Thursday, March 6, 2014

MEGA MONSTER INSURANCE POST


Hi all, I have talked about insurance a couple of times before, and here are some links to older posts that I've written:
I have to extract, quote and highlight something that David Merkel said in his Aleph Blog, which I think is my fundamental and guiding principle of insurance so far:
Insure yourself for 20-30 years, and over that time, build your assets so that at the end of the life insurance policy, your heirs will not need the insurance.  And neither will you, should you survive.  That is what has happened to me.  I have no life insurance — instead, I have assets.
 So, what spurred me on to write this post is that I just received a mailer in the mail today from Aviva, re-inviting me back to join the SAF Group Term Life (GTL) Insurance. I was part of this insurance plan back during my NSF days, but I decided to terminate my policy after I left the service and began my studies in the university. At the point of time in my life, I was convinced that only fools would buy term insurance because you would get nothing back in the end. Boy, was I ever so wrong!


The current carrot that they are dangling in front of me is the medical re-examination waiver and 2 months of free coverage. Personally, I like the waiver of the medical examination. Ain't nobody got time to run around and do a medical examination! The 2 months of free coverage isn't too shabby either. From what I understand, the SAF GTL Insurance usually give cash rebates on good years that amount to roughly 2 months odd of coverage as well.

It is just a simple, no-frills, term life insurance, and I think that is what is it's appeal to me. Not only is it cheap and easy to understand, benefits are given as a form of cash rebates which can be instantly enjoyed. You don't have to worry about years of commitment to pay the premiums. They are affordable or cancelled in the worst case scenario. You can always request to reapply for this insurance again before 55. The best thing that I feel about this insurance which is actually counter-intuitive is the fact that you can cease coverage any time you feel like it. And this could be when you have amassed enough wealth in assets, removed any outstanding debts and your dependents have grown independent enough not to solely rely on you financially. Of course, they also extend to you the option to keep the policy up to 65, and to keep a "lite" version until 70. After which, you will no longer have any life insurance. You probably won't need it by then though, I'm pretty sure.

On top of the benefits of the SAF GTL Insurance policy itself (there are bits and pieces of other benefits as well, you can read that up in the brochure), having this policy also allows the policy holders to be eligible for a host of other different group-based insurances as well:
Identifying the amount to be covered by life insurance is not too hard math I feel:

Total present value of outstanding debt 
+ money to support dependents until they are independent 
+ funeral expenses 
= Total Sum Assured

I'm sure some people will argue with my rationale, but I strongly view insurance as a form of protection, not an opportunity to be profitable (because you're dead anyway. however, very selfless people could explore the profitability of insurance).

The tougher parts comes in evaluating the sum assured for the other types of health insurance.

Let's start with Critical Illness (CI) and Early CI. For reference and supreme tie-breaking information, please refer to the Life Insurance Association of Singapore for the Standard Critical Illness Definitions.

Since I have no idea about how much the sum assured should be, of course I turned to google to give me some information about it. Here are what I found:
  •  Forum discussing about both CI and Early CI. A poster personally recommends between $50,000 to $100,000 coverage to cover expenses incurred other than medical expenses (which should be covered by your hospitalization shield plan)
My personal conclusion is as such: The Living Care Plus (Early CI) insurance offered by Aviva is definitely a value for money option because it is only 0.12% annually and slowly increases up to 0.4% annually, but gives you Early CI coverage until 55. This means until 55, you will be paying a decent amount for the protection, and you still have the option of continuing Early CI protection until age 65 (premiums run up to 0.7% and 1% of the sum assured annually over the next 5 and 5 years). However, considering the fact that I have such a horrid family medical history, I think this type of insurance is necessary, as well as value for money in terms of premiums and coverage given.

Living Care (Critical Illness) itself is a bargain until 45, likely due to the fact that incidents below that age are very unlikely. However, given my family history, I am again obliged to undertake this insurance.

Perhaps the easiest of the lot to size up is the Personal Accident insurance. Basically, this insurance gives you the option to ramp and juice up your existing SAF GTL for accident related deaths or disability up to an additional $300,000. I would say that the premiums is very low and competitive when compared to the extra Sum Assured. I know this because I did some research regarding our corporate insurance to insure some employees against personal accident in the workplace. Considering that I do already have PA insurance, this option is not too enticing for me. However, for people who live more dangerous lifestyles and are without any PA insurance, I would opine that this is a VERY value for money option for PA coverage. $50 in annual premiums for $100,000 coverage is 25% cheaper than the NTUC Personal Accident Insurance plan optional policy enhancements, along with ability to claim for partial disabilities.

The hardest policy to actually size up has been the Disability Income Insurance. Let's be frank, it is cheap and the reason why is because of how improbable it is. The policy will payout if you unable to continue working in your own profession, which is much more relaxed terms compared to the other disability policies. In all honest, this actually is the ideal sort of protection you would want if you want coverage during your working years (which is actually what it is supposed to be for), so that it does not affect your income if you are disabled. For $200 a year, you can get $30,000 salary covered by this scheme until 29. However, I feel that this insurance is for people that cannot afford to lose their jobs, and their profession is greatly linked towards mobility and manual work.

