Why should you read my review about insurance plans and what you should get?
After all, I am not a professional or trained explicitly in insurance. I don’t have any of the necessary certifications. I have never sold any insurance to anyone and have no plans to do so.
However, I am a consumer, and I have consumed a lot of insurance. Far more than what is usual for a 35-year-old. My views are also unbiased, and I don’t make a cent from writing down my thoughts on insurance. There aren’t even any ads on this site. My only consideration is to help people make better insurance choices, and how to get the most bang from your buck.
A better question is why don’t more consumers give their reviews on insurance? Everything else is reviewed by consumers. We would roll our eyes on accepting reviews about movies and games from their studios and marketing departments. Why is the only source of truth from the industry, which has obvious conflicts of interest?
The truth is there is no money in writing honest reviews. Insurance is also difficult for consumers to review simply because they haven’t had the chance to use it, or it takes years to see it mature.
There must be thousands of insurance claims filed each year, but there is scant information on real-world experiences.
So this is my attempt to re-balance that. I would like to provide my own views on the kind of insurance that most people should get, and my claim experiences. I had every single one of these insurances except investment-linked plans (ILPs).
I had already talked about the essential insurance plans that everyone should have. You must buy these before any other type of insurance.
So what else is good to have?
This is my list, starting from the highest to nil priority.
Disclaimer: This article is for informational purposes and based on my personal thoughts and experiences. It is not intended to replace professional advice, and you should get personalised insurance advice from a certified professional.
Disability Income Insurance (DII)
What: DII provides an income when you cannot work, whether caused by an accident or illness. You choose the monthly payout, which can be up to 75% of your salary.
Why: DII is actually really useful and it’s not talked about much. Some insurance agents like to push whole life and ILPs way ahead, as the commissions are much higher. Many agents don’t even sell DII. But your ability to work and earn an income is your biggest asset.
DII complements critical illness (CI) plans. CI plans gives a big lump sum in the beginning, while DII provides a constant stream of income. This provides peace of mind if your lump sum doesn’t last as long as you thought. Besides, DII covers pretty much limitless conditions, as long as it prevents you from working in your occupation. It can include common mental health conditions such as depression and anxiety. CI is just 37 particular conditions, which are defined by the industry.
Tips: DII is more difficult to claim than most plans, such as hospitalisation and CI. In addition to proving your health status, you have an additional step of proving your employment and income. So this means showing payslips, CPF statements, and even a letter from your employer.
It also takes a longer time to claim. My CI paid out in about two months. But my first DII claim took more than six months, from claim application to receiving the cheque. I do think that mine was longer than the usual because of additional background health checks they had to make. There is also a deferment period, usually at least three months. The disability must last through the whole deferment period before making a claim.
The cost of my DII per year was about $1 a day, for $3,000 in monthly income.
Does CI term plans or DII provide more bang for your buck? It depends on how long you can’t work.
Protection for $300,000 costs $364 a year under the MINDEF Living Care rider. Compared with the DII which costs $365 a year for a $3,000 monthly payout, it will take 8.3 years ($300,000 divided by $36,000) for the DII to exceed the CI payout. Keep in mind that DII covers a broader range of conditions as well.
Personal Accident (PA)
What: This pays out in the event you suffer some kind of accident, e.g. car crash, infectious disease.
Why: Honestly, it is a bit difficult for me to give an opinion on this as I have never filed a PA claim. I had an office job and take public transport, the chances of me having a personal accident is pretty low. That is probably the case for most office workers in Singapore. Those who work in physical or hazardous occupations would find more value in a PA plan, but it will come at a higher cost.
Claim amounts tend to be pretty low, just a few hundreds or thousands per event. That sum will never be able to make much of a difference in your life. I think PA is more about giving psychological comfort when something unlucky occurs. Any medical treatment should be covered by your health insurance. Serious enough accidents which prevent you from working would be better covered by DII.
The saving grace is that PA is cheap. I covered my family of three for about $360 a year. That is $10 per month per person, so why not?
