My Whole Life Policy

Sequel to one of my very initial posts here. See why I have a whole life policy – hint: not my idea.

Just received the annual bonus letter from the insurance company. So for the sake of sharing, here you go.

  • Entry year: 2006
  • Entry age: 13
  • Sum assured: $100K
  • Yearly premium amount: $1,290
  • Premium paid till date: $15,480
  • Projected bonus (based on 5.25% return): $15,070
  • Actual accumulated bonus: $17,280
  • Actual surrender value: $16,940

Broke even 2 years earlier than anticipated as per the projection in the insurance document. Lucky me?

(I love House btw)

Integrated Shield Plan Rant

My dad is a skeptic. So when I told him that I’m considering changing over my integrated shield plan to something that is cheaper and offers better benefits (see here), he warned me that there is no free lunch in this world and advised for me to research thoroughly before making my decision. So I went to read up on Prudential and AXA shield and here’s what I found.

For private hospitalisation with rider that covers from the first dollar up, NTUC Income’s total premium over an average lifespan is actually slightly lesser than Prudential’s, while AXA is significantly cheaper than the two. I then told my dad about AXA and how it covers longer pre and post-hospitalisation periods. He gave me the same response, insinuating that there must be a catch somewhere to explain the lower premium rates.

And behold, my dad was right. After much searching through the depths of the inter web, I found out why AXA can afford to have their premiums so low despite the attractive benefits. That is:

“Letter of Guarantee (LOG) of up to S$100,000 at private hospitals if referred through our panel of Specialists”

As a layperson, reading this scares me.

Does it mean that to get LOG, I have to set an appointment with their specialist first before I can get admitted into the hospital? What if it’s really an emergency?

Would LOG still be issued if for example, I were to get admitted to Mount E first and then request to be seen by a Dr XXX that is listed in that panel? Because technically I wasn’t referred through him.

If I were to get admitted to a private hospital without going through the panel of specialists, my hospitalisation bill will be based on a reimbursement basis. Do I have sufficient emergency funds to cover the (not-so-affordable) private hospitalisation bill while awaiting reimbursement? And what is the success rate of reimbursement? Last thing I want to do while being ill is to worry about my finances.

I can imagine people worrying about this clause and opting to go to a restructured hospital instead to get the guaranteed LOG of $15,000 for a peace of mind even though they are eligible for private hospitalisation. This would then reduce the claims amount for the company as a whole, which I suppose is why they can keep their premium rates this low.

I’m quite interested to wait and see how the claiming process is like for people who are currently on the AXA Shield Plan A. Because this is a relatively new plan, there’s little information on the MOH website on the claims speed for AXA and there are very little anecdotal reviews on it on the internet.

So for now, I will continue to sit on my NTUC Enhanced Incomeshield Preferred. From age 50 till passing, I would opt for AXA Shield Plan B with the basic care rider. No questions about that. However, from now till then, I’m still undecided.

Disability Income Insurance or Early Critical Illness Insurance or both?

I’ve been reviewing my insurance coverage lately and realised that I am lacking in 2 areas: disability income insurance and early critical illness.

I feel that I’m adequately covered for all other aspects – death, total permanent disability, critical illness, personal accident and hospitalisation. However, because I have no dependents, I’m starting to think whether CI coverage is necessary for me since these usually pay out in the more severe stages of the disease – what can you do with the money when you’re so ill other than leaving it for your dependents?

Disability Income Insurance

Currently, my biggest asset is my skill in the workforce and I need to protect my only source of income (i.e. employment income). Disability income insurance is thus attractive for a young working adult like me. There are 3 insurance companies that provide this form of insurance: AIA Premier Disability, Aviva IdealIncome and GE PayAssure.

Below is a comparison I made for them 3 based on their product summaries. I do not guarantee the accuracy of these information, this is just for my own reference.

