Insuring Yourself Against Undesirable Events

When I first started working, I was clueless about insurance:

• What types of insurance should I get?
• What is the coverage?

• How long do I need to be insured?

After reading up and making mistakes along the way, I have a better idea of the topic. This post serves as a guide that other fellow fresh graduates can consider.

As usual, the opinions expressed here are my own. This article is taken from my personal blog here.

The primary purpose of insurance is to protect. It is a risk management tool; A way to hedge against probable undesirable situations.

Since the primary purpose of insurance is to hedge against probable situations, some follow-up questions are:

1. What are these situations?
2. How long must the protection be?
3. Why are they necessary?

Death/Total Permanent Disability (TPD)

Insurance products for these 2 usually go hand-in-hand. The primary reason to get this type of insurance is for income replacement. If you pass away prematurely, you want to ensure that your dependents, such as your children or ageing parents, can still be taken care of financially.

How long should you be protected against death and TPD? Since the primary reason is for income replacement for your dependents, this insurance is no longer needed when you have no more dependents. For example, when your children have grown up and are financially secure, they no longer need to rely on your income.

Hence, this type of insurance can be temporary. It would be more cost-efficient to buy a term plan that covers this, rather than a whole life plan.

Critical Illnesses

Considering that cancer is the highest cause of death in Singapore, it is paramount that we hedge ourselves against this probable risk.

Similar to death and TPD, the primary reason to get this type of insurance is for income replacement. Some might prefer whole life plans since it is more likely that you’ll get a critical illness in the later stages of your life, but your hospitalisation plan should already cover most of these treatments.

For the most part, I think getting a term plan should be sufficient, but if you’re looking to fund alternative treatments that hospital plans may not cover, then it makes sense to supplement it with a whole life plan.

Note: The recommended level of coverage is 3.9 times our annual income according to LIA. It assumes you take 5 years to recover from a critical illness.

Health Insurance

As Singaporeans, we are covered under MediShield Life, but it covers basic public hospital treatments. As such, we need to supplement it with Integrated Shield Plans offered by insurance companies that provide additional coverage on top of MediShield Life.

I won’t go into too much detail about health insurance, as it is an in-depth topic, but here are 2 resources that I found helpful:

• https://blog.moneysmart.sg/health-insurance/health-insurance-singapore/
• https://www.moneysense.gov.sg/articles/2018/10/integrated-shield-plans

This type of insurance is needed even after you’ve stopped working since the primary reason is to hedge against expensive hospital treatments. And considering that our health complications will only increase with age, we should invest in a good integrated shield plan.

Hence, unlike insurance for death/TPD and critical illness, which are temporary, our health insurance should be permanent.

Occupational Disability

This is a risk that most people may miss out on, and it is something that I missed out on until I read this article.

Note that occupational disability is not the same as TPD. TPD insurance has very stringent claim criteria like the loss of 2 limbs or the inability to perform 3 out of 6 Activities of Daily Living.

Occupational disability insurance, on the other hand, is more lenient as it covers against you losing the ability to earn an income. Hence, this hedges against the scenario where you are unable to work due to a disability, but is not serious enough to be classified as a TPD.

Typically, this type of insurance pays you a monthly amount up till the insured age, instead of the typical lump sum.

Similar to death/TPD and critical illness, the primary reason for this type of insurance is income replacement. You only need to be covered up until your dependents no longer require your income for survival.

Concluding Thoughts

I didn’t cover other types of insurance like personal accident insurance because I didn’t want to make this article too long. I think the above covers most of the insurance you should consider getting for yourself.

I also didn’t go into how much coverage you should get, with the exception of critical illness insurance. While there are rules of thumb you can abide by, it really depends on your circumstance. E.g. If your parents do not depend on your income, then that’s 2 fewer dependents to take into account. Instead of relying on the rules of thumb like getting 10X of your annual income for death/TPD, you should speak to a professional financial advisor for a better breakdown.

If you’re interested in learning more, MoneyOwl has released a free ebook that I found particularly useful. I wish I had this resource earlier when I was planning my own insurance coverage.

I hope you found this article useful! Do let me know if you think I've missed out on anything. I'm always looking to improve my personal finance knowledge!

Sources:

1. https://www.moh.gov.sg/resources-statistics/singapore-health-facts/principal-causes-of-death
2. https://www-moh-gov-sg-admin.cwp.sg/docs/librariesprovider5/integrated-shield-plans-documents/april-2022/v6-comparison-of-a-ipsapr-2022.pdf
3. https://investmentmoats.com/books/MO_The_Case_of_Term_vs_Whole_Life_Insurance.pdf
4. https://www.lia.org.sg/media/1332/protection-gap-study-report-2017.pdf
5. https://www.homage.sg/resources/activities-of-daily-living-adl/