Early Critical Illness (ECI)
What: Early critical illness covers for early stages of diseases. There is no standard definition across insurers, and everyone provides slightly different coverage.
I’ve seen anywhere from 10 to 104 conditions being covered. This makes it more difficult to make cost comparisons. But in general, ECI costs more than CI. I wrote on why I think early critical for cancer is unlikely to occur. However, no one can predict how likely it will happen to themselves. My guess is that insurers have a higher profit margin on ECI, because the advertising and promotion is far more widespread than CI term plans.
Why: Critical illnesses detected early don’t have as much a chance to affect your ability to work, as compared with CI. Most people will recover from an early CI much faster than a CI. Treatment would likely be less drastic, and thus costs less. Getting ECI is far less important than getting a traditional CI term plan.
I also don’t believe that it is uncommon that I have exercised my CI plan, while my ECI hasn’t been touched. The doctors were simply not able to detect my cancer that early. I didn’t feel anything until my tumour grew over 5 cm and became stage three. I suspect that this is the case for most people, and most don’t approach a doctor till they feel pain or see blood. This is more likely to mean that the illness is no longer at an early stage.
Tips: You have to take a close look at what is available and make your own assessment of what you are likely to get. If you have a family history of diabetes or heart disease, it might be worth it to look for a plan which covers those and their complications. You may have a better sense of your probabilities than the insurance company.
If you have in place the essential insurances (good health insurance and at least $500,000 worth of CI coverage) and DII, ECI might be a prudent choice to cover all bases. I have bought early CI coverage for my family and myself.
Most people should probably get ECI coverage of about half of their CI. I don’t think there should be any situation where there is more ECI coverage than CI.
What: Whole life is combining savings and investment. You pay premiums up to a certain point, and you accumulate cash value which you can cash out eventually. It usually takes about 15-20 years to break even. My understanding of the rate of return is about 2.5%-4.5%.
Why: Singaporeans hate paying for things that will end up being zero. This includes HDBs and term plans. Unlike term plans, whole life plans have a cash value that you can redeem.
I know the argument that some insurance agents use is that term insurance plans will eventually cost more. But they tend to use the age of 99 as the endpoint of term plans, while you only need insurance while you still have dependants and don’t have enough retirement funds. For most people, this should be about 60. Term plans gets hugely expensive after that age.
However, I think the cash value at the end is a gimmick. The vast majority of Singaporeans would be better off buying a large CI term plan, and investing the money they saved through an S&P 500 index fund. You are quite likely to earn at least double. I’ve covered this before here.
With that said, as long as you have the essential insurances I mentioned before, I think it’s ok to buy whole life as a way to diversify. I am not in favour of insurance agents who are doing it the other way round, which is selling high amounts of whole life and ILPs before someone is adequately covered by term plans. While it provides them with much higher commissions, it is expensive for you and offers inadequate protection.
Tips: Whole life provides better value for young children as compared to adults, as the premiums are much cheaper and the coverage over their lifetime is longer. I bought a $200,000 whole life plan at $1,400 per year, payable for 20 years for my kid at birth. A similar plan for myself at age 30 was over twice as much.
Just make sure that you are confident of paying for it, and it shouldn’t feel like a strain.
Investment-linked Policy (ILPs)
It shouldn’t even be here as it can hardly be regarded as insurance. ILPs are more of an investment plan. A lot has already been written about ILPs having poor returns, high fees, and the ability to touch your own money without penalties or interest. A quick google search will reveal many regrets among ILP holders, and I feel its unnecessary for me to elaborate further here.
It takes quite a bit of time to write such articles, and I have been working on this on-and-off for weeks. The capitalist side of myself protests because I don’t make anything from spending so much time on it. In fact, I get quite a bit of flak from some insurance agents, which I can understand.
But there is room out there for more than one opinion, and I would still ask people to seek advice and buy from a good professional. I won’t tar the whole industry and its people. There are good ones out there that will provide an honest assessment of what you need. But there are enough bad eggs to make writing this article useful.
I sincerely hope that someone, somewhere, benefits from my experiences and able to protect themselves and their families better. It will help to make my own story worthwhile.