Micro insurance allows you to get coverage for literal cents. But do these three new pay-as-you-go plans make cents for you?
Insurance is a funny thing: you don’t need it, until you do. Contradictory, we know, but this is also why some of us struggle with the idea of paying good money for something you or your family may one day need.
Plus, insurance policies are very specific by design (necessarily so, or the industry couldn’t function properly), which is a major factor in the complaints we’ve all heard about how difficult it is to claim your benefits.
Is there a way to have your cake and eat it too?
We think so, or at least that’s what these three new insurance products with a pay-as-you-go model seem to be offering. Let’s dive in for a closer look.
Pay-as-you-go, the new wave of insurance
To be certain, the pay-as-you-go model of insurance isn’t completely new. Single-trip travel insurance is a common and popular example.
What’s interesting is how this model is being adopted for existing insurance types, creating new options for consumers and perhaps increasing the take-up rate of such products among users.
How do these new-wave insurance products differ from traditional plans? The table below highlights some key differences:
|Pay-as-you-go insurance||Traditional insurance|
|Premiums||Low (can cost as little as 30 cents)||High in comparison, as you’re paying for a period of coverage at a go|
|Commitment||Low, stop anytime you want||Depends on policy type, some carry penalties for early surrender, others require up-front payment|
|Coverage||Narrow, specific to event||Broad, can build up all-round cover across many events|
|Benefit level||Depends, may need time to accumulate, tagged to your finances, or fixed at a particular level||Adjustable, as long as you can afford the premiums|
To gain a better understanding of how pay-as-you-go insurance actually works, let’s examine three such new products.
#1 Singlife account: Your savings as your life policy
When you have a limited budget, one very real struggle is deciding whether to build savings, or to purchase insurance.
Well, Singlife aims to let you do both.
With a Singlife Account – described as an insurance savings plan – you can deposit and withdraw your money with no lock-in nor fees, and earn up to 2% per annum interest.
You’ll also be covered against death and terminal illness, with the value of your coverage equivalent to the 105% of the balance in your Singlife Account at the time of the claim.
In other words, the more money you have in your Singlife Account, the higher the value of your life policy. Conversely, the less money you have, the lower your life policy’s value.
One other thing: you’ll only earn 2% per annum on the first $10,000, 1% for the next $90,000, and no interest beyond that. But by then, you’ll have attained a decent level of life insurance coverage.
Singlife account vs traditional life policy
In a traditional life policy, you pay a premium in exchange for an agreed level of protection. When a claim is made, the payout remains the same, no matter if you’ve been paying premiums for five months or fifty years.
For a Singlife Account, unless you’re starting with a large chunk of cash, you’ll likely need a period of time to catch up to the level of benefits offered by a traditional policy.
However, you do not have to pay any insurance costs, and you’re free to make withdrawals to meet other financial needs (although doing so will lower your coverage).
Singlife account: Yay or Nay?
|Fulfills savings and protection at the same time||You may not have sufficient coverage at the beginning, and may take a long time to build up to adequate levels|
|Higher interest than bank savings accounts||2% per annum interest only on the first $10,000, then drops to 1% for the next $90,000, and 0% beyond that|
|Flexibility to make deposits or withdrawals with no lock-in and no fees||Withdrawals reduce your coverage|
|No need to pay insurance costs, yet can enjoy protection|
#2 SNACK by Income: Accumulate coverage through daily activities
SNACK is a series of micro-insurance policies that accumulate over time.
How it works is you can set certain transactions to include a premium payment, which will buy you a policy that covers you for 360 days.
With premiums starting from $0.30, each policy grants you a small amount of coverage, typically a few hundred bucks worth. The idea is for you to build up your coverage over time by buying multiple micro policies in a row.
At present, SNACK offers three different types of policies: life, critical illness and personal accident.
If you think about it, this model simply splits the cost of, say, a monthly premium, over 30 days. In some instances, you may even end up paying more.
However, you are also free to pay for the level of insurance you want, and can also set a daily limit for premiums.
SNACK vs traditional policies
The question here really is about whether you’re getting value for money when you purchase multiple micro policies, versus paying upfront for one.
