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Old 22-11-2004, 11:45 PM   #1
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Getting started with insurance

Published November 22, 2004 BT

Getting started with insurance

By NANDE KHIN



BUYING life insurance is an important part of financial planning, and just because you are young doesn't mean you should dismiss the idea of taking out insurance.





Specifically, life insurance can help with not only risk management, but also retirement planning and investment planning.


Risk management is about how you can still have income when events (such as premature death, disability or illnesses) strike.


Retirement planning is about how to build up wealth during working years to have financial dependence during retirement years.


Investment planning is about buying into different financial instruments to meet investment goals and grow you wealth.

And there are several types of life insurance to meet the different needs of the policy holder.

For risk management



Whole life insurance:

With whole life insurance, you get life-long protection. You pay premiums throughout your life, but these can be changed to a limited period. The policy will pay out the sum insured and any bonuses you have built up (if any) when you die or become totally and permanently disabled (if this benefit is provided).

This plan is suitable for long-term savings if you would like the insurance company to invest on your behalf.


Term insurance:

With term insurance, you get protection for a set period. It pays the sum insured only if you die or become totally and permanently disabled (if this benefit is provided) during this period.


Endowment insurance:

With endowment insurance, you get both protection and savings. The policy pays the sum insured and any bonuses you have built up at the end of the set period of time (maturity date), when you die or become totally and permanently disabled if it happens during this period.

For retirement planning



Life annuity:

A life annuity provides a regular income to you. Usually you pay a lump sum which is invested by the insurance company in return for monthly payouts.

There are also annuities that are designed specially for members of the Central Provident Fund (CPF), under the CPF Minimum Sum Scheme or Minimum Sum Plus Scheme. For this annuity, you can invest the minimum sum with an approved life-insurance company to provide a monthly income for the rest of your life.

For investment planning



Investment-linked insurance:

Your premiums buy life-insurance protection and investment units in a managed fund. Like a unit trust, your money is pooled with that of other investors and invested in short- and long-term investments.

The price of your units depends on how the investments in the fund perform. What it pays depends on the price of the units at the time you cash it in or die. You may also get a death benefit.

As a prospective buyer, you should first understand the type of policy that best suits your needs. Some products offer only protection and do not provide a savings element (in other words, it does not provide a cash value if you cash it in).

Other products offer a cash value if you cash them in after a certain number of years. However, if you cash in your policy early, the value you receive may be less than the total premiums you have already paid.

It is best to talk to get professional advice from representatives of licensed or exempt financial advisers who are qualified to advise on and distribute life-insurance products.

Note that a life-insurance contract is based on good faith. You must truthfully reveal all the information asked for in the proposal form and provide any other details they ask for.

If you do not provide important information on your proposal form, any policy issued may not be valid. If you are not sure whether a fact is important, you should reveal it anyway.

Sources: Life Insurance Association, Moneysense Guide to Planning for Your Family's Financial Future, and Your Guide to Life Insurance
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Old 23-11-2004, 11:06 AM   #2
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It's important to get adequate insurance cover. And it's not just getting cover for death but for illnesses as well.

Healthcare costs in Singapore is very high. The total treatment cost for cancer can come up to $100,000. And with 1 out of every 6 persons in a developed country getting it, it's important to get this kind of cover. The reason is simple, if you become sick with it, most companies will terminate your employment (Robinsons is the exception). So, when this happens, where are you going to get the money to treat it?

And after you get cancer, you basically become un-insurable, even if you have been declared free of the disease.

So, please do yourself a favour, speak to an insurance agent and get yourself insured for death, disability and major illnesses like heart disease and cancer.
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Old 24-11-2004, 11:23 PM   #3
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Published November 24, 2004 BT

How much is enough insurance?
MARK MYERSON gives some tips on getting the amount right


BUYING the right amount of insurance is a tricky issue. But getting it right could be one of the most important decisions of your life. Most consumers are still stuck on which insurance they should buy, never mind the right amount. Indeed, very few clients seem to get it right.


One of the most ridiculous things I encounter is the notion that a lot of premiums mean a person is well covered. Unfortunately, this is not the case. People who spend 30 per cent of their income on insurance are to be consoled, not admired. Many clients we see are over-insured, yet under-protected. This means they are spending too much money on insurance that doesn't actually give them sufficient protection. In Singapore, this situation is common largely because people have bought too much cash value insurance, not realising that most of their money is channelled to the investment portion of the policy rather than the protection portion.

Clients often ask: 'How much should I spend on premiums?' The answer is not 5 per cent or 10 per cent of your income. The answer is: 'As little as possible to get enough cover.' Spend only what you must to get it right.





