MOST Singaporeans would pay to provide for their loved ones on their death but fail to ensure sufficient funds for their own living expenses should something happen to them.
Recent statistics show that Singaporeans are under-insured and not well protected against disability and ill health. As healthcare becomes more sophisticated and expensive, people are living longer even if they are not in good health. Often these people are ill-prepared for such an eventuality and have to depend on welfare or their families for their living and medical expenses, thus draining all available financial resources.
Fortunately, we can take control of our lives with life planning and protection plans which can give us some financial freedom and prevent us from becoming a liability to others.
In the course of my work, I have counselled many people on the importance of having a financial plan. We wouldn't build a house without a set of building plans, so why should our personal financial situation be any different?
Questions such as these are often swept aside as being too morbid for discussion. Hence, many people resist seeking help from financial advisers, invariably thinking: 'It won't happen to me.'
The reality is that everyone needs to address these important issues: protecting against medical expenses in the event of a major illness, and ensuring disability income, which provides for daily expenses should one lose the ability to earn an income.
We need to decide on suitable hospital and surgical (H&S) insurance while we are still young and healthy. Consumers might need the help of an independent financial adviser to tailor a solution for them, since there are a myriad of H&S insurance plans in the market.
One should ensure that a health insurance plan is guaranteed renewable rather than terminate or, worse still, increase premiums after each claim experience.
With the recent revamp to the Medishield healthcare scheme, every working Singaporean is covered by basic Medishield insurance which they can choose to enhance.
With cancer and heart disease topping the list of major illnesses that could hit two in every four persons in Singapore, protection against critical illness or dread disease becomes a necessity rather than a luxury. Buying a critical illness insurance plan when one is young and healthy is important since the old and frail are no longer the only ones that face such illnesses. Ministry of Health statistics show that critical illness hits young and old alike and an increasing number of younger people succumb to cancer these days.
With the advances in medical science, many survive a critical illness or injury - but could face financial difficulties. A critical illness insurance plan will pay a lump sum benefit to the insured on diagnosis of a specified disease or on permanent total disability. Such payouts are handy to tide over a prolonged period of illness.
In the past five years, life insurers have enhanced their critical illness plans to cater to the changing demography and to provide wider choices.
Employment status
Premiums for critical illness insurance are more competitive today than they were in the early 1990s. Yet, not many Singaporeans see a need for this insurance. There are people who insure themselves with a token sum assured, say, $20,000 or $50,000, and hope never to lay claim to it.
Besides taking care of our hospitalisation and medical expenses, we need to address the issue of disability income after surviving a critical illness or a serious injury. Many such survivors lose their jobs after a catastrophe and have to rely on family or friends to keep them going. This is where disability income comes in handy.
As the insurance industry has strict entry criteria for disability income insurance plans, industry intermediaries might find it cumbersome to promote such cover. It does not help that some insurers have poorly designed disability income riders that fail to meet the insured's needs.
By definition, the disability income benefit pays a monthly income in the event of disability due to illness or accident. The payouts vary according to the insured's condition and whether he is certified 'totally disabled' or 'partially disabled' by a medical practitioner appointed by the insurer.
Disability income is paid based on the insured's employment status. If totally unable to work for the first two years of any period of total disability, the insured will receive a monthly payout. If he is still unable to work at his previous level after the first two years, the monthly payout will continue until the maximum amount payable is exhausted on his plan.
Partial disability means that following a period of total disability, the insured is able to return to employment in a reduced capacity and at a lower income. A partial disability income will be worked out based on a pre-determined formula. Definitions of disability and income benefit payouts differ across the industry. You need to take a closer look before signing on the dotted line because no two plans are alike.
The true goal to financial planning is to take a close look at our monthly expenses and protect against the eventuality of not having an income to meet these expenses. Sadly, many people make their plans based on emotion (fear and greed) rather than on their situation, resources and goals. It is thus important to get the help of independent financial advisers who can take the emotion out of the process and provide practical solutions to meet individual objectives.
It is never too early to plan or too late to start. Budget wisely even if it is a small sum for protecting your own interests.
If your parents are healthy and live to a ripe old age, chances are you will enjoy a long life and you need to prepare for sufficient living expenses. Annuities and pension funds are the best answers to see you through your lifetime.
A financial plan should not be a one-off exercise. As we move through different life stages, it is important to make periodic reviews of our financial plan to ensure that it meets our goals.
The writer is a senior associate at Cornerstone Planners.