AIA Premier Disability Aviva IdealIncome GE PayAssure
Annual premium for 25yo non-smoker female for $2K monthly payout $710

(till age 60)

$741

(till age 65)

$420

(till age 60)

$456

(till age 65)

Equivalent monthly premium $59.17 $61.75 $35 / $38
Premiums guaranteed? No No No
Definition of total disability during non-working periods Unable to perform 2 of 6 ADLs Unable to perform 3 of 6 ADLs Unable to perform 2 of 6 ADLs
Partial disability benefit

All calculated the same

Catastrophic disability benefit 24x
Rehab benefit 6x 3x 3x
Death benefit 12x = $24,000 $5000 6x = $12,000

Based on these information, Aviva appears to be most expensive and most difficult to qualify for payout. Its rehab and death benefits are also the least attractive.

I like the added catastrophic disability benefit provided by AIA, which I suspect is the reason for its high premium rate over GE. However, like I mentioned, I feel that I am adequately covered for death and total permanent disability, so I am truly looking for a basic no-frills disability income insurance.

So, GE PayAssure is looking especially attractive to me right now due to its affordable premium. Of course, I have to find a competent GE insurance agent who is ready to answer my list of questions about a specific clause of the product summary.

Early Critical Illness Insurance

There seems to be 2 schools of thought for this form of insurance.

Proponents say:

  • It is meant to take care of policyholder (which is applicable for me since I have no dependents)
  • It can cover for treatment costs that might not be covered by H&S insurance
  • It helps with living expenses if the policyholder needs to take break from working
  • It is good if you do not have enough savings to tide over that period
  • Depending on family history and lifestyle choices, the probability of claiming this insurance might be high.

Opponents say:

  • It is relatively expensive.
  • You could probably do a better job saving up that money for early CI instead of paying for premiums.
  • There may be overlaps with disability income insurance. So if you have disability income insurance, is early CI necessary?
  • Early CI rarely knocks you out of work.
  • Small chance of successful claim.
  • Common cancers like breast / prostrate may not be covered?

Budget is key for me, especially since I’m pretty fresh into the workforce and can’t afford to overdose on insurance. Even if I were to purchase one, I would probably get a small sum assured like $50,000.

I did a quick search of premium rates of early CI plans out there based on information available on the companies’ websites for a 30yo, non-smoker male of sum assured $50K. This is a non-exhaustive list and in order of premium rate:

  1. AXA Early-payout LivingEnhancer: $318/yr till 65yo
  2. Aviva My Early CI: $444/yr till 99yo
  3. PruEarly Stage Crisis Cover: $500/yr till 75yo
  4. AXA Early stage criticare: $600/yr till 65yo
  5. Manulife ManuComplete Care: $627/yr
  6. Aviva My Multipay CI: $675/yr till 75yo
  7. Tokio Marine EarlyCare: $768/yr

I took a close look at one of the product summaries for all the conditions covered (not going to reveal which one) to analyse the definition of “early” CI in detail.

As a rule of thumb, I’ve considered the following conditions to be relatively prevalent in SG: dementia, parkinson’s disease, stroke, cardiac related issues, cancer, loss of sight, loss of hearing, paralysis, kidney failure, motor neurone disease, multiple sclerosis, muscular dystrophy. The others? Not so much, but this is just my own layman opinion.

So how “early” should the state of your CI be to qualify for early CI payout?

  • Dementia:  require constant supervision, “severe”.
  • Parkinson’s: cannot be controlled by medication, cannot perform 2 of 6 ADLs independently
  • Stroke: undergo craniotomy or shunt
  • Cardiac related issues: undergo balloon angioplasty with minimum 60% stenosis / undergo keyhole surgery / insertion of permanent pacemaker / undergo valvotomy or valvuloplasty
  • Paralysis: irreversible loss of function of one entire limb
  • Kidney failure: surgical removal of one kidney
  • Loss of hearing: 60dB (i.e. moderate-severe hearing loss)
  • Loss of sight: total and irreversible loss in one eye
  • Benign brain tumour: surgical removal / burr hole surgery
  • Cancer: carcinoma in situ (pre-malignant and non-invasive are thus excluded), T1N0M0 for thyroid cancer

I don’t know about you but these definition of “early” don’t exactly sound “early” to me. Perhaps I had too high expectations coming into this.

So if you get a early CI plan covering till age 65, the likelihood of claiming during that period of life based on the above severity is extremely low. Of course unless you have significant family history, then that’s a whole other story.