When working out how much insurance you need, it's important to understand why you are buying insurance in the first place. Getting the reason right is the key to buying the right amount. This approach helps you think correctly about an otherwise confusing subject. In general, it's better to follow an approach of 'one policy for one need' rather than packaging lots of benefits together in one policy. This helps you keep things simple and focus your attention on getting the best cover for each need.

In the following sections, we'll explore each major need and highlight the main factors determining the amount you should have.

Life insurance

The purpose of life insurance is to provide sufficient income to dependants of a breadwinner. Life insurance is breadwinner's insurance. Life insurance protects loss of income. You need very little when you are young (no dependants), nothing when you are old (no work-related income) - and a lot when you have young kids and a spouse depending on you. There is no such thing as a rule of thumb, such as people with kids need 36 times their monthly salary. Each person's circumstances are different, so you need to go through a specific calculation.

The first step is to identify who depends on your income, then to work out (even roughly) the monthly amount that each dependant needs from your income. Last, you can add the number of years that the dependant will require support. As an example, if I have a three-year-old child that needs $1,500 from my income each month, I would work out the total income required until the child is about 24 years old (and no longer dependent on me). In this case, the number comes to $1,500 x 12 months x 21 years, or $378,000. We have ignored inflation for simplicity. I would then add the child's tertiary education cost, say $100,000. The total life cover that is needed just for this one child is therefore $478,000.

The same kind of calculation is necessary for a dependant spouse and dependant parents. Doing it in this way really makes you think about your family circumstances. It's actually quite an interesting intellectual exercise. Your values are important too. A male with $10,000 salary could just as easily want to leave his spouse $1,000 per month or $7,000 per month, depending on how he sees things. A good adviser is therefore a facilitator, asking the right questions so you can determine the answer that works for you.

A typical male breadwinner earning $5,000 a month with a spouse that doesn't work, two young children to support and one dependent parent needs about $1.3 million in life cover. Dual breadwinners need to look at their income and expenditure situation carefully to see how much each breadwinner needs.


Disability insurance

The purpose of disability insurance is to cover lost income in the event a person cannot work (but is still alive). Although not pleasant to think about, disability is a lot worse than death. To make light of a horrible topic, both death and disability result in loss of income but, with death, there is one less person to worry about.

In Singapore, lack of decent disability coverage is the single biggest area of under-protection. Most people have Total and Permanent Disability (TPD) coverage linked to their life policies. For reasons beyond the scope of this article, this is the worst form of disability protection because it is so hard to claim.

The amount of disability coverage is easy. It is usually as much of your salary as you can protect. All insurers impose a limit on disability coverage, which means you can't practically buy more than about 75 per cent of your basic salary. Therefore you should try and get the highest cover you can. It doesn't help to buy more than one disability income policy because the second insurer will offset the benefit from the first.


Medical insurance

Medical insurance is the most complicated to calculate because the amount of cover depends on which area of cover - that is, hospital, chronic illness, critical illness or travel. Furthermore, the amount of cover depends on your personal preferences for the level of care - for example, private versus public and single bed versus four-bed, your desire for freedom of choice and the country of cover. If you want complete freedom to be treated by the doctor of your choice, you will need higher cover. And if you want geographical freedom - for example, to be treated in the US, if necessary - you'll need much higher cover.

Once you have an idea of your preferences, you then need to understand the amount of medical expenses you might incur in a worst case scenario. It's a big mistake to think of the average bill. For example, the average hospital bill in Singapore might be about $3,500 but the worst bill might be about $300,000. It's essential to know your 'exposure'. This needs to be calculated for hospital coverage, chronic outpatient coverage and possible medical emergencies while travelling.

In Singapore, one should consider the availability of subsidised care, and the effect of means testing that is likely to be introduced. This means that higher-income Singaporeans will effectively need to pay more for treatment in the public sector, so the nation's limited resources can be allocated to lower-income people. To be prudent, higher-income people should not expect to go to C class wards and should structure their insurance accordingly.

For a higher-income person, $300,000 of hospital insurance per annum, $250,000 in critical illness insurance, $500,000 in travel insurance (with evacuation cover) should be sufficient in the Singapore context today. Buying insurance for long-term chronic conditions is one of the biggest frustrations with the current local insurance market as this is not readily available. We suggest that clients buy more critical illness to compensate, although this is an imperfect substitute.

Readers should note that buying the right medical insurance is not simply about the amount of cover. It is also about the quality of the product, the terms and conditions of the policy and whether it is guaranteed renewable or not. Even more difficult will be the effective coordination among CPF coverage, employer coverage and 'portable' or individual cover.

