Protect Yourself and Your Family Against Financial Woe

 

 

About three weeks ago, my daughter was hospitalized for heart inflammation and irritable bowel syndrome. She stayed in the hospital for six days and had undergone numerous blood tests and did a colonoscopy. Thankfully the result shows no serious problem. She was discharged and given four weeks of hospitalization leave to rest at home. She was scheduled to see a specialist in the first week of June. Do you know that medical charges for her six days stayed is more than SGD 3500(after government subsidized)? I am glad that I have bought medical insurance for her and I only need to pay 10 percent of the bill. The thought of someone without medical insurance diagnose with a chronic illness has to fork out large amount of cash is daunting.

When I first started working at age 21, I took the advice of a good friend and bought a life insurance policy. Since then, I understand the important of insurance and had bought a few more over the years. Many working adults are willing to buy widget if they are convinced that it serves their needs and satisfy their wants. Ironically, it’s not easy to convince them to buy medical or life insurance to protect themselves and their love ones against unforeseen financial hardship.

Take time to think carefully before you buy any insurance as it is a long-term commitment if you were to benefit from it. Don’t just take whatever insurance plan that is recommended to you. Remember that insurance agents’ main source of income is commission. Some agents are only interested in selling policy that pays the highest commission. Be very careful and don’t deviate from the real reason why you are buying a particular insurance. I have nothing against insurance agents, but I believe some only serve their own interest and recommend insurance product which is not suitable for their clients’ needs.

I was skeptical when my insurance agent asks me to buy insurance that is linked to a certain investment-trust fund. I was aware that commission for sale of such policy is high. I rejected her proposal not because I didn’t want her to earn the commission. I believe insurance should serve its original purpose, which is protection against unforeseen financial difficulties. If I want to invest, I will buy stock, property or gold directly from the proper sources. However, if you are comfortable mixing insurance with investment, ensure that you and your family are sufficiently protected against financial hardship first. I am not saying that investment is not important, but you have to look at the whole insurance planning in the right context. Bear in mind that when you are contracted with a chronic disease, large amount of your savings will be drained out.

With cash constraint, it is necessary to prioritize and select an insurance policy that best suit your needs at different stages of your life. Be mindful that term life insurance plan is for short-term coverage. Whole life insurance plan is for long-term coverage, i.e. until the day you leave this world. Term life insurance plan is temporary and it gives you protection for a specified period of time, for example a 20 years term life insurance (with critical illness) will terminate at the end of that period. No cash value is accumulated over this period. On the contrary, whole life insurance provides insurance coverage for a lifetime with accumulated cash value. With rising medical cost, protection against critical illness is necessary and it should be for a lifetime. The worst can happen is that you are healthy until the age of 65 and contract critical illness after that, and your term life insurance policy has terminated.

Why people need life insurance? Well, I believe there are two main reasons: Protection against high medical treatment cost and protect your love ones from financial hardship upon your premature death or permanent disability. I believe everyone should have sufficient insurance coverage, including children. I have obtained whole life insurance for my children as I want them to have lifetime cover for critical illness. When I have money constraint, I bought term life insurance (with critical illness) for them as it gives high coverage for a small sum of premium. Once I can afford, I bought whole life insurance (with critical illness coverage) for my children due to the fact that I want them to have lifetime coverage for critical illness. Term life insurance policy covers only for a stipulated time only, depending on the number of years a person want to cover.

If you have mortgage loan to pay, consider mortgage insurance. In the event of your premature death, your mortgage loan will be paid off. For me, I prefer to get a term life insurance policy (with critical illnesses) with sum assured equivalent to or more than the amount of mortgage to cover the period of the loan. Both my husband and I bought a term life insurance (with critical illness) each. We name our spouses as beneficiary in our policy so that should anyone of us die prematurely or contract critical illness, the insurance claim is more than sufficient to pay off the mortgage. When my husband was diagnosed with brain cancer (anaplastic astrocytoma and oligoglioma grade 3/4), a kind of fast growing cancer; lump sum insurance payment was received. He was able to focus on his treatment without any financial worry.

Saving for your child’s education can be challenging with rising inflation. Besides, it takes discipline to save. By getting endowment insurance, you are forcing yourself to save every month. Besides, the returns is about 3 to 5 per cent per year; much better than saving money in the bank (currently 1 percent in one year fixed deposit account). Endowment insurance is term insurance that covers your life for a specified period of time, for example 10, 15, 20, 25 years. The accumulated cash value at the end of the term is higher and so is the insurance premium as well if compared to a whole life insurance policy.

POINT TO NOTE

1. With rising medical cost, it is crucial to have comprehensive medical insurance plan as medical treatments for serious illnesses can cost anything from SGD 50,000 to SGD 250,000. Upgrade your Medical Insurance to include higher coverage. You can either get one insurer that cover your medical bill ‘as charged’, or ‘in excess of a certain amount pay by policy holder’. The formal covers all your medical bills as charge by the hospital. Whereas the latter covers medical bills after you have paid a certain percentage of the bill.

2. Review your insurance needs when financial commitment increases and when family size grows. Due to financial constraint, it is not possible to have the different kinds of insurance all at one time. You need to assess your needs and work within your budget. Instead of reviewing your insurance needs only when your agent call for a meeting, do your own insurance planning review periodically. You know best what your imminent needs are and how best you can maximize your resources. In my opinion, the most appropriate time to review your insurance needs is when there is additional financial commitment or when a child is born.

 

 

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