This article was first published in the June 2017 issue of Her Worldmagazine.
Clueless about insurance? You're not alone. 60 women (in their 20s and 30s) told us their biggest quandaries about managing their insurance policies, and we spoke to the experts to find out what are some easy rules to follow. Turns out, once you get your head straight on the facts, it's more straightforward than you think.
Should I stick to just one insurance company?
Every insurance company has different strengths. By getting all your plans from one company, you could be shortchanging yourself, says Ng Si Hui, an associate manager at Ray Alliance Financial Advisers. So diversify. Another tip: Everyone has an opinion on which companies offer the best solutions. But what’s good for one person might not work for someone else, because of multiple factors like health, age and lifestyle. So cut the noise by first figuring out what you need, then doing your homework.
Also, don't push your insurance plan to the back of your mind after buying in. Check in with your financial adviser once a year, and definitely at every key life event (like when you get married or have a baby. Come up with updates on your assets, liabilities, cash flow and new financial goals. It'll help your adviser assess whether your plan needs to be updated to suit your lifestyle.
Is my company medical insurance enough?
If you’re relying solely on your company medical insurance, you should get more. First up, the coverage is likely to be pretty basic (consultations with a general practitioner, and perhaps hospitalisation fees), and there’s a limit to how much you can claim.
Then there’s the issue of how confident you are about staying with this company for the long haul. Because company insurance only covers you when you’re an employee, once you leave, you’re on your own, says Caleb Tan, executive manager, Great Eastern Financial Advisers. Your new employer has the right not to cover you for any pre-existing or long-term conditions which you might have developed while at your previous job.
So get yourself some private medical insurance. “This way, regardless of your status of employment, you will always have that safety net, adds Caleb. Plus, the older you are, the more expensive your premiums will be, so don’t wait until you leave the company before signing on.
Is there such a thing as over-coverage?
You might think you’re cool with waiting at the A&E, or recuperating in a six-bed ward, and that buying a plan which covers anything extra is over-coverage. But sometimes, you don’t know what your threshold is until it’s tested. When a health crisis strikes, you might decide that you actually prefer the comfort of a private ward. So if you can afford it, take up private medical plans rather than a government hospitalisation policy – it’ll minimise the waiting time for treatment, and you’ll have the option of choosing an upgrade. The same rules apply if you’ve never been warded and find it hard to know what your specific needs are when it comes to health care.
How much do I really have to declare to my insurance company?
If you have a pre-existing condition, you will need to declare it to your insurer before purchasing a plan. Be prepared for three outcomes: total decline (where your plan is rejected), loading (where you pay a higher premium) or exclusion (where your plan is approved but your pre-existing condition is excluded). The outcome depends on how high the risk of payout is. For example, if you have high blood pressure or high cholesterol from a young age, you run the risk of decline because of the high chance you’ll suffer from heart disease as you get older. You could decide not to declare your condition and hope your medical claim is successful, but insurers do their homework before processing claims – such as speaking to your doctor and finding out exactly when you were diagnosed.
If I’m not pregnant yet, should I bother with covering my unborn child?
It’ll come in handy if there are unexpected complications during your pregnancy, or if it turns out that your baby has congenital illnesses, says Ng Si Hui. Local companies like AIA and Great Eastern offer prenatal insurance plans that cover you when you’re 13 weeks pregnant (the earliest at which you become eligible for these plans) up to one year after the child’s birth (and up to three years for your child).
But they don’t offer plans that cover maternity expenses such as doctor’s visits or delivery costs. For these, you could opt for international health insurance plans, but there’s a waiting period, and the premiums are hefty.
What’s the one insurance that I definitely need to get?
Home insurance covers you in case of fire, theft and natural disasters. And you should get it. In Singapore, fire is probably the cause of home damage you have to worry about the most. You can’t afford to take your chances. “Home insurance makes your life easier because the insurance company will compensate your loss first,” explains Caleb. “It will then engage a lawyer to get back the compensation from your neighbour or their insurance company on your behalf.” Without fire insurance, you’ll have to go through the hassle of getting your neighbour to cover the damages.
What’s the difference between home insurance and mortgage insurance?
People often conflate the two. But you’ll want the added protection that comes with the latter, especially if you and your partner are servicing a loan together, and he gets really sick – or worse, dies. What mortgage insurance does is to pay out a lump sum upon diagnosis of terminal illness, or death. That sum is determined by the affordability of the premiums, the value of the house, or the desired value (which could be more than the actual value of the house).
This model is similar to the Home Protection Scheme under the Central Provident Fund (CPF), but with two key differences. With mortgage insurance, you can opt to add disability and critical illness riders – not an option for the scheme under the CPF. You’re also not subject to limitations such as an age cap of 65 years or a non-transferable clause if you get a new property.
Is it possible to insure my luxury goods?
There’s no minimum value required to insure items like your wedding ring, Rolex watch or even your Chanel handbag. All these can be covered under a standard home insurance package, which means the company will assess the future value of your items, and you’ll get a payout should these get stolen or damaged.
But if you’ve got a rare and valuable piece on your hands, some insurance companies do cover collectors’ items – on separate plans. Chubb Insurance, for example, offers plans that cover luxe jewellery and fine art.
This article was first published in the June 2017 issue of Her Worldmagazine.
Creating a financial plan that ensures that you spend less than you earn and also save some money every month should be simple enough. But for many people this is a difficult task.
