Insurance is the most common risk transfer technique in risk management.

There are 3 layers of insurance protection.

In the first place, the social stratum, provided by the national schemes. For Singapore, it will be CPF insurance such as DPS, HPS, Medishield, Eldershild, CPF Life. These are usually the most basic requirements and the premiums are more affordable. Second, the group layer. This is coverage provided by employers, unions, or associations. Their premiums are also relatively affordable. However, they will stop covering when you leave the organization and there is usually an age limit, resulting in reduced coverage when it is most needed. Third, the individual layer. This is purchased from insurers on a personal level to supplement the first two layers. Improve coverage in range and depth.

Insurance Classes:
– Life insurance
– Investment Linked Policy (ILP)
– Health insurance
– Personal General Insurance

Life insurance
The 3 main types of traditional life insurance are term, whole life, and endowments. The most basic term policy is CPF’s Dependent Protection Scheme (DPS). Premiums are the lowest in Singapore and can be paid by CPF OA. However, the limitation is that the coverage is up to $46,000 and 60 years. Another CPF decreasing term policy is the Home Protection Plan (HPS). A mandatory mortgage insurance for those who use CPF to buy their properties.

Investment Linked Policy (ILP)
ILPs are primarily renewable annual term insurance along with investments in unit trusts and the addition of more charges. They are subject to a different set of decisions, they do not need trustees and the selection of funds is restricted to those within the insurer’s fund umbrella. One advantage is that the charges are transparent. However, they are numerous, tedious to compute, and allow for so much variation that they are intended to confuse. They include:

(1) Initial Sales Charge – This is a one-time charge that is included in the fund’s Bid Spread. Usually about 3-5% of the investment amount.
(2) Fund Management Fee: Paid to the fund manager regardless of the fund’s performance. Usually 0.5-2% per annum and is priced (deducted) from the unit price.
(3) Charge for benefit: the insurance coverage premium, including all additional clauses, is financed through the deduction of units. The premium generally increases according to the new age bracket.
(4) Policy Fees: A flat monthly fee is charged, regardless of the premium amount, to cover administrative costs.
(5) Administrative Fees: Additional fees paid for record keeping, transaction services, banking services, trustee services, and miscellaneous fees. Usually around 0.2 to 0.4% per annum and is also included in the price.
(6) Funds exchange fees: will be charged when exchanging investment funds. Usually free for one change per year.
(7) Premium Vacation Charges: Will be charged when the premium vacation feature is activated.
(8) Surrender Charges – Charges imposed upon surrender of the policy.
(9) Allocation – The amount of premiums used to purchase units is generally not 100% during the initial years. Example: 20% for the 1st year; 40% for the 2nd year; 60% for the 3rd year; 80% for 4th year; before finally 100% from the 5th year.
ILPs will be suitable for those who have sufficient insurance coverage and have excess budget that they would like to use to support their agents rather than investing directly in mutual funds.

healthy insurance

(1) MediShield and private protection plans
MediShield is the social insurance that provides the most basic coverage. The downsides are that it has many sub-limits for each of the covered expenses, expires at age 85, and provides coverage primarily for class B2/C wards. You are also subject to deductibles and coinsurance. Paid for by MediSave. Some employers may provide the second layer of coverage. However, this coverage will end upon leaving the employer. Medical coverage is most necessary during retirement, so purchasing a plan at that time will be subject to strict underwriting conditions (ie existing medical conditions will not be accepted or excluded). Private shield plans allow coverage beyond age 85, but must be taken before age 75. It generally has no sublimits as it is an “as loaded” coverage. Some insurers even cover deductibles and coinsurance if a rider is purchased in addition to the basic plan. The website of the Ministry of Health offers a complete comparison of all available private protection plans. The plan is more suitable to cover medical and ongoing treatments. With the increase in medical cost, this insurance is more necessary to prevent cost from being an issue in seeking proper medical treatment.

(2) Critical illness
Provides a lump sum benefit if the insured is diagnosed as suffering from one of 30 selected illnesses or surgical procedures. The 30 conditions are chosen from a list of conditions maintained by the Life Insurance Association of Singapore (LIA). All of its definitions have been standardized by the LIA. The 2 types of coverage are acceleration and additional. Acceleration coverage shares the sum insured with the death/TPD benefit. The additional coverage is a separate coverage in addition to the basic sum insured, so it can be higher than the basic sum. Variations include being issued as a stand-alone policy or rider, having an advance payment for early stages of illness, and providing specific coverage for a single illness, such as cancer. It is best suited to provide the cost of treatment that may not be included in HealthShield, such as expensive overseas or alternative/experimental treatment, as well as additional care expenses incurred when a critical illness is diagnosed.

(3) Disability Income
Provides monthly income in case the insured cannot work as a result of an accident or illness.
The definition of disability varies in that the inability to work is limited to the insured’s own occupation, similar occupation, or any occupation. It is more appropriate to protect against loss of income in order to maintain living expenses in the event of disability and differs from TPD in that the definition is less strict.

(4) Hospital cash
Provides a daily cash benefit for each day of hospitalization. It is usually limited to a specific number of days and a lifetime limit. It is more suitable for self-employed workers who will suffer a loss of income as a result of hospitalization.

(5) ElderShield and private plans
Provides a monthly benefit if the insured is unable to perform 3 of the 6 activities of daily living (ADLs), namely eating, bathing, toileting, dressing, moving and transferring. ElderShield is the most basic level of coverage and provides $300 or $400 per month for 60 or 72 months. You can pay with MediSave. Private plans enhance these plans to provide higher benefits and a longer payment duration. You can pay with MediSave up to a limit. It is more suitable to cover the disability of those over 40 years of age. TPD coverage usually ends at age 60/65, but provides coverage for life. And usually the payment of premiums is limited.

Personal General Insurance

(1) packaged home
Provides coverage for the building and contents.
It is usually required when a person takes out a home loan.

(2) valuable items
Provides coverage for items with high monetary value such as antiques, fine art, etc.
It can be detailed or general coverage.
It is usually for those who keep valuable items in their homes, such as art or antique collectors.

(3) Personal accident
Provides coverage for bodily injury caused by sole, direct, independent, external, violent and visible means.
It is more suitable for those who are on a budget or are involved in blue collar jobs or are unable to obtain any of the traditional insurance due to medical underwriting restrictions.

(4) engine
It is a compulsory insurance available in 3 modalities: Third Party, Third Party Fire and Theft (TPFT) and All Risk. Premiums will vary between insurers based on make, model, age of car, age of driver, occupation and experience. Please note the applicable excess amount and it is advisable to purchase NCD protection if NCD has accumulated to 50%.

Based on the risk management plan, those areas of low frequency and high severity should be covered with appropriate insurance. As insurance coverage and premiums vary between insurers, it will be wise to get quotes from as many as possible. Insurance is usually a lifetime commitment, it will be wise to ensure that the highest and most appropriate value is taken out.