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Types Of Insurance

>> Sunday, December 5, 2010

With the exchanges on the ST Forum after SM Goh Chok Tong’s speech at the NTUC Income 40th anniversary promoting term insurance, it would be timely to review the various types of insurance available.

Broadly for death, total and permanent disability (TPD) and critical illness (CI), there are:
  • Term
  • Whole life
  • Endowment
  • Investment Linked (ILPs)
Term insurance is generally pure insurance where one pays for the protection coverage, if the insured events do not occur, the premiums are non refundable. The other 3 are mainly a hybrid of term insurance with a saving/investment portion. The savings/investments portion is inflexible and subjected to various terms and conditions if one wish to withdraw from it. The premiums are higher, tenor longer and ultimately this translates to more commission to the sales staff and therefore, less beneficial to the payer.

There are also important kinds of insurance that are term, namely,
  • Hospitalization (Shield plans)
  • Disability Income
  • Personal Accident (PA)
With the rising cost of health care in Singapore, Hospitalization insurance cannot be more emphasized. Medishield only provides for the basic coverage. For more comprehensive plans, one has to upgrade to an appropriate private shield plan and the suitable rider.

Disability income provides better coverage compared to a TPD plan as the disability can be occupation related. A few major obstacles for the promoting of this plan, to my knowledge, are that it is only provided by 2 insurers in Singapore and the underwriting process can be very stringent.

A PA plan can provide coverage for most unforeseen accidents at a very affordable price. It pays a lump sum upon death or TPD and hospitalization coverage if it is as a result of an accident.

A combination of these 3 plans for young adults just starting out to work would be sufficient and averagely would cost less than $50 a month for basic coverage. It would be ideal to compliment with a term plan for death, TPD and CI. The more affordable ones are from group insurance like SAF, NTUC Union and company plans.

However, commission from all these plans normally does not even cover the cost to prepare and submit the paper work. Most group insurance does not even pay any at all, hence they are seldom recommended. As a result, there is little awareness of its availability.

- Written for IMSavvy


financialray December 7, 2010 at 2:22 PM  

Actually the debate between term and whole life insurance is very interesting. If NTUC insurance can offer 4-5% returns on whole life insurance for the long term, I guess it may sound more palatable. After all, I am sure many have bought whole life insurance before this debate erupted. If I am not wrong, I believe even Mr Tan Kin Lian is alright with 4-5% returns from a whole life insurance plan.

Lau December 7, 2010 at 11:46 PM  

4-5% absolute returns will indeed be attractive. However, has it historically been achieved?

3.75% / 5.25% on BIs are not reflective of absolute returns. To achieve the 5% returns will mean performance exceeding the projected values.

financialray December 8, 2010 at 9:58 AM  

I remember NTUC income taking out a few full page ads few months ago or last year to extol their good returns of 4-5% for their insurance policies. Past performance is not indicative future outcome though. Thought with the raging debate, the current CEO of NTUC income or any other insurance companies should step out to clear the air.

Lau December 8, 2010 at 10:34 AM  

Well, the CEOs will probably be wise to stay silent.

As the chinese saying goes, "ye miao ye hei", the more they try to explain, the darker it gets. Or worse, more ugly truths may emerge.

financialray December 8, 2010 at 11:28 AM  

Me and my wife bought insurance from NTUC income and Great Eastern. After the Lehman Brothers and AIA saga, we think safer to buy from NTUC income or Great Eastern. If Singapore can continue to prosper for the next 20-50 years, NTUC income and maybe Great Eastern will still be around. If CEO of NTUC income wants more business, it would be an ideal opportunity to pledge again the good returns of their whole life policies tied to Singapore's economy.



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