Tan Kin Lian's Blog: Insuring against critical illness

Monday, March 10, 2008

Insuring against critical illness

I recommend coverage of $50,000 for critical illness up to age 65 or earlier. Some people think that this is not adequate. Insurance agents have advised them to insure for $200,000 or more.

Here are the reasons for my recommendation:

a) The cost of treatment should be covered by a medical insurance policy.

b) The loss of income should be for a period of up to 2 years. If the illness is serious, it is likely to lead to death. If not, the patient is likely to recover.

c) There is no need to insure for loss of income beyond age 65. By that time, the person is likely to have retired from work.

The cost of critical illness coverage, based on my recommendation, is quite low. This allows the bulk of the savings to be invested in a low cost investment fund, to earn a high yield. This money is needed for retirement. There is a stronger need for adequate savings for retirement (simply because more people are expected to retire, than to suffer a critical illness).

There is high cost in buying a whole life critical illness product. About two years of the savings goes to pay the marketing expenses. This should be avoided. I shall be working out a FAQ to explain the cost structure.

4 comments:

jc said...: Hi K.L.

Thanks for ur tips. I just graduated and found a job.

Have 3 policies as follows
1) NTUC Enhanced Incomeshield (Basic, intend to upgrade to Advantage) with Plus rider

2) Great Eastern Disability insurance...paying around $40/-. If i'm disabled, they'll pay me 75% of my last salary till im 65.

3) SAF-Aviva insurance. death+ CI protection. 50k protection for around $12 monthly.

can u pls suggest any changes to the framework?

I'm starting to invest around $200 monthly into DBS Shenton Thrift

Thanks!; March 10, 2008 7:38 PM
Anonymous said...: You have a good start . You have good policies. Don't change them.NO NEED to buy any insurance unless you have someone depending on you. Meantime focus on your saving and investing.
Be on your guard against insurance salesman upsetting your plan, especially bothering you with those whole life stuff. You don't need whole life, remember.
If you are not sure post your concerns and questions here. There bound to be someone to help you.
If you really must have an adviser , for your own sake , engage one with a CFP qualification.He or she is a planner and not a salesman or woman.
As for your regular investing , is it a RSP with very low charges? Don't fall into the trap. There are many so called hybrid insurance plans masqueraded as regular investing plans that carry high commission.All the best to you.; March 10, 2008 10:10 PM
jc said...: Hi Mr. Tan

thanks for ur reply.

Yeah, I think my current insurance protection is rather comprehensive. Currently paying around $50 monthly for the disability income + death & CI insurance. The hospitalisation one is not included in the monthly bill as its paid annually

As for the investment, I'm currently looking at this unit trust 'DBS Shenton Thrift' (from fundsupermart or FSM)

Its inital sales charge (ie. pay this amount each time an investment by cash or CPF is made): 2%

Annual management charge: 0.75%

Annual expense ratio (i understand that this ratio includes the annual management charge): 0.93%

I was considering the NTUC Growth plan (pure insurance only), Singapore Equity fund. But had a bad experience with one of the NTUC salesman, who tried to shift me to retrosave and some other high commissions plan(leave that aside for now)

would it be advisable to drop by to ur Biz centre to purchase the same Singapore Equity fund, but under ID7?

many thanks for ur advice!; March 11, 2008 9:42 PM
Anonymous said...: You should buy it from Business centre. Remember it is ID7
You are right . Don't buy the Retrosave!!!!!instead of growing it is shrinking.; March 13, 2008 8:29 PM