In general, the best advice is to remember that insurance cover should match your needs. And your needs are unique to you. More time should be spent understanding and thinking about your needs than you spend thinking about products. Sadly, the reverse is often true today. We also suggest that consumers get good advice from a highly competent adviser that they trust. Even with articles like this, calculating the correct amount of coverage is a technical exercise that demands specialist knowledge and skill. After all, that's part of the value a good adviser should add.

The writer is director of i-benefits.
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Old 29-12-2004, 11:29 PM   #4
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Published December 29, 2004 BT

Insuring for the right reasons
Insurance is a way to transfer risk and it's always useful to remember this golden rule: insure a lot for a little, for the right time. CHRIS FIRTH offers pointers

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EVER felt baffled, bored or outright angry when confronted with insurance advice? You're not alone. According to a survey in Insurance Times, 45 per cent of respondents who had ditched advisers thought their adviser didn't provide enough information or options, and 34 per cent thought the agent didn't have their best interest in mind.



A little knowledge: It doesn't make sense to get life insurance for a child simply because the premiums are very low when they are young. Young children don't usually have dependents � generally, it's the parents that need more life insurance (a child needs medical and critical illness plans)
While it's easy to point fingers, perhaps some of the dissatisfaction stems from a widespread blurring of the uses of insurance. When the marketing hype is stripped away, insurance is a very simple idea, and it should confuse nobody. Insurance is a way to transfer risk - not a panacea for financial well-being.

Arguably, Singaporeans continue to (mis-)use insurance for investment planning, to under-insure themselves, or to insure for the wrong period. Yet a golden rule sums up all you need to know: insure a lot for a little, for the right time. If you can remember that you shouldn't go too far wrong.

You can avoid, reduce, retain or transfer risk. For example, you can avoid risk by not taking up parachuting as a hobby, reduce risk by not smoking, and retain risk by accepting you will cover the loss of a misplaced wedding ring. Transferring risk is what you do when you buy insurance (this is why insurance was invented!). You should do that if there is a possibility of an event happening, and the consequences of the event are very adverse to you or your family.

The classic example of risk transfer is life insurance on the sole family breadwinner. That idea is easy to grasp. Less obvious is insurance against the death of a mother who stays at home to look after children. Here, the risk of having no childcare is transferred away. Hence it's mistaken to consider life insurance as simply breadwinner's insurance - it's fundamentally about transferring risk.

Under the rule, 'a lot' means insuring for the maximum future cost of the unwelcome event. This means forecasting costs, rather than simply taking the current income of a person, or market value of a service. Determining future cost may be easy. For instance, insurance to cover a home loan would need to be equal to the outstanding amount at any time.

In other situations the amount of coverage might take a bit of calculation and knowledge. For example, to cover college education (in the event of the death of parents) one should investigate current college costs, and then assume high inflation rates, as much as 10 per cent a year.

Fortunately, costs of disasters can go down, too, often in a predictable fashion. Money to provide for children works this way. The top chart on the left shows how costs gradually decrease to zero as children grow up. Insurance can cover to the maximum at any point in time using a number of possible strategies, including a sequence of level term insurance, or a decreasing term. Either approach might provide 'a lot' without over-insuring (which helps in reducing costs - 'the little').

In the earlier example a mother's services are not billed at a dollar value. Yet the father needs to consider how much money would be required if his wife were not around. That could mean a maid to take care of the children, part-time tutors to help with homework, and taxi fares to ferry children around, to name but a few hidden costs.

Likewise, it would be a mistake to assume that an individual has no economic value after retirement. A grandparent could provide valuable, but free, assistance in many areas to working parents. The replacement cost of that help could be significant.

There are plenty of needs that last the whole of your life. For example, estate duty and funeral expenses don't occur on a known date. Likewise, money in the event of grave illness is likely to be a lifetime need.

Then there are needs that have a predictable duration. For example, it's reasonable to provide for children until their 21st birthday, at which point no risk remains. Loans usually have a fixed tenure, so risk is only present for that duration. Insuring beyond that date is wasting money.

Insurance comes in two forms: for a fixed period of cover ('term'), or for the lifetime of the insured ('whole life'). The golden rule states that you should match permanent needs with permanent insurance, and match fixed period needs with term insurance.

How do you keep expenses low without compromising your financial well-being? The largest liabilities you will ever have are typically non-permanent, so can be dealt with at low cost using term insurance of a suitable matching period. It's sensible to have the bulk of your insurance in term policies.

If your need is investment it's probably better to seek pure investment products rather than insurance policies with cash values. As well as having modest rates of return, such policies have low or non-existent surrender values in their early years.

