Having the right type of insurance is one of the key cornerstones of a good financial plan. But just like how we are confused over which vegetables to eat to obtain the “correct” vitamins, we too are sometimes confused over what are the “right” types of insurance we should be buying.
Getting health insurance should be a priority for all fresh graduates joining the workforce. Given their youth, one of the biggest risks they face is health issues, which may prevent them from pursuing a long and successful career. This risk can be minimised by buying the right health insurance.
How is health insurance different from other forms of insurance?
Think of health insurance as a product you will benefit from. The coverage you receive protects you as an individual. It helps you pay for any healthcare related cost that you may incur when you fall ill.
This is in contrast to life insurance, where individual coverage is purchased so that your dependents will receive financial support in the unfortunate event of death or disability; or general insurance, which provides coverage for the assets you own.
|Type Of Insurance||Primary Purpose|
|Health Insurance||For your healthcare cost|
|Life Insurance||For your dependants|
|General Insurance||For the assets you own|
Different types of health insurance
There are 4 main types of health insurance policies that you should know, namely: medical expenses insurance, critical illness insurance, disability income insurance and severe disability insurance.
The table below explains the different type of coverage each of these policies provides.
|If you want to||You should consider|
|Cover your hospital and surgical expenses||Medical expense insurance (e.g. MediShield Life and Integrated Shield Plans)|
|Receive a lump sum amount to help with expenses when you are diagnosed with a major illness||Critical illness insurance|
|Replace your income when you are unable to work||Disability income insurance|
|Pay for care that you need when severely disabled to the extent that daily activities cannot be performed||Severe disability insurance (e.g. Eldershield, ElderShield Supplements)|
“What exactly do I need?”
This is a question many people would ask.
If you were pessimistic with life, all the above health insurances would seem important. Does that mean we should be buying health insurance based on our outlook in life? Surely not.
Here are a few key factors to consider.
“What is my budget?”
While insurance is undoubtedly important, it should not come at the expense of other equally important needs such as home ownership, parental support and retirement planning. You should have a budget in mind for how much you intend to spend on health insurance. Share that with your insurance agent so that he/she can suggest plans within your budget that will optimise the coverage you receive.
“What do I already have?”
Before you commit to buying a new insurance policy, it is worth spending some time to review what you already have. This may fall into 3 different categories.
# 1 What your parents already bought for you
Some of us may still have insurance policies bought for us by our parents. Find out what these policies are, so that you do not end up paying for something you already have.
# 2 What your company is already providing
Some companies provide group health insurance coverage for their employees. These may include group disability income insurance, which provides income for employees in the event of any disability that prevents them from working.
If your company provides such coverage, then buying your own health insurance may not be an immediate concern. However, keep in mind that group health insurance provided from your company may lapse once you leave the firm. Hence, for certain policies such as medical expenses and critical illness, you may want to buy your own.
# 3 MediShield Life
All Singaporeans are covered by MediShield Life, our country’s basic health insurance plan, regardless of age or any pre-existing conditions.
The coverage of MediShield Life is pegged to the treatment costs in Class B2/C wards in public hospitals. If you intend to stay in Class A/B1 wards or seek private hospital care, MediShield Life will pay a fraction of the total bill you incur.
To increase the extent of your coverage, you can consider upgrading to an Integrated Shield Plan (IP) to ensure you have sufficient coverage. There is also a more affordable version, the Standard Integrated Shield Plan, for those preferring to stay in Class B1 wards in public hospitals.
The graphic below illustrates the differences between MediShield Life and IPs.
Premiums for both MediShield Life and private IPs can be paid for using your Medisave Account. While the premiums for MediShield Life can be fully paid for with Medisave, there are annual withdrawal limits that will apply to the IP top-up portion. Do note that the IP complements the coverage provided by MediShield Life, rather than to duplicate it.
Before deciding if you want to spend more on an IP, you should first understand what MediShield Life is about. You can find out more in this article from the CPF website.
Consider long-term affordability
Last but not least, health insurance should be seen as a long-term cost commitment for fresh graduates. Being young, you could be buying a policy that stretches beyond 30 years. Hence, long-term affordability should be a priority.
Do not just look at whether you can afford a policy today. Rather, consider the cost of premiums you will be paying over the next 30 years, or whatever the length of the policy may be.
For example, you could think paying $150 each month for an early critical illness policy sounds reasonable, until you consider the fact that this amounts to $54,000 over the next 30 years.
For some policies such as private Integrated Shield Plans, premiums also increase as we get older.
Know the health insurance policies that you need today
To sum it up, fresh graduates should remember that they already have basic insurance coverage provided through MediShield Life, which covers a large chunk of expenses incurred in Class B2/C wards in public hospitals. Additional coverage for Class A/B1 wards or private hospitals can be purchased via a private Integrated Shield Plan, and paid for either fully or partially using Medisave.
For added coverage, you can also consider buying other types of health insurance policies such as a critical illness plan or disability income insurance. For younger people, the premiums for these policies tend to be cheaper compared to buying the same policies when you are older.
Just remember that like most things in life, the amount you spend on health insurance should be within an allocated budget that you set. So decide on what is most important for you, and buy what you truly need.
This article was written in collaboration with the CPF Board. All views expressed in the article are the independent opinions of DollarsandSense.sg.
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