13 Dec A Comprehensive Review of My Family’s Insurance Coverage
This is a guest post by BH. BH is a healthcare professional who takes a keen interest in palliative care. He applies to his personal financial affairs the same level of meticulousness he displays at work. He has kindly agreed to contribute articles on issues that is close to heart. BH is also a BigFatPurse reader and a long time childhood friend.
As a friend, Jon has always insisted that financial illiteracy is very expensive. It took me a long time to appreciate the impact of this.
My parents worked very hard for their money. Life wasn’t very kind to them and they didn’t have a lot in life. No one told them about financial planning and buying insurance as a form of protection. They opted out of DPS. Luckily, they didn’t opt out of Medishield. That provided for a chunk of their hospitalisation bills later on in life.
I grew up in a 2-room HDB rental flat. One day, a fire broke out and destroyed almost everything. Little was salvaged and we had no fire insurance. Thankfully, the block of flats was due for SERS and was about to be demolished in less than a year’s time .
Most of the units were already empty. HDB offered us the next-door empty unit to stay in until our new flat was ready. We didn’t have to reinstate the flat to its original condition. I cannot imagine how much it would cost to reinstate the burnt unit.
Early Insurance Policies
Life has been much kinder to me. I got married, bought my 1st HDB flat and the kids came along. With the experience of my home being burnt down, I insisted on buying fire insurance when I had my own flat.
Along the way, we learnt the importance of buying medical insurance for the kids, and bought them early. It proved right decisions because both kids had a single episode of hospitalisation when they were 4 to 5 months old.
My younger child had some congenital issue that was only discovered at almost 1 year old. Because we bought the insurance early, coverage was not affected. We attempted to upgrade the policy rider recently, and it was approved with exclusions.
My wife used to buy all her policies from one single insurance company. Even as we started to buy insurance for the family, we didn’t really compare policies. We would tell our previous advisor what we wanted and she would pull out some policies from her company’s existing plans.
We would mull over it and buy something which we thought is suitable and within our means. It didn’t occur to us that this was a bad option. We read a little about independent advisors but didn’t think too much about it. Like many couples at the early stages of marriage, cash was tight. We bought what we could afford.
I bought my first personal insurance policy when I was enlisted into the army. The SAF Group Term Life ( SAF GTL) insurance gave me a very decent protection for a cheap premium. As time went buy, I increased my coverage and also added critical illness (CI) coverage. I also got my wife covered under the plan.
A through review
We decided it was time to do a thorough review of our coverage as a family recently. Thanks to BFP and other online resources, we learnt that term insurance is more sensible way to maximise coverage with cheaper premiums. But it isn’t a popular product with advisors because it offered little commissions. In fact, it was almost unheard off until Internet and social media made people better informed.
Through a friend’s referral, we met up with an independent insurance advisor, M. She did a thorough review of our coverage. Being independent means she was not obliged to offer plans from any particular company and therefore could get the most suitable plans based on our needs.
But again this was subject to what she could sell. As far as I know, Prudential does not allow independent advisors to sell their products.
Private Integrated Shield Plans
We don’t plan to stay in private hospitals or need single rooms, but there are 3 key reasons for upgrade.
1) The yearly claim limits each plan offered. A typical ISP had a limit of $600k on the most expensive plan and $150k on the cheapest. Medishield Life on the other hand, had a revised limit of $100k (revised from $70k). A friend told me his dad’s heart bypass surgery with complications cost $300k before Medishield and Medisave.
2) Coverage from the 1st dollar. By having an ISP, we can also buy riders that covers the deductible and the co-insurance.
3) “As-charged” claim amounts. An ISP allows one to claim whatever that is billed, versus the claim limits imposed by Medishield Life.
For the Elderly Folks
My mum is 68 years old and has basic Medishield coverage. A spinal operation with screw implants 3 years ago left us out of pocket by thousands of dollars because of claim limits for each surgical category and implants. We were very much resigned to the fact that we have to set aside cash for such events and it can be very unpredictable.
Elderly patients having multiple admissions in a year are common and not unheard of. Assuming 5 admissions that year and an average bill size of $5000 per admission at B2 class, the deductible and co-payment will set us back by $12500 that year, even with basic Medishield.
M told us that Aviva accepts underwriting for its MyShield ISP based on moratorium underwriting. As long as one had never been never rejected by any insurance company and does not have any of the listed major medical conditions, there is no need to do full medical underwriting. All existing conditions will be excluded, and will only be claimable if the conditions didn’t require any medical attention or follow up in the next 5 years.
With the introduction of Medishield Life, there is now a safety net covering any pre-existing conditions subject to the deductible and co-payment. For any new conditions we will be able to claim as-charged and the riders will take care of the rest. Needless to say, we jumped at the opportunity to get my mother’s coverage upgraded.
We fully understand and appreciate the significance of this because my father-in-law needs dialysis and has had multiple admissions. He has ISP cover, but was under Incomeshield’s old Plan B. The plan provides higher claim limits compared to Medishield, but claims are still subject to claim limits on each category. Thankfully, the cost of his dialysis was lower than the claim limits.
My mother-in-law had the same plan, but when she needed chemotherapy, the claim limits on each cycle of chemotherapy drained us out financially because the cost was way above the claim limits and the excess was paid in cash.
Personal Accident Plans
We also bought personal accident (PA) plans for the whole family. The kids are active and at high risk of getting injured. A cycling accident left me out of pocket by $300 because I smashed my lips and needed stitches. I received outpatient treatment at a hospital emergency department and had follow up consultations at National Dental Centre. Bills were not claimable because I had already used up my dental benefits for the year.
