Insurance is important. What is more important is making sure you know the basics so that you can ask your financial advisor the right questions. DollarsAndSense.sg explains the fundamentals worth knowing.
The basic idea of insurance is to have everyone contribute an amount and to pool it together into some sort of piggy bank. The piggy bank will be used in the future to pay for the cost of taking care of any of the contributors when he or she falls ill, or gets injured, or whatever else it is designated for. That’s the simplest way of looking at insurance.
If you like to know what are the some of the “must-knows” of before buying any insurance, do read a previous article whereby we covered some of the key areas of insurances.
What are the Costs Involved?
The cost of an insurance policy is basically the amount you pay in return for the coverage you want, in the event of death, total permanent disability or whatever else you purchase the policy for. Some costs involved include the following.
Mortality Charges – Basically, this means how much are we expected to pay for $1,000 of coverage. A simple way to understand this is to ask how many people aged 30 and below are expected to die within a year?
If statistically, the answer is 1 in 1,000, for the age group, then the insurer would want to collect at least $1 for every 1000 clients so that they can pay out $1,000 in the event some one passes on.
For every insurance proposal, there should be a mortality table attached to the back of your policy, showing how much it cost to insure a male or a female, at the different age group.
Morbidity Charges – This is similar to Mortality, except Morbidity refers to Critical Illness.
“Additional” Charges – Policy fee, administrative charges, etc. These goes to the company’s operation costs.
Commission Charges – This may be a sensitive topic to some but there is really no need to beat around the bush. Insurance agents need to make a living, and cost of living in Singapore is not cheap. Good insurance agents should be compensated fairly for their quality service.
Some Insurance Worth Buying, in our Opinion
Term Insurance – Money spent on a Term policy provides for a whole lot more coverage than the same amount spent on a Whole Life Policy. That is because a Term policy does not consist of a “saving” element, as compared to a Whole Life Policy. If you have a limited budget, but require coverage, go for a Term policy
For Singaporean guys, Aviva has a tie up with SAF to offer group term insurance. Save some money, and just use that plan.
Mortgage Insurance – Get a mortgage insurance for your home. This is also known as decreasing term insurance, because the coverage decreases over time as your existing mortgage reduces.
Medishield Plans – If you are working, you should get a Medishield plan because it covers the cost of potentially high hospitalisation bills. If you’re newly wed and planning for kids, Aviva has a policy that covers the kids for free, if both parents are covered under Aviva. Not a bad deal in our opinion.
Remember if you are already insured under an existing shield plan, and are later diagnosed of a condition, DO NOT change your shield plan, because the new shield plan would NOT cover preexisting conditions.
Accident Plans – Outpatient claims, dengue fever, cuts n burns, even injury from riding motorcycle. These are under general insurance, and premiums are generally low.
Early Critical illness Plans – Can be a little expensive, but the advantages of these policies are that they pay out the coverage on diagnosis of stage 1 and above cancers. Traditionally, Critical Illness is defined as stage 3 and 4, when the illness is already in the advance stage and whereby recovery is less likely.
Annual Travel Insurances – Annual travel insurances are also worth considering if you are a frequent traveller. A rule of thumb is to ask if you spend more than 30 days a year outside of Singapore? If you do, just get an annual plan. Be sure to make sure that your company has not already covered you for business trips overseas or you would just be wasting your money otherwise.
Of course, our list is not extensive and there are much more policies out there which you may or may not need. Our advice is to never rush into buying an insurance policy since it is usually a long-term commitment.
Do you have a good or bad insurance experience? Do drop us your comment on our Facebook page as we love to hear from you.
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