Insurance & Costs of having and raising a child

[pianist]

what about endowment plan that pays coupons on a biennal basis? are they useless as well?

[mrEngineer]

Now I am confused with term policy.

My impression is that term policy coverage can only last you till 65 years old (in general mentioned by all insurance agents that I met) and there are no term policy available in public for hospitalization & surgical except that you need to buy a life policy and add a rider to enjoy such policies.

I am confused with the notion that term policy is cheaper when you are young. To my knowledge, I thought that the premiums paid are adjusted every 5 or 10 years? Are there term policies you can purchased that fixed the premium for the numbers years u require the coverage?

I have not taken action either on the medishield for CPF as it confusing. I am aware that it is important to upgrade this portion to the maximum but there are various insurance companies offering different packages on this. Is there a general bottomline for this?

Lastly, I believe all the agents I have met have wasted my time by trying to sell me life policies. Where should I go to look for term policies? Should I go to the insurance company directly? Any recommedations from forumers? I heard that NTUC Income have some issues (delaying payment etc) with paying out the coverage and would like to seek opinion on this.

I think I will need to follow MW footstep to review my insurance policies. Although I am not married now and early days in my career, I think its better to put my mind aside on the insurance issues and focus on my career development, education and investments. This will be one item on my new year's resolution!

[Musicwhiz]

A letter from the Forum pages today.

Dec 11, 2010
HAVING A CHILD
It's a challenge to find quality time

I READ Madam Lee Meng Fern's letter ('The cost of having a child'; Thursday) with interest. While I agree with her that the monetary costs of having a child is substantial in Singapore, to me, the 'quality' cost of having a child surpasses everything else.

I have a four-year-old and I find it a daily challenge to spend quality time with him. I chose a maid over sending my son to a childcare centre not because of the cost savings but to lessen the stress of having to rush to and from the childcare centre, which is something I know I would have problems doing given my long working hours.

The consolation is that I am not alone in this. My girlfriends too find it a big challenge to juggle being a good employee, mother and wife. In fact, we hardly have time to ourselves and have to force ourselves to meet one another at least once every two months. Even this we cannot confirm because of our work commitments.

Although I am not able to have a second child due to health reasons, if I were able to, I would consider the option carefully. If I cannot devote enough of my time to my child, why do I want to bring him into this world?

If one were to observe the crowd when school ends every day, it is usually the maids or after-school care teachers who are there to fetch the children. Often, their education is left to tuition teachers, childcare centres or even to maids.

Given that time is such a precious commodity in Singapore, it is no wonder many couples choose to stay childless or stop at one. To those with three children or more, I salute you.

Cindy Tan (Ms)

[Bibi]

what about endowment plan that pays coupons on a biennal basis? are they useless as well?

Hi pianist, I am not an expert but my opinion is different plans will suit different types of pp. Endowment plans is for pp who wants diversification rather than putting all eggs into say shares investments. Those plans are also for pp who knows nothing about investments and not willing to take much risk.

I have come across a person who is in his last stage of cancer bought a single premium endowment for his child education. I would think this is a correct move he has made unless his wife is very good at investments too.

For MW case who is able to achieve returns better than inflation or 6% and more, then a life or endowment case is not suitable for him.

---

we have always been looking at insurance from ntuc, aia, ge, pru. There are companies like hsbc, aviva, Asia life, manulife selling insurance's well. Hsbc is one which offer level term fixed premium coverage even for a newborn from age 0 to 99. But as d.o.g mention, it doesn't make sense to buy term life coverage till age 99. So yes, there are term policies that fixed premium for the number of years you require coverage. Try hsbc. ntuc also have but max coverage is till 65 I think.

I would also advise that one should get a good medical plan one can afford. If a person have a medical history and would prefer not to declare his illness, then aviva will cover such group of pp provided they don't make any claims for the next 5 years once they bought aviva health plan. Of cos, this type of lax underwriting would also mean the premium is higher compared to other companies health plan. My wife has heart murmur and the agent suggest she get a aviva policy. One year later aviva increased premium by 10%. I am fed up and decide to terminate for her and switch to ge. She declare heart murmur and went for check up and ge accepted her under standard terms. I don't advise pp to keep switching health plans though.

