Insurance is a vital aspect of financial planning, but many individuals are unsure about the specific type and amount of coverage they require. It is possible to over-insure and waste valuable resources. Therefore, it is crucial to have a clear understanding of how insurance works.
Here’s an in-depth look at the various types of insurance you should consider for a well-rounded coverage plan in Singapore, listed in order of importance:
1. Health Insurance
Basic health insurance in Singapore is provided through MediShield, which covers most hospitalization costs in public hospitals within C to B2 class wards. However, if you prefer a private hospital or a B1 or A class ward, MediShield may not be sufficient to cover the expenses.
To enhance your coverage, an Integrated Shield Plan (IP) can be obtained from a private insurer. This plan complements your MediShield coverage, ensuring adequate protection for higher-tier wards. Importantly, having an IP does not result in duplicate coverage or double premium payments.
Besides ward preferences, having an IP extends the limits of your claim. For instance, some IPs increase the maximum annual claims limit to SGD 1 million, providing added peace of mind during major health issues like cancer.
Additionally, having an IP allows you to purchase a rider, which adds coverage to your existing policy for an extra cost. Riders can reduce their co-payment amount and even offer cash incentives for staying in lower wards. Consulting a financial adviser can help you understand the importance of an IP and its benefits.
2. Disability Insurance
Disability insurance provides income replacement if you become unable to work due to a disability. This type of coverage is particularly important for individuals in physically demanding professions, such as professional dancers or yoga instructors.
The amount of disability insurance you need depends on the percentage of income you wish to replace. Generally, it is advisable to aim for coverage that replaces 70 to 75 percent of your monthly income. For example, if you earn SGD 4,000 per month, you should seek disability insurance that provides SGD 2,800 to SGD 3,000 per month.
Please note that disability income typically has a deferment period before it begins, ranging from two to six months. The shorter the deferment period, the higher the premiums.
3. Critical Illness Coverage
Critical illness coverage provides a lump sum payout if you are diagnosed with a critical illness such as stroke, heart attack, or cancer. It is crucial to review the specific illnesses covered by the insurance policy.
There are two types of critical illness coverage. The first type offers an immediate payout upon diagnosis, which is generally recommended. The second type provides a payout only when the illness reaches a certain stage. Opting for immediate payout ensures timely financial support during critical times.
Consider the desired payout amount carefully, as higher payouts result in higher premiums. It is advisable to select coverage that can sustain your income for at least five to seven years. This ensures financial stability while allowing you to focus on recovery and spending time with loved ones.
4. Life Insurance
Life insurance provides a payout, known as the sum assured, in the event of death or Total Permanent Disability (TPD). TPD coverage typically includes conditions such as blindness, loss of limbs, or being wheelchair-bound. Reviewing the terms and conditions of the insurance policy is crucial to understand the coverage provided.
In the case of death, the sum assured goes to your beneficiaries, providing financial security for dependents such as young children or dependent parents. The size of the sum assured determines the premiums. Similar to critical illness coverage, aim for an amount that can replace your income for at least five to seven years.
Note that life insurance policies may include investment-type benefits, such as annuities or cash bonuses. For the purpose of this discussion, we focus solely on the insurance aspect.
5. Personal Accident Plan
A personal accident plan offers a payout in the event of accidents such as fractures or injuries suffered during activities like trekking. While there may be some overlap in coverage with other insurance plans, personal accident coverage can still be beneficial.
For example, health insurance may not cover certain expenses like X-ray scans, whereas a personal accident plan might provide coverage, saving you out-of-pocket expenses. Consider this policy if you can afford it, although most people can obtain sufficient coverage from the previously mentioned policies or their employer’s group insurance.
Understanding the various types of insurance and their significance is a vital step towards creating a comprehensive coverage plan. By carefully assessing your specific needs and seeking guidance from a financial adviser, you can make well-informed decisions that provide optimal protection for yourself and your loved ones. Remember, insurance is not a one-size-fits-all solution, so take the time to evaluate your circumstances and choose wisely. With the right coverage in place, you can have peace of mind knowing that you are safeguarded against unexpected events.