Insurance & Costs of having and raising a child

[egghead]

Hi,

Is it a good idea to move many of these discussion points to a new thread for "Insurance"?

[Musicwhiz]

Hi,

Is it a good idea to move many of these discussion points to a new thread for "Insurance"?

Yeah, well I'd thought of that, but then again the discussion is quite intertwined with the cost of having a child, so I think I will leave the thread as it is (since it's a sticky thread anyway).

[MrValue]

MW, why don't u rename the title of the tread to say insurance & cost of having a child ..

[brattzz]

waos... :O

this thread just made me dig out my insurance files, that i have like 4 whole life policies..... :O, NTUC/SAF/GEs..
i think i'll keep my whole life policies, as i'm not so sure that i can consistently manage >3% returns on my other investments! :O
at least not for now!

[d.o.g.]

i think i'll keep my whole life policies, as i'm not so sure that i can consistently manage >3% returns on my other investments!

If you use dollar cost averaging to invest in a low-cost index fund, the odds are quite good that you will do better than 3% per year on a compounded basis over the long term. In fact since the insurer is investing essentially in the index (because of the huge sums of money involved) the insurer is likely to lag the index due to costs. So you will probably beat the insurer.

The insurer's all-in costs are about 2% per year. An index fund will cost 0.5% or less. So you have a 1.5% advantage per year, every year. Over time it is a big difference. And even if you actually do no better than the insurer, you have vastly improved liquidity and can add/subtract to your investments and insurance coverage independently.

Since your whole life plans already require regular premium payments, it is no hardship to replace them with term policies and direct the difference in premiums into the index fund(s). Almost all funds offer regular subscription plans where you add a fixed dollar amount monthly.

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Anybody considering SAF term insurance and disability income insurance?

I took a brief look at the SAF disability income policy. Basically it's a repackaged Aviva policy.

Good:

3% escalating benefit protects against inflation
sum assured can be adjusted as salary changes, subject to underwriting
proportionate payout compensates for reduction in income
also open to SAF regulars (hazardous occupation!)

Bad:

Limited to SAF regulars, MINDEF staff, NSmen, and spouses
Maximum cap of $100k per year
Only available as a rider on the SAF group term life policy
Payout is only 50% of basic salary (includes variable and non-pensiomable components)
Waiting period is 6 months
Payout stops at age 55
No participating in sports or competitive racing of any kind other than on foot

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So note that the income replacement is very limited at 50%. Also if your income is high the annual cap will be a problem. If your income is derived mainly from bonus or commission, the income replacement will also be very low. And your sports must be on foot i.e. walk, run, tennis, squash etc. No cycling, rollerblading and so on. Does swimming count as being "on foot"?

The 6-month waiting period and age 55 expiry are annoying, but these are smaller issues.

Disclaimer: I am not licensed to sell insurance or offer financial planning advice. Read and use at your own peril.

[pianist]

what exactly is a low-cost index fund? it sounds so general..is the streets STI ETF considered an index fund?
i have stopped investing in nor have exposure with funds for more than 10 years already..so used to involving with stocks for the last 10 years..
i agree on the dollar cost averaging as it served me well through the recent crisis as i applied it on stocks instead of index fund

[brattzz]

OK, here's one of my WL policy

Entered in 2009,

Scheme : GE Whole Life - 26 yrs Flexilife 60 (CB)
Pay for 26 yrs, cover for life

1) Sum Assured : $100K / Premium : $2,589 annual - Cost of Insurance : $1 paid to $39 coverage
2) 30 Critical illness : $100K / Premium : $809 annual - Cost of Insurance : $1 paid to $123 coverage

Add in riders:
3) Accident Coverage : Upt to $120K / Premium : $180 annual - Cost of Insurance : $1 paid to $666 coverage

Item 1 & 2 looks like i totally over paid... :O

gosh...

For example:

DPS - Cover death and TPD
1) Sum assured : $53K / Preimum : $46 annual!! Cost of Insurance : $1 to $1152!!!

my goodness!! :O

Is this the correct way to see this?

From the sgfunds portal, suggested Insurance Purpose & Type, According to priority,

1) Medical Reinbursement - Hospitalisation & Surgery
2) Disability Income (Income Protector) & Partial Disability Income (Parital Income Protector)
4) Death
5) Critical Illness
6) TPD
7) Personal Accident

[yeokiwi]

NTUC iterm for 100k for a 30 yrs old male for 20 years is about $128 per year.
If you take up the iterm plan, you have $2461 per year for any kind of investment.

Brattz, it it time to take out the calculator to do some punchings. :O

[mikh]

While you guys are examing your insurance options, I would suggest that you look at some of their fine print such as exclusion clauses and really what are you being insured for. Am not sure all insurance policies are equal. For instance, many people are un-aware that most insurance policies DO NOT cover for mental illness and hospitalization, medication etc; and that probably extends to employment insurance as well (especially Asian employers). Even medisafe has only recently made some initial steps to allow some withdrawal for it. Yet, this could be one of the most expensive illness (over the long term) that one might encounter, or leave the family to cope with.

Insurance is probably another area (like banks and all those contracts) where there seems quite a bit of fine print. There may be other interesting clauses as well. Its a lot to go thru, but do you want to rely solely on your insurance advisor or financial planner? His word is not on the dotted line, and its not very useful to claim in court that he told you this or that but its not on print and backed by the insuring company. Plus, that could be decades later after the agent has disappeared for some expensive holiday in Antartica.

I am not in the insurance industry so more true-ly knowledgeable agents can add to the discussion. I used to be in healthcare. Many in society under-estimate this disability - probably because of the stigma, or think it only affects others and just forget about it. However, as Singapore becomes more and more a knowledge economy, mental welfare becomes more important. I don't mean to "curse" anyone, but imo mental illness is the one disease that you just hope nobody you know gets affiliated with.

edit: coincidentally today, a Dr Tay YG just had his letter to ST forum published citing lack of cover for autistic children (including non-autistic related areas) - "standard industry policy".

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Hi Pianist, there are quite a number of people who think that dollar cost averaging (down) for stocks could be throwing money after bad causes. I supppose you were refering to really good blue chips which are sure to bounce back

[egghead]

Hi,

Since we are talking about buying term and invest the rest (can be done using low cost index fund as per d.o.g.), perhaps we can start a forum or thread on ETF?

There was a recent article in The Straits Time (by Goh EY) that cautioned against blindingly buying into any ETF and I thought that was useful. I check the street track STI ETF and find that the fund size seems small (only 69 million now base on latest daily update). Furthermore, it looks like for FY Jun-2010, there is much more redemption (222,000,000 units) than subscription (30,500,000 units).

I have some question on ETF:
Does street track act as the market maker? Or the trading of units is just like normal share which are traded between investors?
Does it mean that for FY Jun-2010, there were 222 million units bought and 30.5 million units sold by street track?