Si jie LIM
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Singaporeans are known to be kiasu (Read: KIASU). We want to be the first in everything and we aim for the best in whatever we do. Thus, it is surprising to learn that there is one area in Singaporeans’ lives where we are NOT kiasu enough: Insurance. Is that even possible? According to Life Insurance Association of Singapore (LIA), it is.
In the latest Protection Gap Study that was published by LIA, they found that Singaporeans and PR are only covered by insurance for 20% of what they need in times of critical illness (CI). The average employed Singaporean or PR needs S$300,000 worth of CI insurance coverage. However, the reality is that the average CI insurance coverage that each Singaporean/PR has is only S$60,000. In other words, in the event that you are diagnosed with CI, you will need to fork out S$240,000 to cover your daily and family expenses while you recuperate.
What Is Critical Illness?
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But first and foremost, what is CI? If you were to ask this question a decade ago, you wouldn’t have gotten a satisfactory answer. Each insurer will have their own definition of what can be considered CI. LIA realised that this was creating a lot of confusion for consumers. Thus, LIA made the effort to create an industry-wide definition of CI. Today, the whole life insurance industry in Singapore adopts the same CI definition.
According to LIA’s industry definition of CI, there are 37 types of illnesses that are classified as CI. These illnesses include major cancers, heart attack, stroke, kidney failure, end stage lung disease, end stage liver failure and others. For each CI, there is also a well-defined set of medical definition that defines whether you are eligible for claim from your insurer. For example, you can only claim CI for cancer if you have a malignant tumour. Pre-malignant of carcinoma-in-situ will not be considered as eligibility for claim since it does not fulfil the medical definition stated by your insurer.
You may want to ask a MAS registered financial advisor on iCompareLoan’s panel.
How Much CI Protection Do You Need?
The concept of a CI protection gap is hardly defined by the industry. However, there is a general rule of thumb that is used to calculate how much CI protection you require. In LIA’s protection gap study, they used five-year income as the CI protection amount. But in order to have a good insurance coverage, you will need to account for the effects of inflation and your potential rise in future income. Another quick-and-dirty way of calculating your required CI protection gap is to use a 10-year income as your CI protection amount. You can avoid making assumptions in your calculation by using this method. In addition, it also provides a more comprehensive coverage against CI.
What Can You Do If You Have A CI Protection Gap?
Based on your calculation, if you realized that you have a CI protection gap, there are two things that you can do.
The first is to buy a term insurance and buy an add-on CI rider. This is applicable to you if you find that you do not currently have a term insurance plan. It might also be applicable to you if you have a term insurance plan that doesn’t have a sum assured amount equivalent to your 10-year income. You can either approach your financial advisor or buy a term insurance from insurers that offer direct purchase insurance (DPI) through their website. You will find the latter option much cheaper as you can save on the commission that is usually paid to financial advisors.
The other thing you can do is to buy a CI insurance plan. If you already have a term insurance plan in place and find that you are well-covered for death and total and/or permanent disability (TPD), then you only need to beef up your CI coverage. This can be done by buying a pure CI insurance plan. Unlike term insurance, a CI insurance plan can only be bought through financial advisors from one of the major insurers (Aviva, AIA, AXA, Manulife, Great Eastern). While pure CI insurance plans are not as cheap as a CI rider that comes with a term insurance plan, they offer benefits like early CI. Early CI allows you to make claims against your insurer in early detection of CI, which gives you more time for treatment to increase your chance of a successful recovery.
Don’t Delay. Transfer Your CI Risk To Your Insurer Today
Now that you know found out that you have a CI protection gap, don’t delay any longer. You should start transferring your CI risk to your insurer either through a term insurance with CI rider or a pure CI insurance plan. Protection is the first step of getting your financial plan right before you start thinking about the end goal of financial freedom.
If you already have good financial protection in place, the next step is to consider investments to accumulate more wealth. Find out how properties can be used as both a shelter for your family and an investment asset for growing of your assets.
One way to get covered is to go for an equity term loan to free up some equity from your home and use it for retirement planning and provide adequate coverage.
And not to forget, many people do not realise that they are paying a lot for their home loans and they do not think of refinancing their home loans. Do you know that refinancing your home loans can save you potentially more than $10,000 over a 3 year period? This savings can go towards the insurance premium payment.