My son contracted Kawasaki disease and I made a claim for him from ntuc. It took 3 months for them to process. Total claim amount to 4k. This is not a substantial amount to me, so I can wait. is 3 months waiting time considered long, I don't know. I have a friend whose claim submission has some problem but ntuc didn't bother to get back to him. Its only when my friend made a complaint then the claim start to move. I think ntuc is under staff.

Lastly, if you decide to purchase a long fixed premium term life policy, my advise is make sure that company still exist after that long period. Imagine aig drag down aia, I don't know what will happen to those policies bought from them. Will ge, ntuc, pro, hsbc or manlike be around for the next 100 years? I would think ge and ntuc have a higher chance unless spore is in deep trouble at that time.

Now I am confused with term policy.

My impression is that term policy coverage can only last you till 65 years old (in general mentioned by all insurance agents that I met) and there are no term policy available in public for hospitalization & surgical except that you need to buy a life policy and add a rider to enjoy such policies.

I am confused with the notion that term policy is cheaper when you are young. To my knowledge, I thought that the premiums paid are adjusted every 5 or 10 years? Are there term policies you can purchased that fixed the premium for the numbers years u require the coverage?

I have not taken action either on the medishield for CPF as it confusing. I am aware that it is important to upgrade this portion to the maximum but there are various insurance companies offering different packages on this. Is there a general bottomline for this?

Lastly, I believe all the agents I have met have wasted my time by trying to sell me life policies. Where should I go to look for term policies? Should I go to the insurance company directly? Any recommedations from forumers? I heard that NTUC Income have some issues (delaying payment etc) with paying out the coverage and would like to seek opinion on this.

I think I will need to follow MW footstep to review my insurance policies. Although I am not married now and early days in my career, I think its better to put my mind aside on the insurance issues and focus on my career development, education and investments. This will be one item on my new year's resolution!

[d.o.g.]

WARNING: LONG POST

Now I am confused with term policy.

My impression is that term policy coverage can only last you till 65 years old (in general mentioned by all insurance agents that I met) and there are no term policy available in public for hospitalization & surgical except that you need to buy a life policy and add a rider to enjoy such policies.

I am confused with the notion that term policy is cheaper when you are young. To my knowledge, I thought that the premiums paid are adjusted every 5 or 10 years? Are there term policies you can purchased that fixed the premium for the numbers years u require the coverage?

I have not taken action either on the medishield for CPF as it confusing. I am aware that it is important to upgrade this portion to the maximum but there are various insurance companies offering different packages on this. Is there a general bottomline for this?

There are a few basic types of insurance available to the consumer:

Life Insurance
Hospitalization & Surgical (H&S) Insurance
Disability Income
Critical Illness

1. Life insurance

This pays upon death or total permanent disability (TPD). It can be for a limited term i.e. 5, 10, 20 years etc, or it can be for the insured's lifetime (whole life).

Term insurance is very cheap because it only covers the actual risk of death/TPD. Since it is pure insurance, all the premium paid is an expense and cannot be recovered. It is very useful for paying off liabilities that have a reasonably clear expiry date e.g. children graduate from university (age 25), aged parents pass away (age 100) etc.

Another reason term insurance is so cheap is because it's a commodity - you are either dead or not dead (produce death certificate) and you are either TPD or not TPD (produce doctor's certificate). So the insurers cannot try to mislead you with smoke and mirrors or fancy names. Delaying payout will just hurt their own reputation and future business. So they are forced to compete on price, which is a great benefit to consumers.

Term policies are usually structured so that the payments are level during the life of the policy. However, since the age of the insured will affect the odds of death/TPD, the premiums will be calculated based on the aging of the insured during the policy. A term policy of any given duration will be more expensive for an older person than a younger one.

Whole life insurance essentially splits the premium paid into 2 portions: a small part actually pays for term life insurance (and is not recovered), while the bulk of the money is invested on your behalf by the insurer. Over time, the invested money grows, while the actual insurance coverage declines. The sum of the invested money and the remaining insurance coverage forms the "sum assured". This is not seen by the consumer - the internal offset is calculated by the insurer and only the sum assured is shown to the consumer. By the time the consumer is old e.g. age 65 there is actually little or no insurance coverage left, only the investment sum.

Endowment plans are dressed-up whole life plans where even less of the money pays for insurance. They are basically an investment product masquerading as insurance. Education plans are just endowment plans with a nice name.

