Exactly how many policies are enough?
Every one of us has insurance. There are many who spend thousands each month on insurance for themselves and their families. By understanding how insurance policies work, you can not only save money on premiums, but pump the cash saved into other forms of savings and investment.
The treatment for a serious illness or an accident can run into hundreds of thousands of dollars. So, it is essential to be covered for hospitalisation expenses. Realising its importance, the government has worked with various insurance companies to provide affordable cover for everyone.
- Known as Shield plans, they provide comprehensive cover for hospitalisation. These policies are offered by major insurance companies like NTUC Income, Aviva, AIA, Great Eastern and Prudential. The claim limits can go as high as a million dollars, depending on the premiums paid.
- There is a Deductible fee of a flat $3,000 regardless of the size of the bill. Then there is a Co-Insurance payment of 10% of the amount remaining after accounting for the Deductible. The rest of the bill is covered by the Shield Plan.
|Total Bill||Deductible||Co-Insurance||Plan Pays||You pay|
|$100,000||$3,000||10% of $97,000
|$100,000 – $12,700
|$9,700 + $3,000
$12,700 is a lot of cash. Don’t worry. There are Riders you can take up that will offset these charges. You can choose a partial or full waiver of charges. Do note that your premiums will increase accordingly*.
*The government has recently announced changes to the Riders. It basically means there will no longer be 100% coverage. Patients will probably pay 5% of the total bill. However, these changes will only be finalised and effected in the second quarter of 2018.
- The premiums increase with age as you are covered for life. The premiums can be paid through your CPF account. But the premiums for the riders have to be paid in cash.
- You can choose from various options that allow you to choose if you want to stay in a private or public hospital. You can even choose to receive cash for your hospital stay. As always, each add-on comes with an increase in premium.
Personal Accident (PA) Policy
As the name indicates, it is for accidents of any kind. Motor accidents, sports injuries, slipping and falling at home are all covered. People who play sports or drive should have an accident plan. It is also useful for elderly folks who tend to have falls as they get weaker. When my son was three, he fell and broke his front tooth. And it was actually covered by his accident plan. So, I saved $2,000 in dental treatment as dental is not claimable under the Shield plan.
The most useful aspect of the accident plan is that it covers the bills that Shield plans do not cover. For instance, you might injure your ankle while playing football. You seek treatment from an orthopedic specialist but are not hospitalised. And the total bill comes up to $3,500 (including X-ray, MRI, physiotherapy and consultations). The whole bill can be claimed under your PA policy. PA Plans even offer cash for the number of days you are on medical leave.
Of course, the premiums will vary depending on the amount of coverage you opt for.
Critical Illness, Total and Permanent Disability (TPD) and Death
These policies cover major illnesses and conditions. There are a multitude of plans that mix and match benefits, so it can get a wee bit confusing. But these are the key features you need to bear in mind.
- These plans (usually called term plans) offer a high payout for relatively low premiums and usually pay out upon death.
- You DO NOT get any money back if you do not claim during the policy period^.
- You can add on Critical Illness cover to your term plans by adding a Rider. So, if you are diagnosed with a major illness, but survive, you get a payout. This coupled with the hospitalisation plan ensures you are able to cope with the high medical expenses.
- There are two types of term plans. The first offers decreasing payouts as you get older and closer to the end of the policy period. The other is a Level Term Plan that offers a fixed payout regardless of when you make a claim.
- You can take up Term plans based on a time period (10, 20, 30 years etc) or till a pre-determined age (up to 99 years old)
^There are term plans that offer a payout at the end of the policy period. But they come with high premiums and you are better off taking a Life Plan, which costs less and offers pretty similar payouts
Whole Life Plan
This plan makes sure your family gets a sum of money should anything happen to you. Say you are insured for $100,000. You pay a monthly premium for this policy. Should you pass away, your family gets the Sum Assured ($100,000) plus Bonuses. You can also get a Critical Illness Waiver that gives you a payout once you are diagnosed with a Critical illness. An added benefit is you can surrender your policy. So, if your kids are all grown up and don’t need to a cash injection, the lump sum can be used for expenses in your old age.
Insurance is geared more towards protection than savings. Do not buy insurance to save. The most important consideration is to ensure your family is covered in case anything happens to you. It also helps protect you against high medical bills should you or any of your family members have a major illness. You should take into account your liabilities like mortgage and living expenses when buying insurance. Increase the cover as your liabilities increase and vice versa. So, whenever something major happens, your family is always in a position to meet the sudden costs.
By Isaac Anil
Isaac thinks life is what happens in between football matches. He is a born again dog lover who thinks cats are overrated. Having tried his hand at multiple vocations, he holds the same opinion about hard work. Till he can figure a way to beat the system, he relies on whiskey to get by.