Wednesday, November 27, 2013

Health Insurance



Since I've already covered general insurance (motor, home, mortgage, travel), I'm now going to dive deeper into the harder topics.

After general insurance, the 2 big groups of remaining insurance are Health and Life. I'll be covering an overview of the different types of health insurance, before I drill down into the specifics.

The 5 main types of health insurance are:

  1. Medical Expense
  2. Hospitalization Income
  3. Critical Illness
  4. Disability Income
  5. Long Term Care
Medical Expense Insurance

Medical expense insurance covers the costs of medical expenses in the event of an accident or illness. This is different from healthcare packages which cover the costs of routine check-ups or miscellaneous visits for minor illnesses. Therefore this insurance is not meant to reduce your overall forecasted medical expenses. It is meant to cover all related costs of an accident or illness.

In Singapore, this group of medical expense insurance are known as Shield plans.

Hospitalization Income Insurance

In the event of being hospitalized, you will obviously not be able to work. As such, this insurance will provide income to offset the loss of income by you not being able to work.

This insurance is not meant for people to profit from being hospitalized, but rather to ensure that a hospitalization does not affect financial obligations that working adults have, such as loan repayments or even ironically, insurance premiums.

Many of the Shield plans offer an add-on in the form of a daily cash rider, which is essentially hospitalization income insurance.

Critical Illness

Critical illness insurance will pay out a lump sum when you are diagnosed with a critical illness.

Depending on your plan, it may cover or exclude certain stages and certain illnesses, or the pay out maybe vary across stages and illnesses.

Critical illness insurance can be found either as a stand-alone product, baked-in or offered as an add-on in Shield plans and even life insurance.

Disability Income

In the event that you become disabled (subject to strict tests and criteria), this insurance will pay you monthly until the end of the policy term, or until retirement age, depending on your policy. It is meant to be an imperfect replacement of your previous working income.

Should the disability becomes less severe and allows for work, the claims will either stop, or be paid in a reduced amount, depending on the type of job and the terms of the policy.

Long Term Care

Long term care insurance helps cover the costs of living in old age when ability to look after oneself becomes greatly diminished (again, subject to strict tests and criteria). They payouts may be for a fixed period, or indefinitely until death.

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In Singapore, due to the forced national savings scheme, a portion of the monthly salary goes into a personal medical fund, Medisave. For working adults under 35 years old, it would be 6% of your salary. Since savings are forced into this account, and you are unable to draw the money for any other purpose, it ensures that every working Singaporean has some amount of money tucked away for medical purposes.

This personal medical account just accumulates money over the years as you work. In the event of an accident or illness, you are able to pay medical expenses up to a certain yearly limit. Alternatively, it is allowed and also recommended to use the money in this account to purchase medical insurance. The only approved health insurances are the Shield plans and Long Term Care insurance.

Therefore, since the money in Medisave cannot be used to any other purposes other than medical expenses, I think that every one ought to use the money that they have accumulated in their account to pay for at least a Shield plan of their choice. This will actually free up the amount of monthly disposable income, since insurance premiums will be paid from your Medisave account instead of your take home salary.

I will be covering my personal views on each of the health insurances in my next insurance-related post!

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