To find out, you can sign up for a SNACK account to browse the available premiums and coverage, do a quick calculation, then compare against traditional policies.
Here are the results of a comparison I did.
|SNACK||FWD Term Life|
Assuming 1 policy per day for 1 year:
Total premium paid: $255.50
Accumulated coverage: $171,360 (360 days)
Another major point to consider is that because SNACK micro-policies only last for 360 days each, there’s an upper limit to how much insurance coverage you can get. So, if you require coverage that’s beyond this limit, SNACK may not be able to fulfill your needs.
Thirdly, the way SNACK works is somewhat quirky. You can choose from a variety of transactions to trigger the purchase of a micro policy, but these transactions range from daily ones such as food orders, to monthly expenses such as paying your utilities bills.
However, the premium and policy coverage do not scale up. They remain the same whether you’re choosing a daily expense or a monthly one.
Overall, it is undeniable that the SNACK micro-insurance model grants a level of flexibility not found in traditional policies, allowing you to adjust your protection across life, accident and critical illness as you see fit.
However, inexperienced users may flounder in determining an appropriate level of protection.
SNACK by Income: Yay or Nay?
|Easy to purchase insurance without having to think too much about it||Upper limit to how much coverage you can purchase|
|Flexibly control how much insurance coverage to get, and for how long||May not know the appropriate level of coverage to purchase, hence risk of buying too much or too little|
|You may not get the best value for money|
#3 Grab Travel Cover: Gain accident cover on Grab rides
Grab Travel Cover is a newly launched micro-insurance scheme for Grab riders. Pay an extra $0.30 per trip and you’ll gain personal accident cover of $100,000. If any of your family members are riding with you, they’ll also be covered.
Sounds sweet and simple, right?
Well, the catch is, the benefit only pays out in the event of death or total and permanent disability arising from a traffic accident while taking a Grab ride (not including GrabShare. GrabHitch and GrabCoach).
And, hospitalisation costs and medical treatment fees are not covered, which means if you survive without serious injuries or losing so much as a finger, you won’t be compensated.
Grab Travel Cover vs Traditional policies
Typically, personal accident policies also pay out only upon death or total and permanent disability, so Grab Travel Cover isn’t necessarily inferior in this aspect.
However, Grab’s policy only covers you when you’re utilising the service, and nothing beyond. (We imagine that if a vehicle plows into you after you alight from your Grab ride, the payout won’t exactly be happening.)
In comparison, personal accident plans cover you as long as your injuries were accidental, which makes them more useful across a wider range of situations.
Also, the payout for Grab’s Travel Cover is capped at $100,000. While by no means a minor amount, your personal circumstances may warrant a higher level of protection. A traditional personal accident plan will allow you to choose a more appropriate payout.
Regardless, Grab Travel Cover offers a quick and easy way to get some insurance protection which, should the worst happen, you’d much rather have than not.
Even if you already have your own personal accident plan, leaving an extra $100,000 to your loved ones isn’t necessarily a bad thing.
Grab Travel Cover: Yay or Nay?
|Quick and fuss-free way for Grab riders to gain some protection.||Only useful if you mainly commute via Grab.|
|Premiums are cheap enough to be a no-brainer.||Death and total permanent benefit may not be sufficient for some.|
|Can boost financial compensation to loved ones in case of a serious accident.|
Protected up to specified limits by SDIC.
Note: This is only product information provided. You may wish to seek advice from a qualified adviser before buying the product. If you choose not to seek advice from a qualified adviser, you should consider whether the product is suitable for you. Buying an insurance product that are not suitable for you may impact your ability to finance your future healthcare needs.
If you decide that the policy is not suitable after purchasing the policy, you may terminate the policy in accordance with the free-look provision, if any, and the insurer may recover from you any expense incurred by the insurer in underwriting the policy.
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Personal Accident Insurance: What Does It Cover and Should You Buy One?
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By Alevin Chan
An ex-Financial Planner with a curiosity about what makes people tick, Alevin’s mission is to help readers understand the psychology of money. He’s also on an ongoing quest to optimise happiness and enjoyment in his life.