I might potentially look into Aviva My Early CI as it covers till age 99.

Conclusion

So I guess you can tell from this post that I’m gonna get the DII but possibly not early CI insurance unless the Aviva My Early CI is super attractive or reasonable to me in terms of their T&Cs.

What are your thoughts?

 

 

Integrated Shield Plans – which is best for me?

I was recently admitted to hospital for a bad case of viral infection. My private hospitalisation bill amounted to approx $6500 for a 3 day stay, with $100 pre-hospitalisation GP bills.

Thanks to my Enhanced Incomeshield cover with the Plus rider, I did not have to pay a single cent for the hospitalisation. But that got me thinking – as much as I felt relieved to be covered, was I getting the bang of my buck? So here’s an analysis for me to decide on which plan best suits me at this point in my life.

Round 1: Type of shield plan

Having seen the back end of how the medical industry works, I would definitely like to keep an integrated shield plan for private hospitals for as long as I can afford it because I like the idea of being seen by just a consultant alone (whose clinical skill I (blindly) trust) rather than a group of clinicians ranging from consultants all down to the house officers with little experience (no offence), where not all clinical decisions might be run by the consultants before being made. They might be small decisions, but impactful in many ways to the patient if made wrongly or not as ideally.

Round 2: Insurer

The Medishield Life website also provides a comparison of all the integrated shield plans available in the market by all the insurers in Singapore, which includes NTUC income, AIA, Great Eastern, Prudential, Aviva and AXA. On the basis of personal preference, I would like to eliminate AIA, GE and Aviva. This is mainly because I don’t have contacts of reliable FAs from these companies through close family or friends and for a huge part, my impression of the companies. This leaves me with NTUC income, Prudential and AXA.

Round 3: The details

This leaves me with the NTUC Income’s Enhanced Incomeshield Preferred VS Prudential’s PruShield A Premier VS AXA Shield Plan A. Now… Fight! Here are the differences:

NTUC Income Prudential AXA
Pre-hospitalisation treatment limit As charged

(up to 90 days)

As charged

(up to 180 days)

As charged

(up to 180 days)

Post-hospitalisation treatment limit As charged

(up to 90 days)

As charged

(up to 365 days)

As charged

(up to 365 days)

Subsidised day surgery / short stay wards deductibles 2000 1500 3000
Unsubsidised day surgery / short stay wards deductibles 3500 2000 3000
Policy year limit 700,000 1,200,000 1,000,000

First place goes to Prudential, followed by AXA and NTUC Income comes in last at this leg of the race.

Round 4: Premium rate for plan without rider

At my current age of 25:

  • NTUC Enhanced Incomeshield Preferred: $373
  • Prudential PruShield A Premier: $360
  • AXA Shield Plan A: $361

Just as above, first place goes to Prudential, followed by AXA and NTUC Income comes in last.

Round 5: The co-pay riders

NTUC Income’s co-pay rider (i.e. Assist rider) requires the insured to co-pay 10% of the hospital bill with a cap at $3000. Prudential’s (i.e. Prushield extra lite) requires the insured to co-pay 50% of the deductible with a cap at $1750. AXA has no such rider.

Premium rate of the plan with co-pay rider:

  • NTUC Enhanced Incomeshield Preferred: $373 + $190 = $563
  • Prudential PruShield A Premier: $360 + $210 = $570

Using the scenario of my $6500 hospital bill, I will have to co-pay $650 (NTUC) VS $1750 (Prudential).

In order for my co-payment for Prudential to be lower than the cap of $1750, the hospital bill has to be less than the full deductible sum of $3500, which is quite unlikely for a private hospital stay.

Assuming however that my hospital bill is increased to an arbitrary sum of $20,000, I will have to co-pay $2000 (NTUC) VS $1750. At my age, I think the possibility of having a hospital bill that high is slightly lower, as this sum might involve either a much longer stay, a surgery or a very complex medical complaint.

For this round, I think NTUC Income is the winner on the basis of probability at my current age.

Round 6: The full coverage riders

This means no payment at all is required in the event of hospitalisation.

