-insured. To aid you in evaluating which is right for you, here’s a quick guide to understanding some of the insurances that you will chance across.
Health insurance will cover medical bills in the event of hospitalisation, treatment, and surgery.
This includes inpatient treatment (warded overnight), day surgery (surgery without warding), cancer and diabetes outpatient treatment (treatment without warding).
In fact, you already have it. MediShield Life is a mandatory health insurance policy for every Singaporean.
But private insurance plans upgrade upon the basic MediShield coverage, providing up to 90% bill coverage.
These private insurances can be further upgraded with riders to provide better coverage — up to 95% of the bill.
Critical Illness and Early Critical Illness
Commonly confused with Health insurance (which covers your treatment costs), Critical Illness (CI) policies instead pay out a lump sum amount upon diagnosis of a critical illness.
The sum tides you over, as you might not (or choose to not) continue to work when critical illness strikes — supporting you in recovery.
Payout mechanics of older types of CI policies activates only during later stages of critical illnesses (read: near-death), too late to do any good.
Now, most CI insurances are offered with an Early Critical Illness (ECI) rider or component, which pays out upon initial diagnosis, supporting patients during the earlier periods of illness where recovery is more likely. You can now also find stand-alone ECI insurance.
But the catch is ECI policies and riders are more expensive than CI insurance.
This is simple enough, in the event of your untimely passing, your family gets a lump sum payout.
Straightforward? Yes. But there are three main types of life insurance. Let’s break them down.
Term Life Insurance
Term Life insurance has a limited period of coverage, usually only up to age 65. Consider this if you have family members who depend on your income during your working years.
Term Life is the cheapest form of life insurance.
99 Term Life Insurance
A version of Term Life insurance, but covers you up to age 99 (as long as you continue paying the premium). Consider this if you want to leave an inheritance, and are confident to be able to pay up to age 99.
More expensive than the vanilla Term Life Insurance.
Whole Life Insurance
Whole Life policies are similar to 99 Term Life’s coverage length (to age 99).
In addition, a portion of the premiums will be invested into funds managed by the insurance company, the investments generally range from 2% to 5% growth, and have a low-risk profile.
The investment length varies from 10 to 25 years. The returns generally break even late in the policy, for example, a 25 year policy might break even only around the 20th year. Any profits only accumulate in the final years.
So if you cancel the policy before 20 years, you will not get back the amount in premiums paid.
The cash can be withdrawn upon maturity and it might be useful for those who will not DIY invest and can commit to the long term.
Generally, Endowment plans are like Whole Life insurance, except these plans are usually are bundled with a small – and inconsequential – amount of insurance coverage, as such they are popularly marketed as savings plans rathan than an insurance policy.
Because of this, they are usually be offered with shorter maturity terms, starting from 5-years.
Again, you will lose money if you cancel the plan early.
These are can constitute any insurance policy of your choice bundled together with an investment component. But this time, you invested in third-party investments (called sub-funds), that are not managed by the insurer.
Generally these funds are higher-risk, with higher potential reward. You will choose the sub-fund to invest in, as such, the Investment risks are borne by you.
Like other plans, ILPs locks you in for a fixed term which can range between 10 to 30 years. If you decide to terminate your policy prematurely, there will be termination penalties.
You can make partial withdrawals from the policy at any time, but it usually requires a minimum account balance to be maintained – limiting your withdrawals. Upon maturity, you can withdrawal everything.
ILPs can have high startlingly high amounts of admin and account management fees which will eat into investment growth, so higher returns are required to generate a decent profit.
Only recommended if you don’t intend to DIY invest, but even then, you have to have investment-savvy financial advisor that you can trust that will stay with you for the long term.
Generally, disability insurance offers policyholders a monthly or lump sum payout in the event they become disabled due to illness (such as diabetes amputation) or an accident. In Singapore, there are two main types of disability policies:
Typically provides a monthly payout as a percentage of their last drawn employment income for policyholders who become disabled while employed. Payouts last until the policyholder is deemed able to return to work, or if they can’t, payouts continue until age 65.
Total Permanent Disability
Not a standalone insurance. Usually found as a type of add-on rider to life insurance or endowment policies. As the name suggests, a lump-sum payout is provided when the insured becomes permanently disabled.
This is more useful for individuals with a job or lifestyle that has high physical risk — if you are a motorcyclist, or work in construction.
Personal Accident Insurance
Personal accident policies overlap with health insurance, disability insurance, and life insurance.
Like life insurance, it pays out in the event one passes.
Like disability insurance, it can pay a lump-sum or act as a monthly income replacement.
Like health insurance, it can cover medical bills.
However, the difference is that it only covers physical injuries due to accidents.
Perhaps the most useful way to look at Personal Accident insurance is that it closes an insurance coverage gap. For example, if you do not have company health insurance that covers injuries not serious enough to warrant being warded in hospital.
This is more useful if you have a job or lifestyle that has physical risk — maybe you enjoy playing football.
To sum it up, the plans we outlined above are rough generalisations of the different types of insurance out there to help get your head around things. These days, many of the above come as stand-alone plans, allowing you to adopt a modular approach to insurance. You can add or subtract plans in accordance with your evolving needs as you age.