Insurance-linked products (ILPs) are even more blatant investment products where as little as 1% of the money is actually used to buy insurance initially so the insurance cover is laughable, usually only 125% of the invested sum. Since your investment sum is already 100% of this amount you are only buying an additional 25% of insurance cover. More insidiously, as you get older the sum deducted for life insurance (mortality charges) goes up, so less and less of your money is invested. When you are very old the mortality charges increase exponentially and exceed your investment returns, so the total value of your investment will decline rapidly.

I have discussed term, whole life, endowment and ILP policies together because they offer varying combinations of insurance and investment. Unless you are totally incompetent at investing AND cannot find the discipline to invest in a low-cost index fund, the most sensible ratio is 100% insurance and zero investment i.e. completely separate insurance and investment.

2. Hospitalization & Surgical (H&S) Insurance

This pays hospital bills. Qualifying expenses are paid up to the limit specified in the policy. There is usually both an annual limit and a lifetime limit. Beyond these the consumer must pay, first out of Medisave and then out of pocket.

There are Shield-type plans offered by the local insurers that serve this function. The premiums can be paid out of Medisave. The limitations are that they all set a minimum bill size (excess) before the policy kicks in, and the qualifying amount is only partially reimbursed, usually 85%. So for small bills the consumer pays everything out of Medisave and his/her own pocket. Some insurers offer a rider, payable only by cash, that can pay the 15% co-payment, or cover the excess. Talk to an insurance broker if you are not clear.

There are also other non-Shield plans that do not require an excess and can pay 100% of the bill, but the premiums must be paid by cash.

H&S premiums go up as you get older to reflect the increased likelihood of hospitalization as well as the increased bill size. The Shield-type plans have lifetime coverage versions available. IMHO everyone should buy the most coverage they can afford, because (a) it's paid from Medisave which cannot otherwise be used, and (b) coverage can be reduced in future if premiums go up, but is almost impossible to increase if illnesses strike.

3. Disability Income

This pays when you are unable to work for any reason, or when you are disabled and can only earn a fraction of your former wages. The policy kicks in after a set period, usually 60 days, and pays a percentage, often 75%, of the difference between your new wage and your old one. It will pay until you are 65. So if you earn $3,000 at age 30 and are suddenly struck down and become a quadriplegic, after 60 days the policy will kick in and pay $2,250 per month until you are 65.

This type of policy is very useful because few people finish their working life without any type of extended absence from work. So if you get into a car accident and are out of work for 6 months, you only lose 2 months of income instead of 6. In the worst case when you become a vegetable, your policy will cover your long-term care until you are 65. It is also of the greatest value at the point when you need it most - at the start of your career when your only asset is your ability to work.

Policies differ by waiting period, percentage of reimbursement and last payment. Obviously the cheapest policies will have longer waiting periods e.g. 90 days, lower reimbursement e.g. 2/3 and earlier last payments e.g. age 50.

However, it is not easy to find a good disability income policy. Some of the insurers have revised their policies for the worse. So read the fine print carefully.

Some insurers offer a "hospital income" policy which pays you a set sum for each day you are in hospital. This is basically an inferior version of disability income, since it only pays when you are in hospital and not when you are at home recovering. The sums are typically about $100 per day which will not cover the hospital bill, and there is no payment when you are recovering at home. Use H&S to cover the hospital bill, and use disability income to replace lost income. A hospital income policy is basically a waste of money.

4. Critical Illness

This policy pays upon diagnosis of the onset of any one in a set list of 30 "dread diseases". The local insurers now use a common pool of definitions for the diseases, so it is no longer possible to shop around for the most lenient insurers. However, different insurers have different diseases in their set of 30 e.g. some may have lupus (for women) while others may not. Note that the required diagnosis can be very specific. If it says "2 or more artery blockages" and you get a heart attack involving 1 blocked artery, tough luck, there will be no payment. Once payment is made the policy expires. Some policies allow multiple claims, but this is obviously a marketing trick - you have already paid for the higher coverage in your premiums.

Since it is rare to get a dread disease without going to hospital, it is debatable whether critical illness coverage is truly useful. It CAN be useful for miscellaneous expenses like a wheelchair or a maid, but these can often be self-insured from savings. It may be OK to not have critical illness coverage. It is not OK to go without H&S coverage.

Critical illness policies come in both term, rider and whole life versions. The rider is basically an extra premium on top of an existing policy that gives the critical illness coverage. Again, if you decide to buy a critical illness plan, it is probably best to buy term. That way you get the most coverage for your dollar.