Premium rate of the plan with this:

  • NTUC Enhanced Incomeshield Preferred: $373 + $306 = $679
  • Prudential PruShield A Premier: $360 + $366 = $726
  • AXA Shield Plan A: $391 + $322 = $721

Based on premium rate comparison alone, seems like my current plan with NTUC Income is a wise decision.

Round 7: Which rider should I get?

Just a bit of background, my parents had actually purchased my health insurance since I was age 1.5yrs old. Meaning, the total premium paid till date for the Plus rider is approx $7500. Prior to this, I was hospitalised once before at age 10 and had a surgery done. Same thing, did not need to pay a single cent.

So if I null the premium paid before age 10, my total premium paid for the Plus rider from age 10 to 25 (i.e. 16 years) is approx $4500. If i bought the Assist rider instead, the total premium for the same period would be approx $2800. That is a difference of $1700. So a hospitalisation bill has to be at least $17,000 to “break-even” at this point, for the Plus Rider to make sense. And that is close to the $20,000 arbitrary number I used, which I assumed would involve a much longer stay, a surgery or a very complex medical complaint.

Based on my recent hospitalisation, if I had the co-pay rider, I would have to fork out $650. That would amount to approx 6 years worth ($650 / ($306-$190)) of the additional premium I’m paying for the Plus rider.

My Other Considerations Currently

Because of the nature of my job, I have actually been falling ill pretty frequently. So I suspect I might potentially have multiple small admissions in the future. However, I cannot rule out a potential surgery for things like appendicitis or worse, accidents. (touch wood).

Future Considerations

Looking long-term, at age 50 and above, I think that the pre- and post- hospitalisation treatment limits are of utmost importance. Because recovery times tend to be longer than when we’re young and we’re looking at increased possibility of cardiac issues, stroke, etc that requires frequent follow ups for quite a period of time post-discharge. Meaning, Prudential and AXA’s offer of 180 days pre- and 365 days post- would serve as better coverage. Goodbye, NTUC Income.

In the those later years, the premium rate for the shield plans would increase drastically. Although NTUC Income comes at a cheaper premium than Prudential or AXA for private hospitalisation, I doubt I can afford a private shield plan then (approx $400-$500 every month for the plan alone!). I would probably settle for A or B1 class wards. So now, my worry is that if I were to develop a medical condition from now till age 49, and want to change my insurer in the later years, wouldn’t it complicate matters since now I am considered to have a “pre-existing medical condition”?

Just from a short (and maybe not as accurate) check, Prudential’s A Plus plan with extra lite rider would make the most sense in my silver years. Because hospitalisations will occur pretty frequently esp from age 70-100, the cap of $1750 per policy year will make a lot of sense. Moreover, AXA’s rider for full coverage would be substantially more expensive.

My Final Decision

I would probably stick to my NTUC Income plan with the Plus Rider at the moment. However, I will review my insurance again at age 30, with the eventual aim of converting to Prudential’s A Plus plan with the extra lite rider before any “pre-existing medical conditions” set in.

I don’t need health insurance… right?

What if the company you work in provides staff benefits in the form of paid hospitalisations? Would you still require H&S insurance then?

For example, the company I work in pays for 90% of its staff’s hospitalisation bills in ward A of government hospitals, meaning that we are only required to pay 10%. That’s equivalent to an integrated shield plan covering to class A of public hospitals with co-payment of 10%, isn’t it? So why do I have to subject myself to paying extra premiums for H&S insurance when I can get the same benefits for free?

But, are they really the same benefits though? Stayed tuned for my thoughts.

Endowment plan – yay or nay?

I just signed up for an endowment plan!

It was a long and hard decision, trust me. So many people frown upon endowment plans because of their relatively lower returns as compared to investing. That argument stuck with me. But here’s why I went ahead with it anyway.

It’s relatively “low risk”

Yes, it’s backed up by the Deposit Insurance Scheme by the SDIC. And I’m comparing it to other riskier options like investing in shares or speculative investing. Of course, the amount of “risk” (AKA risk of losing your money) is dependent on the endowment plan itself.