Buy according to needs

Does that mean you should always 'buy term, invest the rest' (meaning buy term insurance and invest the savings on premiums compared with those of a whole life product)? No. More logically you should 'buy term for term' and 'buy whole life for whole life'. You could slip up if you bought 'term for whole life' and 'whole life for term', although there can be exceptions.

Here's an example which demonstrates that the most effective solution depends on the individual's need, identifying it properly, and not necessarily choosing what seems the lowest cost solution over the short term (see table on the left). Indeed, it could be an expensive mistake to buy a term plan for a permanent need, and then trying to rectify it later in life when premiums have shot up.

By the same argument, it doesn't make sense to get life insurance for a child simply because the premiums are very low when they are young. Young children don't usually have dependents - generally, it's the parents that need more life insurance (a child needs medical and critical illness plans). When the child has reached his early 20s, the premiums will still be low.

Building in flexibility can also lower your long-term costs. If you do decide to get term insurance, check that you can renew it regardless of your future health. You might want to extend coverage when it expires, perhaps saving you money later. Making insurance renewable might add only 10 per cent to your premiums.

Be aware that small amounts of coverage could cost proportionately more (see bottom chart on the left), and a little extra insurance might take you into a cheaper band. A consequence of this is that two policies of $50,000 cover from two separate companies might cost a lot more than a single policy covering $100,000. On the other hand, there is a good argument for diversifying your insurance providers - insurance companies can have accidents too!

Another sensible strategy is to anticipate the motivation and skills of your potential financial adviser. One who offers a range of pure investment products as well as insurance policies has less incentive to sell the wrong products (generous commission levels on whole life can be a temptation). Pick an adviser who is well-rounded enough to understand the distinction between risk transfer and investment, and who is able to calculate the most advantageous solution for your needs. Best of all, choose one who follows the golden rule - that you should never get insurance for the wrong reasons.

The writer is chief executive of wealth management firm dollarDEX
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Old 14-12-2006, 11:46 AM   #5
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Only 5 or 6 years ago insurance premiums seemed very affordable with fantastic coverage to match. Well you could also check www.oneshopinsurance.com i got to see (i.e. Geico, Progressive) insurance companies current rates, quite funny to see though, if you're an individual or family who pays for insurance today chances are you're literally getting punched in the pocket book, and it hurts.
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Old 21-06-2007, 10:15 AM   #6
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Only 5 or 6 years ago insurance premiums seemed very affordable with fantastic coverage to match. Well you could also check www.oneshopinsurance.com i got to see (i.e. Geico, Progressive) insurance companies current rates, quite funny to see though, if you're an individual or family who pays for insurance today chances are you're literally getting punched in the pocket book, and it hurts.
Well, simply put, claims have been on the rise because of this poisonous world we live in. So therefore premiums are up too.
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Old 16-10-2012, 10:45 AM   #7
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best way is actually go for bonds
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Old 16-10-2012, 10:38 PM   #8
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Is there any insurance which I can opt for if I want to allocate some of my income into a particular insurance product and wish to take all out (all premium including interest gained) after 4 or 5 years?
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Old 26-10-2015, 11:04 PM   #9
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any recommendation for good insurance agents ?
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Old 26-10-2015, 11:05 PM   #10
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Wonders why this sticky is in SSI. haha. Will probably move it later.
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Old 04-01-2016, 09:39 PM   #11
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any recommendation for good insurance agents ?
im getting my life insurance from my mother-in-law ex-colleague. she used to be in insurance line too.

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Old 28-01-2016, 05:32 PM   #12
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Is there any insurance which I can opt for if I want to allocate some of my income into a particular insurance product and wish to take all out (all premium including interest gained) after 4 or 5 years?
lol, replying you after 3 years. Most insurance plans are long term based. If you are thinking of savings in 5 to 6 years, then you should go for endowment/ savings types instead of traditonal whole life plans. Because your time horizon is short, the plans that are avail do not leverage much on the protection, meaning to say, their protection is usually 101% to 120% of the sum that you paid, instead of 1000% leverage that you seek for.

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Old 26-08-2016, 12:34 PM   #13
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As good as not saying as it almost a year since he asked. Anyway one need to know one's own needs and risk. To begin with, if one knows not much about insurance, any agent can be good.

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Old 26-08-2016, 01:05 PM   #14
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As good as not saying as it almost a year since he asked. Anyway one need to know one's own needs and risk. To begin with, if one knows not much about insurance, any agent can be good.
lol oops.. coz i just saw the thread that came alive... too bad then , my agent no chance to do his business.
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Old 16-09-2016, 11:36 AM   #15
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Looking for AIA agent

Any AIA agent here? Looking to enquire on the AIA triple care plan.
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