Most Singaporeans are aware that simply relying on government initiatives such as MedishieldLife or Dependent Protection Schemes to fully cover their insurance needs is not enough. This is why many people take on additional private insurance policies. If you are thinking, how much will you need to spend to get additional coverage for early stage critical illness or to enhance your death coverage with a term insurance, we have the answer for you right at the bottom of this article.
However, let us first discuss on the coverage to prioritise.
1. Hospitalisation Insurance
It is a well-known fact that the cost of hospitalisation in Singapore isn’t cheap. Even for a Class B2(6 to 10 bedder), you can expect an average cost of $300 to $400 per day in a public hospital. Moreover, hospitalisation does not have to only happen to someone with a chronic illness, an accident or even food poisoning and dengue cases can cause anyone of any age to be hospitalised. The resulting huge hospital bill is thus a potential financial disaster.
To avoid being stuck with an unexpected financial burden, hospitalisation insurance should be one of the first insurance policy one purchases. Private Shield plans, when purchased with the necessary riders can also help to pay up to nearly all or 100% of hospital bills.
Premium in cash should cost anywhere between $20 to $50 per month if you are 35 years old depending on your coverage preference, if your budget is low, you might want to consider getting as charged coverage in a public/restructured hospital. Besides your individual coverage, you should also look into ensuring your immediate family is similarly covered with comprehensive hospitalisation policies.
2. Death Coverage
According to Life Insurance Association Singapore, you should aim to have approximately 11 times your annual earnings for death cover. While this figure varies from person to person, a 2007 study by the Nanyang Technological University of Singapore claims that the insurance needs of an average working adult in an average household will amount to about $490,000.
A more realistic measure will be to factor in your outstanding mortgage liabilities plus the total monthly dependent expense until your youngest child reaches the age of 30 years old to qualify your coverage needs. So take for example, if you have a 300,000 mortgage liability and your total family expenditure requires $3000/mth and your youngest child being 5 years of age. You will require approximately:
300,000 + (3000 x 12 x 25) = $1,200,000 of Death Coverage.
It is unlikely you would require any death coverage when you do not intend to have children, have no dependents or if your children have grown up and your mortgages are fully paid. Should death occurs to you afterwards, your child/children should presumably be able to fend for themselves and be financially able to support your living spouse. A shorter term coverage will also reduce the yearly cost of insurance, this allows you to allocate more funds and set aside for retirement should you live past your covered age. However, a case by case basis should be considered if you wish to factor in insurance for legacy and estate planning.
Term insurance is an affordable way to get high death coverage but it comes with no cash value.
Read more about term insurance here.
If you are a male age 35 and below, term insurance for a death and disability coverage of 1,000,000 till the age of 65 should not cost you more than $100/mth. Compare the different insurers’ cost of term insurance here.
3. Disability Coverage
In Singapore, you may hear the saying that “it is better to be dead than to be severely ill”, this is unfortunately true as the cost of sustaining your household compounded with your disability or illness may well be higher than the cost of your demise. Being disabled may mean your inability to bring in income to sustain the basic needs of your family and your own. The last thing you want is to be a financial burden and bring calamity to your family by not being protected for disability.
That goes without saying, the coverage for total and permanent disability should be at least equal to or higher than your death coverage. On top of your dependents’ expenses, you have to provide coverage for your own expenses and rehabilitation needs. Therefore, in addition to a term insurance covering total and permanent disability, you may wish to add on a disability income insurance should there be any further unforeseen costs required during your disability.
A disability income insurance is the most overlooked coverage in financial planning, the plan provides monthly income payout should the insured be unable to carry specific duty within his/her own occupation, the criteria for total and permanent disability is much more stringent than that. The recommended sum assured for disability income insurance will be the monthly expenses incurred for your household and your own basic expenditures.
With a Disability income insurance, you will typically receive:
monthly payouts if you are unable to work, usually up to 75% of your existing income until you make a full recovery of when you reach 65 years old.
Top-ups on your lowered income if you can eventually resume working yet find a job that pays less than the monthly income you used to earn before disability
reimbursement for your rehabilitation costs for each disability
lump sum payout in the event of catastrophic disability or in the event of death.
Premium for disability income @ $5000/mth for Age 35 Male Non-Smoker should typically cost no more than $100/mth
4. Critical Illness Coverage
A common question for critical illness coverage insurance is if you have a hospitalisation policy in place, do you still need one? Afterall, the hospitalisation plan should cover a substantial sum of the treatment and medical cost. The answer is more philosophical, a hospitalization plan covers your bill while a critical illness insurance plan provides you with a lump sum payout, giving you the option to take a break, seek alternative treatments and spend more time with your loved ones should a major illness strike. This is because at the end of the day, do you envision yourself working hard still during your ailing days or do you wish to spend the remaining bits of your life loving, living and recovering without any financial worries? If your answer is the latter, then you should get yourself covered for critical illness.
There is a good 60% chance one will be diagnosed with a critical illness condition before the age of 70, thus the probability to claim is high and so is the premium. Many sources indicate cancer cases rising sharply in Singapore in the last few years, but the good news is that the survivor rate is up. Though statistics in Singapore are not available, the 5-year survival rate of women with stage 0 or stage 1 cancer in US is close to 100%. This is where early CI/CI insurance becomes important.
Financial Advisors recommend at least one year of income to be paid out in advance for early stage critical illness diagnosis and three to four years of income for late-stage critical illness diagnosis. The purpose of the payout is to tide over income losses during this period while not draining all your savings while you recuperate.
Thus, if you earn $6,000 per month. You can consider a minimum coverage of $72,000 for early stage critical illness and $216,000 to be paid out in the event of a late-stage critical illness diagnosis. The total cost for a 35 years old Male Non-Smoker to be covered for his early and late stage critical illness coverage should not cost more than $100/mth
Following our observation, you can see that your coverage requirement is dependent on your monthly expenditure on your family and yourself. As such, the more your financial commitments, the higher the cost of insurance.
For an ideal coverage scenario, let’s use Paul, 35 Male Non-smoker, as an example. Paul is the sole breadwinner of the family earning $6,000 per month with the following expenses and liabilities.
Hospital Coverage – Private Ward ($60/mth cash)
Death & Total Permanent Disability Coverage – ([$2,500 x 12 x 25] + 300,000) = $1,050,000 (Premium $80/mth)
Disability Income – $2,500 + $1,000 = $3,500/mth (Premium $50/mth)
Early Stage Critical Illness – $6,000 x 12 = $72,000 (Premium $40/mth)
Late Stage Critical Illness – $6,000 x 36 = $216,000 (Premium $40/mth)
Total Monthly insurance cost for Paul (60 + 80 + 50 + 40 + 40) = $270/mth
Percentage of income spent on insurance = 4.5% per month
As you can see from this example, Paul spends around 5% of his income to provide a peace of mind for his whole family during his productive years. We can say that it is perhaps fair for a typical person who is the breadwinner of the family to spend about 5 %- 10% of their income on insurance, the figure wholely depends on your age and the financial situation of your family. Those who do not have dependents or have a dual income family may be able to spend less, but to optimise your spending on insurance, it is always best to speak to a qualified financial consultant to work out your needs and affordability.
Get an objective opinion here.