Practically everybody realises that it is important to draw up a budget and monitor your spending according to it. In fact, most people start quite enthusiastically and make a note of every little expenditure that they make. But this zeal is usually short-lived. They soon revert to their old ways and spend without keeping track of how the expenditure that they are making fits into their overall plan.
How can you make a budget that is easy to follow and which you can stay with over an extended period?
Unfortunately, there is no simple answer to this question. You have to arrive at a set of techniques that you are comfortable with. The trick is to be flexible and to try out different methods till you find one which works for you.
Here are some points that could help you succeed in your budgeting exercise:
At the end of March 2017, the total credit card balances that Singaporeans had rolled overwas in excess of S$5 billion. Credit card debt carries very high interest rates. The standard interest rate for a DBS Bank credit card is 25.9% per year. OCBC charges a similar rate.
If you are carrying any credit card debt, the first step that you should take is to make a plan to pay it off. It may not be possible to do this in a single month. Draw up a repayment schedule that allows you to clear your credit card outstanding over the next three or six months.
During this period, you should not divert any of your income to savings. Your top priority is to liquidate the sum that you owe on your card.
Why shouldn’t you save during this period? Any financial instrument that you invest in will not give you a return that is even a fraction of the rate that you are paying your card issuer. Remember that the correct approach is to divert all your surplus cash to get to a “nil” credit card balance.
The first part of this question should be easy to answer, but calculating your expenditure could be more difficult. Most people underestimate the amount of discretionary expenditure that they make. Transportation costs, eating out, and expenses over the weekend can add up to a significant amount over the month.
Although it can be tedious to track every small expenditure that you make, you may want to do this for a week or a month to get an idea of where your money is going. To make your task easier, you may want to use a budget calculator.
There are also a number of apps that you can use to monitor your expenses. Seedly is simple to use and works by importing data from your bank and credit card issuer and aggregating it under various heads.
Once you have tracked your expenditure for some time, you can sit down and consider if all of it was really necessary. It is likely that you will be able to identify some areas that you can cut back on without much effort.
No budget is complete unless you plan to allocate a part of your income to fund your retirement expenditure. How much should you deploy in long-term savings every month? While the amount could vary depending on how much you earn and your expenses, you should save at least 20% of your income.
The mistake that many people make is to defer this activity till the end of the month. The idea is that by this time you will know the surplus amount that you have left over after all your commitments have been met. You could even have a situation where you would be able to save more than 20% of your income!
Unfortunately, in most instances, it doesn’t work like that. Your bank balance could be totally depleted by month-end. Even if you do have some cash left over, it could be less than the targeted 20%.
There are many financial decisions in life that we have to make. Sometimes, there are important decisions that we should think through carefully, rather than to go with the default choice that everyone else around us has made.
All Singaporeans and PRs are automatically covered under MediShield Life, Singapore’s basic health insurance plan. Coverage is provided regardless of age or pre-existing conditions.
According to the Life Insurance Association (LIA), two in three Singapore residents have a private Integrated Plan (IP). In addition to that, one in three have an IP rider. A rider allows deductibles and the co-payment portion of the bill to be covered by insurance companies.
While we think a private integrated shield plan is something everyone should consider, it’s also important for you to first understand the extent of the coverage that you want, and to get the plan that best fits your requirement.
Think about long-term affordability as well. When you buy an IP, you will be paying the premiums for many years. So check out how much future premiums will be before committing to it.
Many people advocate getting a BTO flat as your first home. It costs less and is newer, compared to other similar flats in the vicinity. We have also written extensively about why we think you should get a BTO flat.
But a BTO flat isn’t always your only choice, or even the best choice. A home is after all…your home and your personal preferences matter.
For example, some couples may want to stay near their parents and may opt for a resale flat. Others may want to stay nearer to the CBD for a more convenient daily commute.
As a default option, most HDB homeowners will opt for a HDB loan because interest rates are stable. In contrast, bank loans can vary over the years depending on the interest rates of the market.
In recent years, low interest rates offered by banks has led to more interest even among flat owners who qualify to take a bank loan.
If you wish to find out more about whether a HBD or bank loan is more suitable for you, you can read this article we wrote about HDB vs Bank loan.
Many Singaporeans pay their home mortgage using money from their CPF Ordinary Account (CPFOA). In fact, more than 80% of HDB homeowners do not pay any cash for their monthly home loan repayment.
However, funds in your OA can earn you a risk-free return of up to 3.5% per annum, while cash on hand, unless invested, do not generate any returns. Interest earned will become a large sum of money when compounded over a long time period.
When Singaporeans use their CPFOA for their home loan repayment, they should think through carefully on how tapping on these funds today will impact their own future retirement.
Singaporeans age 65 have a choice of choosing their preferred CPF LIFE plan. They can choose from the Standard Plan (default choice) or the Basic Plan.
In a previous article written, we analyse that based on life expectancy, the Basic Plan appears to be the “superior” plan. This is of course subjective and largely based on how long you actually live to.
While we are not saying that everyone should choose the Basic Plan, we think more Singaporeans need to do the comparison for themselves, before deciding on what makes the most sense for them.
Thinking through a decision does not mean that the default choice available is not a good choice. For the most part, a default choice is usually the more logical choice for most people, hence the choice being “default” in the first place.
However, as with many other financial decisions in life, what is suitable for others may not always be the best choice for you. Big decisions should never be taken lightly. So think through these decisions in advance before you make any of them.
Thanks for the info! Self discipline is very important too