Insurance Planning in 15 minutes

Some time back, I mentioned that I would be reviewing my insurance needs. Since then, I 've sent out several emails to various insurance companies to request for a quotation.

After doing a review, here are a few of the plans which I think is essential. In the order of importance (in my personal capacity as a normal man on the street):

1. Medical Insurance (Must have)
2. Insurance cover for Death and Total Permanent Disability (Must have)
3. Disability Income Insurance (Must have)
4. Insurance cover for Critical Illnesses (Nice to have)

Medical Insurance
Premiums for Medical Insurance can be paid using your CPF (up to $800 per person). It basically covers for any big bad events which requires you to be hospitalised. I've did a simple comparison on the benefits versus cost for different insurers but have been told that the premiums will be increased soon, probably in July. so I will not include the comparison here.

As you may have felt the effects of inflation on your daily life, do take note of this component too when you choose your plan. It's best to get one which reimburses you on a "As Charged" basis to cover yourself against medical cost inflation. If you need an idea of how much medical operations costs in Sunny Singapore, you can check it out here.

You can get this policy anytime you want. But do take note that if you do switch between insurers, make sure you do not have any pre-existing conditions.


Insurance cover for Death and Total Permanent Disability (TPD)
Most people would have known this by now. As such, my point of discussion will be on whether you should get a Term or Whole Life Policy.

Friends of mine will know that I'm a proponent of Buying Term and Investing the Difference/ Rest. My reasons are:

• The insurance should be for protection purposes, not for investment.
• The purpose of insurance is to protect yourself and your family should you be gone and unable contribute to the household.
• No intention to leave a large legacy for my dependents, except to cover for their daily needs when they are still financially incapable.
  

But one caveat about this method - You need to be fairly disciplined to invest the rest. I think this is not such a big problem if you set up a regular savings plan with Fundsupermart or DollarDex. I'll talk about that the next time.

You have to understand that as you're paying less every month in insurance, you should go along the path of becoming your own insurer after you pass the age of 65 or 70, when insurers will only take you in if you pay up a large sum of premiums. Hence, the remaining invested will be a cover for your own death and TPD after those ages.


Disability Income Insurance
There is a very real need to protect ourselves against risk of being totally or partially disabled. If the bad were to happen, the effective income generation due to the loss of working capability will be zero (unless you have other streams of income coming in, but that's a different issue). Hence, you need a policy which pays you should you lose the ability to work. For this, you can approach either Great Eastern or Aviva. To my limited knowledge, these are the only 2 insurers providing such policies.


Cover for Critical Illnesses
They are nice to have. The cost of hospitalisation and surgery should have been covered by your medical insurance. However, it might be necessary for you to have an additional sum of money to tide over the period where you are unable to work after your surgery (assuming of course you can be saved).


There you go. Insurance planning in 15 mins! I'm going to kick start my plans this weekend.

A Case of Luck

I recently had the opportunity to participate in a seminar on investing and financial planning. In the seminar, we played a game quite similar to the cashflow game of the Rich Dad, Poor Dad fame.

Although it was just a game, it provided an insight of how one would manage one's money in real life. However, I must comment that some rules of the game makes it quite unrealistic. For example, the winner is the one who is the most cash-rich, not the one with the highest net worth.

I observed at my table at how other participants played the game. Initially, everyone was quite cautious. They were some chances to make big money, but we tend to ignore them, until someone else makes the money. Soon, all of us were taking those chances. See how great the lure of money (whether real or imaginary) is?

As the game proceeded, we were becoming reckless in a sort of a way. There were some chances where the returns weren't that good. Worse, they actually had a greater downside risk then upside potential. But participants chose to take it anyway.

In addition, people tend to forget the prices at which they made the purchase. I became a middleman at some point and made some commission off other participants. These participants then sold off the houses/ stocks later when they thought they had made a profit. They would have, if not for the cut I took from them.

And so it goes. The winners from each table were asked to share how they win the game. Since the game involves dices, luck was one of the component which some winners believed were essential to their positive outcome. While I believe many people had fun with the game, they might have taken home the wrong message, especially when the trainer implied that luck was important as well.

If I were to assume that the observation at my table applies to other tables as well, that is hardly the case. We might be unable to control the externalities (eg. the dice rolls), but we are able to control ourselves (the decision we make or don't). We might not be able to win the game because we happen not to land on those big chances (lack of opportunity as some say), but it not should be used as an excuse for some lousy decision made (your bad...admit it).

Bringing these learning points back to real life, here's how we could apply them.

1. Be clear on your financial objectives.
2. Monitor your finances carefully.
3. Determine your potential gains to losses when making any financial decisions.
4. After the middlemen take a cut of your profits, you're on your own.
5. Life could be cruel and deal you a bad hand, but you must learn to play the game good.
6. If opportunity doesn't knock on your door, it's probably because you haven't built one yet.

Free Money

Haven't you people heard about it? Banks are giving money away!

Just look at the queue forming at a favourite local bank:


Ok. That's not true. This bank happens to have a major market share and too few ATMs in towns.

But before you go, let me get back to my point. I'm sure you have seen advertisements for the Citibank Step-Up Account which offers a competitive interest rate of 0.6875% to as high as 2% compared to a measly 0.125 - 0.3% of local players. No minimum balance required, but you'll need to credit your salary into this particular account.

What's more, I signed up during the window period where they were offering $20 for brave souls willing to make the switch. The last time I heard, they are still offering this cash incentive. Just that it'll be in the form of SMRT voucher - perfect for the daily train commuter who has to wait for trains that almost never come during peak hours.

Sure, $20 is nothing for some of you. What about an additional $30? A separate $30 will be yours if you apply for any platinum card from Maybank. You'll need to charge something to the card first before they hand you the money. But such thoughtful gesture is surely worth reciprocating, especially if they beef up your wallet.

I was told that a few months back, OCBC had a similar promotion to Citibank's Step Up Account. Apparently, they were giving $50 for people crediting their salary to their OCBC account. Too bad I missed the offer.

So, keep a look out for such offer. It's free money for only 5-10 mins of your time.
Of course, don't go out of the way to do that.

Reading Habits

Reading used to be such a simple activity. I put commuting time to effective use through reading. However, it is increasingly difficult to do my reading on the bus/train.

Not because SMRT has reduced the number of train runs during peak hours, but rather because of the nature of the books I read are largely non-fiction. I tend to run into a lot of theories, concepts and personalities which are interesting enough to find more information on them.

Reading takes place in front of a computer now, where I can easily google for the required information. Of course, this is not a valid reason for not reading the targeted number of books for the month of February.

On a side note, ordering books from Amazon.com is pretty fun. I guess that is unavoidable because some books I've read simply resonates so much with me that I have to have a copy. I derive something new with every read. It's not that the books have changed. It's how life experiences have altered me. That's a good thing since it means I'm still capable of learning. No?