The Importance of Having Insurance

While most of us are aware that insurance helps shield us, our family and items we value from financial loss. But Is it possible to have adequate insurance that is within a budget? Read on to find out more.

1. How do you balance having a healthy amount in your savings and budgeting for health insurance/protection?

You should always aim to save before you spend every month.  The recommended minimum savings is at least 20% of your net pay.

As for insurance, we recommend trying to spend no more than 10% of your annual income on protection.  These percentages are only guidelines and will vary from person to person.

Finding a balance between purchasing enough cover and your ability to continue paying the premiums over the long term can be challenging, therefore, it is important that you seek the advice of your FA representative if you are unsure.

2. How much health insurance does one really need and how much should you set aside, depending on your age and life stage?

All Singaporeans are covered under MediShield Life, which is a basic health insurance scheme.

In addition, the Government administers CareShield Life, a long-term disability insurance scheme that gives a monthly payout if you are unable to perform at least 3 of 6 activities of daily living.

For MediShield Life and CareShield Life, premiums are paid using CPF Medisave.

For health coverage, the Life Insurance Association of Singapore (LIA) says that as a guide, you should have critical illness coverage of about 3.9 times your annual income.

When deciding on the amount of health insurance to buy, you should consider the quality of healthcare service and the level of income protection that you would want should you fall ill or become disabled. If you have a family, you should also consider how much your dependents require for their daily needs if you are unable to provide income for them over an extended period of time.

Health insurance premiums increase with age, so it is important to ensure you can continue paying them over the long term.  It is always advisable to seek the advice of your Financial Adviser if you are unsure.

3. When should you start buying health insurance?

You should buy health insurance before you develop medical problems that may render you uninsurable.

4. Is it possible to over-insure? If so, how do you prevent that?

You don’t want to be insurance-rich but cash-poor.  Buy only what you need taking into account your family history, current situation, liabilities, dependants’ needs and your existing insurance and assets.

Make use of the Insurance Estimator on CPF’s website to have an idea of how much insurance you should aim for.

5. Are there certain things that insurance does not cover?

Yes, most insurance companies will not cover you for pre-existing conditions; however, note that you are still covered for such conditions under MediShield Life.

6. What are deductibles and co-payments?

When it comes to paying the hospital bill, you will have to pay two portions. The first is the deductible, which is the initial amount you have to pay for your medical expenses before your health insurance makes a pay-out.  You usually only need to pay the deductible once in a policy year.

Plans with lower premiums usually have higher deductibles.  After paying your deductible, you may still have to pay for co-insurance or co-payment.

Co-insurance is how much you have to co-pay or split the cost with the insurer after you pay the deductible.  It is usually expressed as a percentage. For example, if you have a co-insurance of 10%, you will pay 10% of the cost after the deductible.

7. If my company buys insurance for its employees, does it mean I don’t have to get my own? Why or why not?

The cover provided by your company’s insurance usually only lasts while you are an employee and ceases once you leave or retire.  Furthermore, it may not cover you adequately, so it is advisable to have personal health insurance to ensure you are properly protected after you leave the company.

Don’t wait until you stop working to buy health insurance as you may not be insurable due to age or poor health.

Make sure you balance protection with affordability and not ignore other important life goals such as saving for retirement.

Credit Counselling Singapore

Published 11 November 2022.