In the market, there are other similar insurances, however they are mostly geared towards disability income in old age, to provide for yourself and cover expenses. NTUC PrimeShield works exactly likes the CPF Eldershield, with the exception that higher premiums paid on entry will ensure a lifetime of monthly payouts, instead of a limit of 6 years. Aviva MyCare is similar too, except that coverage is for life as long as premiums are paid, and there is also a limited term pay option. This actually seems like the best plan, due to the limited pay option. However, Aviva MyCare Plus and GE LifeSecure has a minor trump card, which is only 2 of the 6 disability tests has to be failed to claim disability. MyCare Plus unfortunately is a lifetime premium payment option. The plus side of the GE LifeSecure is that you can start coverage very early, but it doesn't affect when your premium payment ends. It either ends at 80 years with lifetime coverage, or it ends at 80 or 65 unless you claim disability before that. The LifeSecure plan seems to be only worthwhile if you plan to get disabled rather early on in life, hur hur. After more evaluation, I think that in this kind of situation, my effort is better spent on amassing income generating assets than to bank on this insurance, since the odds here are quite against me.

Finally, I'm done with the SAF GTL related insurances, and the final one that I have on my plate to cover today is hospitalization shield plans. As in my previous link, MOH has a table with offers good comparisons between the different private shield plan providers here. After a bit of nosing around, I have come to the conclusion that I would like to be warded in a Class A ward because I would rather be alone in the hospital, but I don't need private hospital coverage either. This is the table of comparison for all the Class A ward plans.

After looking through and comparing them, essentially ALL of them have additional riders that can completely take care of any deductible there is, with NTUC as the exception. Instead, they have a maximum deductible that can be paid if the rider is taken up, which caps expenses to the type of plan. For the Class A ward plan by NTUC, that means maximum out of pocket payment is restricted to $3,500. In the near term, NTUC definitely makes the most sense, because total expenses paid towards insurance premiums will be the lowest. However, in the future, it may be more cost effective to switch to another integrated shield plan that covers the deductible, or with other less mainstream perks and benefits, such as child insurance. For now though, NTUC looks like a good choice.

WOW, phew, that was a helluva long post. So let me just wrap up for myself so that I know how I should follow up.
  • Apply for the SAF term life insurance
  • Get the CI insurance
  • Get the Early CI insurance
  • KIV the PA insurance
  • Don't bother with disability income
  • Switch shield plan to under my name
  • Make a Will and Lasting Power of Attorney
What a morbid post, but I honestly feel like a lot has been lifted off my chest and out of my mind, now that I vomitted out a whole chunk of information that has been just swirling around my head for the past few weeks. Anyway, that is my insurance plan now for this point of my life for now, unless something mind blowing alters my reality within the next year weeks!

My brain needs a break from all this real life serious stuff. I'm going to read ZeroHedge now and get my daily dose of comedy from their market commentary, haha! Ciao! Best of luck with your insurance decisions!

2 comments:

  1. I'm afraid that I can't agree with your assessment and conclusion of Disability Income insurance.

    1. DI pays for instances when you cannot work in YOUR OWN profession:
    "Disability means such a state of incapacity that the insured person is (i) totally unable, by reason of illness or accident, to follow his own occupation for twenty-four (24) months and thereafter any other occupation to which he is suited by reason of training, education or experience; and (ii) not following any occupation."
    This is much easier to meet than either the x of 6 disability tests, or TPD definition.

    2. It pays for disability from illness OR injury. The criteria is that you cannot perform work in your own profession.

    3. For employees, their most important income-generating asset to protect is their future lifetime employment income stream. DI replaces this income stream from employment so that you receive an income to simulate your employment for your working life (in this case 50% of income to 55). Thus it is not just mobility based or manual workers who would benefit from it.

    4. There is also a partial proportionate income replacement benefit if you resume work but at a lower income.

    To summarise, for employees who are dependent on their employment income, this is one of the most important (and undersold) insurance covers needed for income replacement - for themselves as well as their dependents.

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    Replies
    1. Hi Contrarian,

      Thanks for your reply and thoughts.

      You are right, I misunderstood the conditions to claim DI with the SAF insurance. Thanks for pointing that out for me, I have made amendments.

      Any employee would benefit from this insurance, but I think that those whose jobs are mobility based or manual workers would benefit from DI the most because their jobs require from them physical attributes. Disability from injury or illness usually affects physical health and not cognitive abilities, so this insurance would suit their need for protection more than other types of workers.

      I think evaluating individual situation, such as line of work, risk of lifestyle and work, other existing insurance and dependents would guide people if they really require this insurance, and for how long.

      MH

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