===
IMHO the order of priority for insurance expenses should be:

1. H&S
2. Disability income
3. Term life (if there are liabilties that need to be paid)
4. Critical illness (optional)

It may sound obvious, but people who do not have dependents should not buy ANY life insurance since nobody will be financially worse off if they die. Likewise there is no point buying life insurance on the life of a child, because the death of a child does not result in economic loss (emotional loss yes, but money can't make up for that).

Also, VERY IMPORTANT: make sure that whatever H&S and critical illness policies you buy are GUARANTEED RENEWABLE, not just renewable. The reason is that H&S policies that are merely renewable (not guaranteed) will obviously not be renewed once you make a claim i.e. your coverage is one-use only. The insurer may also decline to renew your critical illness coverage if you fall ill, even if you don't make a claim. Such "renewable" plans are MUCH cheaper and the agent may try to sell you one on the basis of affordability. DO NOT TAKE IT. Only buy GUARANTEED RENEWABLE plans.

Finally, remember that by law all regulated financial products in Singapore, including insurance, must come with a 14-day "free look" period during which you can cancel the purchase and get all your money back. No questions asked, 100% refund. So you can change your mind - but do it quick!

Lastly, I believe all the agents I have met have wasted my time by trying to sell me life policies. Where should I go to look for term policies? Should I go to the insurance company directly? Any recommedations from forumers?

I personally use an insurance broker. An insurance broker represents many different insurers so you can pick and choose the policy that best fits your needs. Because some insurers e.g. Great Eastern and AIA only use exclusive (tied) agents, you won't be able to buy their policies from an insurance broker. So you may need to talk to 3 people (one broker and 2 tied agents) if you want to get a complete overview.

If you are short of time then at least talk to the insurance broker. At the least, even if you can't get the best policies, you will avoid the worst policies.

[Bibi]

Hi d.o.g,
Is disability income really good? My agent actually recommend it but I decided not to buy it. Reasons being I can claim 75% for at most 2 years, after which if I can perform any "gainful" occupation, then I will no longer receive any payout. I ask him does gainful occupation means if I am on wheelchair and goes around selling tissue paper considered, he say yes.

[d.o.g.]

Is disability income really good? My agent actually recommend it but I decided not to buy it. Reasons being I can claim 75% for at most 2 years, after which if I can perform any "gainful" occupation, then I will no longer receive any payout. I ask him does gainful occupation means if I am on wheelchair and goes around selling tissue paper considered, he say yes.

As I mentioned, some of the insurers have changed their policies for the worse. If the payout is only for 2 years obviously it is a waste of time. And if the payout stops with ANY gainful occupation then of course it is a bad policy. If they exclude mental disability it is also a bad policy.

Look for a policy that pays for a LONG period of time, until you are 65, and look for a policy that pays the DIFFERENCE between your current income and your old income, so that if you end up earning $500 per month after the accident versus your old income of $3,000, the policy pays 75% of the $2,500 difference. Last time I looked was several years ago, and at that time you could get a policy paying 75% of the difference in income until age 65.

If such a policy cannot be found today, that means the insurers got smart and discontinued the policies, which means you must self-insure i.e. eat healthily, exercise often, look when crossing the road, avoid hazardous occupations etc.

[yeokiwi]

For disability insurance, I think there are only two companies that are selling this product.

Gelife - Paysecure
Aviva - IdealIncome

Since there are only two choices, it is a matter of asking the agents to give two quotations and T&Cs for comparison.

I am on Aviva idealincome and few years ago, I had attempted to change to gelife paysecure but did not do it due to much higher premium.
I remembered aviva clauses for payout exclusion were much stricter than gelife.

Unless your occupation is deemed to be hazardous, the premium should be rather affordable.
For a non-hazardous occupation, the premium is about $400-500 annually for a $3000 per month payout with a waiting period of 90 or 180 days till 60 years old.

The classification of hazardous jobs is rather interesting. Believe it or not, teaching is classified as higher risk job and requires higher premium for the same payout.
Probably, many teachers went mad because of incalcitrant students or high workloads.

[Bibi]

Thanks for the info.

[belgarathc]

Very informative thread.

Anybody considering SAF term insurance and disability income insurance?
http://www.aviva.com.sg/life-and-health/...nsmen.html

I am thinking of adding these two to my existing shield plan.