It’s better than putting your money in a fixed deposit account or your savings account

This is highly dependent on the plan you take up of course. For me, my very first criteria when looking at all the endowment plans on the comparefirst website is that the guaranteed payout MUST be greater than my total premium paid. We’ve heard so many stories of empty promises and poor returns when people assume that the non-guaranteed payout is what they are gonna get.

It’s for the long run

I like the idea of it locking away money till the plan matures so I wouldn’t spend that money now on useless things (not that I would anyway but just in case). At the same time, you get a choice to pay for a limited period of time (i.e. payment term). For example, you pay for the first 5 years and the coverage term can be 15-20 years. So for me, the premium I paid is just money gone that I would not think about till my policy matures.

It doesn’t take any work at all

No need to constantly check for drops in share prices or get heart attacks. Once you pick a good one, just let the company deduct the premium via GIRO and let the money work itself! Yes, this is meant exclusively for lazy people!

Conclusion

Of course, whether or not an endowment plan is suitable for you will depend on where you are in your investment journey. If you have long started investing and been getting gains better than any endowment plans out there, good for you because endowment plans would not make sense for you. But for me, because I have yet to start, I thought why not since I can’t be doing anything better with my money now anyway.

The lesson I learnt while considering whether or not to take up an endowment plan is that don’t follow trends / advice blindly. Do your research and consider all angles within the context of your lifestyle, financial goals and investment journey. Good luck!

Whole life insurance – are they really that bad?

If you are like me where your parents have bought some insurance policies on your behalf when you were kid and you have no idea what they are, it’s time to go find out because it’s time to take charge of those policies now!

Personally, my parents have bought me 3 policies – an integrated shield plan, a whole life insurance policy (started 10 years ago) and a life-time endowment policy (started when I was age 3). I’m happy about my integrated shield plan, but for the other two, I wasn’t too sure. For this post, I’ll just touch on the whole life insurance policy that I have.

Whole Life Insurance Policy

You see, my heart sank when I saw this policy document. Because everyone online is bashing whole life insurance policies. “Get term life insurance!”, they said. And I agree with them, especially when you are comparing the premiums. My parents have paid an annual premium of $1290 for a basic $100K coverage, where a term life insurance of the same coverage would now cost me $83 annually for 20 years. That’s a difference of nearly $24K in just 20 years!

But what should I (and maybe you) do when I have a whole life insurance policy bought by my parents and it’s been ongoing for many years? My parents insist that I do not surrender this policy, so in order to keep them happy, I shall not. But is whole life insurance as bad as people say?

Let’s take a look at the numbers that goes with my policy (projection based on 5.25% investment return).

Screen Shot 2016-07-03 at 2.15.01 pm

According to the policy document, I should only break even in 2018. However, according the annual letters the insurance company have sent to announce the bonus, my policy is already past par this year (total premium paid: $14,152, total cash value: $14,290), that’s 2 years in advance. Mind you, I have yet to start paying for this policy yet and it’s already past par. It’s not that bad keeping it right?

Given that I’m not allowed to surrender this policy, I’m just going to keep it and cash out in the later years (age 55/60/65) and use the cash value as my retirement funds. By then I would no longer have dependents so I would surrender the policy upon cashing out. Or if I am in my 40s and pretty sure I will not have any dependents, I might surrender the policy and withdraw the cash value if I’m in need of the money.

Sure, if I take a similar term life insurance, I would pay an annual premium of $113 till age 65, which would add up to $4633. So by age 65, I would have paid $$62,265 more in premiums with this whole life insurance. But at the same time, I might get back cash value of $226,990. That is an opportunity cost that I have to accept.

I can totally see why my parents chose to buy a whole life insurance policy – firstly out of love and also because they are extremely conservative investors who are risk adverse (that’s where my genes come from). So going for something like this rather than say, picking stocks or getting an ILP would definitely make more sense from their perspective. They themselves have multiple endowment plans of zero to low risk and I have seen how those have worked for them to achieve their financial goals.

Like I said, there’s really no right or wrong when it comes to such things. What would you have done differently if you were in my shoes?

Insurance 101

Here, I try to give layman terms of how I understand insurance policies are. But on your part as the reader, I suggest you read beyond just this post to ensure that you will make the most informed decision before purchasing anything.