PA plans will cover claims like this. I also learnt that Income has a PioneerCare accident plan for seniors. We all know how easy it is for the elderly to fall and get injured. We took the cheapest PA plans because they are meant to cover items like outpatient expenses, physiotherapy and rehabilitative equipment, which can cost quite a bit. ISPs will take care of any hospitalisations.
Increasing Total Coverage
My wife and I wanted to increase our coverage for death, total disability and critical illness. We considered term policies that covered a lot more for less.
One option was to increase the sum assured (SA) for the SAF GTL, but a friend who is familiar with it advised against us doing so because there are special terms in the Group Policy which can limit the total payout under travelling in one conveyance e.g. airplane crash, or when the death is due to acts of terrorism.
So we paid a bit more and bought a separate term policy. For this new term policy, there was an option of adding CI coverage as a rider. However, any claims on CI will effectively terminate the policy since SA for CI is equal to the payout upon death. For this reason, we bought a separate total permanent disability (TPD) and CI policy. The costs were similar.
Although the term insurance allows us to get coverage till 99 years old, we decided to insure ourselves up to 65. It will be significantly more expensive as the risk of payout is correspondingly higher at an older age. We got M to quote for both 65 and 80 years old. The premiums doubled at 80.
Should you buy Term beyond 65?
Although buying term insurance till 80 means there is a higher chance of leaving something for the kids when we pass on, 3 things held us back.
1) Funding the premiums is an issue because we will be retired by then, assuming retirement age stays at 67.
2) We must make sure we die before 80, else all the extra money paid will be in vain.
3) We are stretching ourselves very thin, leaving us less money to grow our retirement nest egg. We asked ourselves again why we are buying these policies. We agreed that the policies were for protection against life events that leave us unable to provide for the family while the kids were young.
Our term CI coverage also lapses at 65. My wife has a small amount in whole life coverage, and thus some protection against CI beyond 65. But I have nothing for that purpose. M proposed a whole life policy that cost $4000 a year.
It includes riders that could cover against early CI for life, as well as TPD till 70. SA is $100k and premiums are payable for 25 yrs. There is a booster of a $100k payout for any events before 65. But I thought it was rather ridiculous because the SA is equivalent to the amount I would have paid in that 25 years. Of course, I didn’t buy that policy but the nagging thoughts of no coverage beyond 65 still lingered.
I went to another friend, who is also an insurance advisor, for a 2nd opinion. He suggested getting a smaller SA of $50k. It will cost $3k in premiums over the next 15 years with payout multipliers of 2.8x for death and TPD and 2.3x for CI. This translates into $140k and $115k respectively.
It was more affordable and I gave it some serious consideration but eventually decided against it. The multipliers were attractive, but I already have adequate coverage until 65. The SA drops back to $50k+bonuses beyond 65.
With some discipline in saving up the amount of money meant for the premiums, I could set aside the same amount. Furthermore, I could invest this money into my permanent portfolio, or simply invest it into my sharebuilder account and it will most probably generate better returns.
I don’t have to be sick or dead to get the money. It simply didn’t make any sense to spend my money on this!
Life Policies for the Kids
We bought a whole life plan for my elder child earlier on. We are in the process of buying another whole life plan for the younger one. For them, whole life policies make sense because we are able to capitalise on paying premiums for 10-15 years and they get life coverage.
Because they have a very long investment horizon, the bonuses from the policy make financial sense. We compared policies from 2 companies. Yearly premiums are similar, but the policy from company A has death, TPD and CI covered under the main plan. As such, more premiums paid goes into the participating funds, and it will grow as years go by. At the end of the day, payout upon death, TPD, CI or surrender value is higher.
Policy from company B has half the sum in the base plan. TPD and CI are covered as riders. It means that any payout for TPD and CI are fixed amounts with no bonuses. Payout upon death or surrender value is also lower because lesser money is invested in the participating fund. While policy B has some strengths over Policy A, but we think that A is a better deal and meets our objectives for the purchase better.
I concluded this round of insurance reviews for the whole family. Adequate coverage for my wife and me should something happen to us. Personal accident insurance for whole family. Hospitalisation ISPs for all. Whole life insurance for the kids to start them off.
They can go on to get better coverage when they grow up and earn their keep. Within each policy, we questioned ourselves why we are getting the policy, whether it meets our specific objectives and whether it is within our means.
No two persons have exactly the same needs or objectives, so getting a suitable product is important. We managed to adequate protection that is within our means that doesn’t cost an arm and a leg. It was hard work, comparing policies, reading the fine print, doing the sums and asking lots of questions. But it was all worth it.
I am a layperson in the complex world of insurance and financial products. But I believe it is important to read up, arm myself with adequate knowledge to know what I am buying.
After all, insurance companies are profit-making entities and the products must be financially viable. The advisors are intermediaries that facilitate the process of buying and selling and draw a commission in the process for their time and effort.
They must be people who balance their interests against mine, for example selling me the most suitable plan which earns nothing much for them versus selling me something that lines their pockets but offers me rubbish protection.
The rule must be – they offer, I decide. So far, I am blessed to meet advisors who propose products based on what I need. No one has ever dared to sell me an investment-linked product yet.
As I wrote in an earlier article, financial planning do not stop here. It makes no sense to buy insurance policies and invest in financial instruments without making plans on how my finances to be handled should I pass away or should I lose my mental capacity to decide.
Wills and Lasting Power of Attorneys are important instruments I need to consider when I am reviewing my financial plans. I am glad to say that I have got that covered as well.
*Disclaimer: I do not recommend any specific products from any specific company. Product names are being mentioned because the references were specific to those products.