The Most Important Asset Class

What is the most important asset class?

Equities? (stocks)
Fixed-income? (bonds)
Cash equivalents? (money market instruments)

Think again. What generates the capital that is used to purchase these asset classes?
You!

In Buy Term Insurance, and Invest the Rest, I mentioned my term insurance coverage which comes up to around $400,000 in total. Not the best case scenario yet, but it is about the best I can do at the moment.

Term Insurance provides coverage of financial responsibilities in the event of (a) death or (b) total and permanent disability. When the worst case scenario happens, the least I can do is to enable my family to be debt free (cover all loans etc), while the remaining sum of money will help to partially make up for lost income.

Critical illness insurance or critical illness cover is an insurance product, where the insurer is contracted to typically make a lump sum cash payment if the policyholder is diagnosed with one of the critical illnesses listed in the insurance policy.

My Coverage = SGD$325,000

[1] NTUC Family Insurance Policy (Living Benefit) = $200,000

The Family Insurance Policy from NTUC Income is in fact an empty policy in which you can place any riders to provide the specific coverage that you want. Instead of a Term rider, I chose to include the Living Benefit rider, which pays the sum assured upon either (a) death, (b) permanent total disability or (c) diagnosis of a specified dread disease to tide over a period of prolonged illness and loss of income.

[2] SAF Living Care = $100,000

I believe that my coverage isn't sufficient, which is why I chose this low cost option to beef up my Critical Illness coverage as an interim solution. Up to age 45, the premium is pretty affordable at $10 per $100,000. Moving forward, the challenge would be to find a way that provides Critical Illness coverage above age 45.

[3] AIA WholeLife Policy = $25,000

The policy wasn't my choice, it was one of those that my parents bought for me when I was young, and happened to have term coverage. Anyway, I'm not inclined towards buying whole life policies, but it makes no financial sense to cancel it now, so I might as well see it through maturity I guess.

Buy Term Insurance, And Invest The Rest?

Do you believe in only buying Term Insurance, and investing the rest? Personally, I feel that Term Insurance alone isn't sufficient, but is definitely a must-have. With adequate coverage in Term Insurance, I'm able to sleep well knowing that in the event that something were to happen to me, my family would not have to endure any immediate financial hardship.

Term Insurance provides coverage of financial responsibilities in the event of (a) death or (b) total and permanent disability. When the worst case scenario happens, the least I can do is to enable my family to be debt free (cover all loans etc), while the remaining sum of money will help to partially make up for lost income.

My Coverage = SGD$397,500

[1] Dependents Protection Scheme (Great Eastern, CPF) = SGD$47,500
Annual Premium = SGD$36 (paid for using CPF Ordinary Account)

"This scheme provides CPF members and their families with some money to tide them over the initial years should the insured members become physically/mentally incapacitated or die."

[2] NTUC Family Insurance Policy (Living Benefit) = SGD$200,000

Instead of purchasing a term policy, what I did was to get a Family Insurance Policy from NTUC Income, which is in fact an empty policy in which you can place any riders to provide the specific coverage that you want. Instead of a Term rider, I chose to include the Living Benefit rider, which pays the sum assured upon either (a) death, (b) permanent total disability or (c) diagnosis of a specified dread disease to tide over a period of prolonged illness and loss of income.

[3] SAF Group Term Life Insurance = $100,000
Monthly Premium = SGD$12.80

I believe that my Term coverage isn't sufficient, which is why I chose this low cost option to beef up my Term coverage as an interim solution. When my financial situation permits, I would then increase my coverage accordingly.

[4] AIA WholeLife Policy = $50,000

The policy wasn't my choice, it was one of those that my parents bought for me when I was young, and happened to have term coverage. Anyway, I'm not inclined towards buying whole life policies, but it makes no financial sense to cancel it now, so I might as well see it through maturity I guess.

Getting Protection Before Investing

Before investing, I firmly believe that one should have some protection in the form of insurance. No point in spending years accumulating $500,000 or $1 million only to blow it all due to an unforeseen medical catastrophe.

At the very least, you must have health insurance in the form of a private integrated shield plan for the enhanced (hospital and surgical) coverage. You would be surprised to know that many people only have MediShield!

MediShield

MediShield is a low cost basic medical insurance scheme. Introduced in 1990, the government designed MediShield to help members meet large Class B2/C hospitalisation bills, which could not be sufficiently covered by their Medisave balances. To avoid problems associated with first-dollar, comprehensive insurance leading to unnecessary over-consumption of healthcare services, MediShield operates with co-payment features such as co-insurance and deductible where patients share part of the responsibility for his medical expenses.

The co-insurance and deductible can be paid using Medisave or cash.

Deductible

A deductible is the initial amount you need to pay for claim(s) made in a policy year, before there is MediShield payout.

Co-insurance

Co-insurance is the percentage of the bill you need to pay on the portion of the bill above the deductible.

My Coverage

Shield Plan : Aviva MyShield Plan 2 (improved coverage)
Optional Rider : Aviva MyShield Plus Option A (cover co-insurance)
Optional Rider : Aviva MyShield Plus Option B (cover deductible)

Monthly Premium (for cash-only Riders) : SGD$18.51

Reading Materials

http://www.todayonline.com/commentary/revisiting-co-payments
http://www.todayonline.com/voices/co-payments-matter-balance
http://www.moh.gov.sg/content/moh_web/home/costs_and_financing/schemes_subsidies/Medishield.html

After securing your first line of defense against hospital and surgical bills, then it is time to find out more about term insurance and critical illness protection. Perhaps, another post for another time.