Personal Financial Planning – Insurance

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Insurance is the most popular risk transfer method in risk management.

There are three levels of insurance protection.

The first is the social layer provided by national programs. It will be CPF insurance, such as DPS, HPS and Medishield. These are the most basic and affordable, as well as having the lowest premiums. The second is the group layer. This coverage is provided by employers, unions, or associations. They are also very affordable in terms of premiums. They do not cover employees who leave the company, and they have an age limit that can cause coverage to be reduced when it is needed most. The third layer is the individual one. To supplement the first two layers, this layer is purchased at the individual level from an insurer. This will increase the coverage’s scope and depth.

Insurance classes:- Life Insurance
– Investment-Linked Policy
– Health Insurance
Personal General Insurance

Life Insurance
There are three main types of traditional life insurance: endowments, whole life, and term. CPF’s Dependent Protection Scheme is the most basic policy. CPF OA can pay the premiums, which are among the lowest in Singapore. The only problem is that coverage can only be extended to up to $46,000 for those over 60. The Home Protection Scheme (HPS) is another decreasing term policy offered by CPF. CPF users are required to have mortgage insurance in order to buy their homes.

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Investment-Linked Policy
ILPs are generally yearly renewable term insurance that includes investment in unit trusts and additional charges. They are subject to different rules, don’t require trustees, and only funds within the insurer’s umbrella can be selected. The charges are transparent, which is a plus. They are however, numerous and tediously to calculate, which can lead to confusion. These include:

(1) Initial sales fee – This one-off charge is included in the bid-offer spread for the fund. Usually, it is between 3 and 5% of the total investment amount.
(2) Fund management fee – This fee is paid regardless of fund performance. It is usually 0.5 to 2 percent per annum. It is deducted from the unit price and priced into it.
(3) Benefit Charge – All riders and insurance premiums are paid by deducting units. The new age band usually increases the premium.
(4) Policy fees – To cover administrative costs, a flat monthly fee will be charged regardless of how much the premium is.
(5) Administrative fees – Additional fees for recording keeping, transaction services and trustee services. It is usually between 0.2 and 0.4% per year, and is also priced in.
(6) Fund switching fees – These will be charged for investment fund changes. This is usually only one per year.
(7) Premium holiday fees – These will be charged once the premium holiday feature has been activated.
Surrender Charges: These are charges that will be imposed for surrendering the policy.
(9) Allocation – The amount of premiums used for units to be purchased is not always 100% in the first years. Example: 20% for the first year, 40% for the second year, 60% for the third year, 80% for fourth year and finally 100% for the fifth year.
ILPs are only available to those with sufficient insurance coverage and a surplus budget that they wish to use to support their agents, not invest in unit trusts.

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Healthy Insurance

(1) MediShield plans and private shield plans
MediShield provides the most basic coverage. It has several disadvantages, such as the fact that it does not cover all covered expenses and expires at 85. Also, coverage is limited to B2/C wards. You will also need to pay deductibles and coinsurance. MediSave pays for it. The second layer may be provided by some employers. This coverage will expire when the employee leaves the employer. In retirement, medical coverage is the most important. Therefore, any plan you take up will have to meet strict underwriting requirements (i.e. It will not be accepted, or any existing medical conditions will be exempted. Private shield plans provide coverage for people over 85 but must be taken before 75. As it is “As charged” coverage, it does not usually have sub-limits. If a rider is added to the basic plan, some insurers will cover the deductibles or co-insurance. The MOH website offers a complete comparison of all available private shield plans. This plan is best suited for ongoing and medical treatment. This insurance is essential to cover rising medical costs.

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(2) Critical illness
If the insured is diagnosed with one of the 30 listed illnesses or undergoing a surgical procedure, the lump sum benefit will pay. The Life Insurance Association of Singapore (LIA) has selected the 30 illnesses from a list. The LIA has standardized their definitions. There are two types of coverage: the acceleration and the additional. Acceleration coverage includes the death/TPD benefit and the sum assured. Additional coverage is an additional cover that is added to the basic sum assured. It can therefore be greater than the basic sum. You can choose to issue a separate policy, or as a rider. It may also provide coverage for specific illnesses like cancer. It is most suitable to provide for treatment cost that may not be included in the HealthShield like expensive overseas or alternative/experimental treatment as well as additional care giving expenses incurred when critical illness is diagnosed.

(3) Income from disability
It pays monthly income in case the insured becomes incapacitated due to an accident or illness.
Inability to work is defined differently depending on whether the insured has a similar occupation, their own occupation or another. This policy is best to protect against income loss so that you can maintain your living expenses in case of disability. It differs from TPD in the fact that it is more flexible.

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(4) Hospital cash
Each day of hospitalization, it provides a cash benefit. The benefit is typically limited to a specific number of days or a lifetime limit. This is best for self-employed people who are at risk of losing their income due to hospitalization.

(5) ElderShield, private plans
The monthly benefit is provided if the insured becomes disabled in any of the six activities of daily living (ADLs), which include dressing, moving, and toileting. ElderShield provides $300 to $400 per month for 60 and 72 months. You can pay it with MediSave. These plans have higher benefits and a longer payout period. You can pay it with MediSave up until a certain limit. For those over 40, it is best to provide disability coverage. TPD coverage typically ends at 60/65. However, it provides lifetime coverage. It is often limited to the payment of premiums.

Personal General Insurance

(1) Packaged household
It covers the contents and buildings.
When a person applies for a loan to buy a house, it is often mandatory.

(2) Valuable articles
It covers items of high monetary value, such as antiques and fine arts.
You can have either blanket or itemized coverage.
This is often for people who have valuable objects in their homes, such as art and antique collectors.

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(3) Personal accident
It covers bodily injury that is directly caused by external, violent, and visible causes.
This insurance is best for people who have a tight budget, are involved in blue-collar work or cannot obtain traditional insurance due to medical restrictions.

(4) Motor
There are three types of compulsory insurance: Third party, Third-party fire and theft (TPFT), and Comprehensive. The premiums charged by different insurers will depend on the make, model, age and occupation of the driver, as well as the experience and occupation of the driver. If NCD is greater than 50%, it is best to buy NCD protection.

The risk management plan should determine which areas are high-risk and low-frequency. It is a good idea to obtain quotes from as many insurance companies as possible, as the premiums and coverage of each insurer can vary. It is a commitment that will last a lifetime, so it is wise to get the best and most appropriate insurance.