When I was at the phase of thinking about insurance, I had a lot of questions. What are they? What do I need and why? What do I already have? Below is a table from DIY Insurance which is really useful to set things into perspective.

 

Life Insurance

Protects your dependents’ financial needs by paying out lump sum upon your death, when you become totally and permanently disabled and/or when you are diagnosed with an illness of having no more than 12 months to live. So, what if you have no dependents? Like if your parents are both working professionals who have done their due duty to save up for retirement and have sufficient funds for retirement. Or you are like me, still hopelessly single and not really sure if you will even get married and have kids? Then there’s probably lesser use for life insurance for you.

There are two types of life insurance: whole life and term life.

Term life insurance is simple and no frills. It provides the above mentioned coverage for you for a specific term (anything up to age 65). The good thing about it is that you can choose the term that you think will most suit your predicament (e.g. choosing 20 years because that’s how long you think your children will take before they become financially independent). And the premiums (i.e. amount you pay for the policy) tend to be very affordable.

Whole life insurance policies, on the other hand, is more complicated. And as its name suggest, it requires you to pay the premium forever (or at least till the age of 85). The premiums tend to be more expensive because they typically have 2 components – protection and cash value. The premiums you pay will cover you for the basic sum insured but it also has a non-guaranteed protection value that increases with more premiums paid. The other component, known as cash value, is where the premium also helps to generate some form of savings where the longer you pay and hold on to the policy, the more cash value you generate. You may withdraw the cash value at any point.

It seems like the most common opinion out there for young adults like us is for term insurance. I’ll discuss more about this in a later post.

Hospitalisation Insurance

Probably at our stage in life, one of the most important policies to have. This covers for your hospitalisation bills should you get sick and need to be admitted to one. Yes, but we have Medishield Life right?

According to the CPF website, “MediShield Life is a basic health insurance plan, administered by the Central Provident Fund (CPF) Board, which helps to pay for large hospital bills and selected costly outpatient treatments, such as dialysis and chemotherapy for cancer.” Focus on the word BASIC. This is because :

MediShield Life will help all Singapore Residents with large hospitalisation expenses. The level of benefits is based on the costs in Class B2/C wards in public hospitals.You will get the same level of benefits, whichever ward class you choose or if you stay in a private hospital. The benefits are calculated based on the costs in Class B2/C wards.You can sign up for an Integrated Shield Plan (IP), managed by a private insurer, if you want additional coverage of bills in the Class A/B1 wards or private hospitals. IPs comprise 2 components: (i) MediShield Life and (ii) additional private insurance coverage for the additional coverage in Class A/B1 wards in the public hospitals or private hospitals. However, premiums for IPs will be higher, so do consider your choice of ward class carefully and the premiums affordability over the lifetime, and plan your insurance coverage accordingly.

Endowment Plans

This is basically an insurance policy that helps you save. You pay a premium and they hold it for a selected period of time and your money grows if you hold it till maturity. For example, you may pay $5000 a year for 5 years. The money gets locked in for a total of 20 years. After 20 years, you will receive a lump sum that is (hopefully) more than the amount you paid. I said “hopefully” because endowment plans differ from one another. Some endowment plan’s guaranteed sum on maturity are much lesser than the premiums you have paid because the non-guaranteed component in the form of bonuses will help add up to give you more. But please note: non-guaranteed.

I’m a very conservative person when it comes to my finances so when it comes to choosing an endowment plan, my amount guaranteed on maturity has to be greater than the premiums I paid, albeit having lower returns. There are others out there who are strong opponents of endowment plans simply because it does not put your money to work enough and might not even beat inflation rates. My way of thinking is – if I don’t put this money into the endowment plan, I wouldn’t be doing anything else with them that will produce better returns anyways. So, whether or not to take up an endowment plan is entirely up to your investment character and your opportunity costs. There’s no right or wrong.

Investment Linked Plans

This is one of those more iffy types of insurance policies. Financial gurus all do not speak well of these plans. Personally, I can just tell you that I am not 100% sure what they really are but I know given my character as a zero to low risk taker, this is a huge no-no for me. If you are interested in getting an ILP, I suggest you do due research and read the policy document carefully. Good luck!