Written by Dave Tung | 09 May 2019 |
With so many different types of insurance plans available in the market, it can be intimidating to start thinking about which ones are suitable for you.
Of course, getting sufficient insurance coverage is important but without doing your own research or having a trusted financial adviser, you also risk spending too much money on the wrong policies.
So which types of insurance policies are essential? Here we outline four types of insurance all working Singaporeans should have.
Give your loved ones financial security by purchasing life insurance. Life insurance policies provide a payout to your beneficiaries in the event of your death or total permanent disability.
If you have dependents, the payout from life insurance can cover their finances for day-to-day living, take care of any of your outstanding financial obligations, and ensure that they are not in dire financial straits after you’re gone.
As such, having life insurance coverage is crucial if you have children who depend on you, a non-working spouse, or if you’re caring for your ageing parents.
Even if you’re without dependents, the proceeds from a life insurance policy can be used to pay off your final expenses and debts, or leave a legacy for other individuals or organizations named in your will.
There are two types of life insurance policies you can choose from.
For insurance coverage that spans your entire lifetime, you can opt for a whole life plan. A whole life plan typically will cover you from the time of purchase to age 99. As a whole life plan covers your lifetime, you don’t have to think about renewing it once you’ve bought it.
There are also some plans that offer a limited premium term. This means that you could be paying premiums for say ten or fifteen years but enjoy the insurance coverage for your lifetime. This could be ideal if you wish to take advantage of your high-income years and “front load” your insurance premiums during this time.
On top of offering insurance protection, a whole life plan also has a savings element which means that your policy will build up a cash value over time. This means that the benefit associated with your policy could be higher than the sum assured, leaving even more behind for your loved ones after your death.
For a life insurance policy that provides pure insurance protection, a term life policy is your best bet.
Unlike a whole life plan, term life does not have a savings component and does not build up cash value. Your premiums go directly towards paying for insurance coverage. As such, the premiums for term life are usually more affordable than that for a whole life plan.
A term life policy is valid for the specified term and will need to be renewed thereafter. Some term life policies offer guaranteed renewability upon the end of the term, so you may not need to worry about your insurability even as you age.
If you’re looking for a high sum assured at a wallet-friendly price, then you should consider a term life plan.
Not sure how much life insurance coverage you need? See our guide on how to calculate your life insurance needs to learn more.
If you or a loved one has been ill and needed to be hospitalised, you already know that hospitalisation and medical costs can pile up very quickly.
Health insurance is intended to alleviate the financial burdens associated with in-patient medical care, hospital stays, and selected out-patient care by reimbursing medical costs incurred.
Instead of being responsible for the full costs, with health insurance you’re only liable for any deductible and co-insurance amounts listed in your policy. The rest will be paid for by your insurance company.
Thanks to MediShield Life, Singapore citizens and permanent residents (PRs) have a minimal level of health insurance already in place, regardless of their age or health conditions. MediShield Life offers limited coverage for stays in public hospitals in B2/C-type wards.
As MediShield Life offers only a basic level of coverage, you may want to consider increasing your health insurance coverage by purchasing an Integrated Shield Plan from a private insurer. This ensures that your hospital stays and treatment in wards over the B2/C wards will be covered by your insurance, eliminating the need to pay the excess costs out of your own pocket.
How does it work? An Integrated Shield Plan will act like an add-on to your MediShield Life plan. It will give you higher coverage limits and open access to treatment from a broader range of doctors and hospitals.
Because it integrates with MediShield Life, you do not get duplicate coverage nor are you paying double premiums. Most Integrated Shield Plans are based on the level of coverage you desire. You can find a comparison of the available plans here.
MediShield Life premiums are paid for from your MediSave account. Similarly, the premiums for an Integrated Shield Plan can also be deducted from your MediSave, to a certain limit depending on your age. Any costs over the withdrawal limit will need to be paid for in cash.
Being critically ill can be debilitating, not just physically but financially as well.
Health insurance can cover some of the costs associated with medical treatment and hospitalisation due to a critical illness, but it may not be enough. And that’s where the need for critical illness insurance comes in.
With a critical illness plan, you receive a lump sum payout if you suffer from one of the listed critical illnesses. Most critical illness plans cover 37 common critical illnesses such as major cancers, heart attack, and kidney failure.
While health insurance works on a reimbursement basis and only covers medical costs incurred, the payout from a critical illness plan can cover any financial gaps related to your treatment and other non-medical costs. It can also be used to make up for any loss of income during your recovery period and provide you with the finances needed for daily living while you recuperate.
There are several types of critical illness insurance. The basic type usually provides coverage for the 37 common critical illnesses at the late stages of the illness.
Other variations on the market include coverage for early and/or intermediate stages of critical illnesses (ideal for situations when you detect the illness early) or multiple claim policies wherein your policy remains in force even after you’ve made a claim on it (this provides coverage for recurring critical illnesses or future incidences of another critical illness).
If you already have a life insurance policy, it’s often possible to add on a critical illness rider to your plan instead of buying a separate new policy. You may want to speak to your financial adviser or insurer to learn more about this option.
Learn more about critical illness insurance as we debunk top myths that Singaporeans believe about this type of insurance.
What happens if you suffer from a disability that keeps you, either temporarily or permanently, from working and earning an income? Disability income insurance is meant to ease your financial difficulties in this situation.
With disability income insurance, you are assured a stream of income from the policy during periods where you suffer from a disability and are unable to work. This money can help pay for your living expenses and even help support your family.
Depending on the plan and insurer, a disability income plan can provide coverage of up to 75% of your last drawn monthly salary. If your disability is temporary, the payout will cease when you recover.
Alternatively, if it’s a permanent disability, you will receive a monthly income stream according to the terms laid out in the policy.
The loss of income due to a disability can be a big financial blow but you can protect yourself against this with disability income insurance. While it may be most beneficial for those who are sole breadwinners, disability income insurance is suited for all working adults.
This type of insurance is often left out when people are considering their insurance needs, so it’s important to assess if this is something that can add to your future financial security.
While the above four types of insurance are important for working adults, there is no one correct formula for what insurance you should have.
The type and amount of coverage you need will be different from person to person. Before you commit to any insurance plan, do your research, seek professional help and assess if the plan you’re considering will add to your financial security in the long run.