3 Main Risks to Protect
For someone in her situation, there are 3 main risks that have to be planned for. They are:
- Medical Bills
- Loss of Income
- Loan Protection
In my opinion, the type of insurance to consider for covering these risks are medical insurance, disability income insurance and early critical illness insurance. However, for most people, they will not know which type of insurance is the priority. I will advise on 2 key protection concepts as a suggestion in this planning,
There are two versions of the protection concepts due to different needs during different phases. During the study period, the student does not earn any income even though they are bonded. Therefore the priority is on loan protection against the loss of health. Upon graduation, the focus is shifted to income protection due to disability. I will now go into details of how each insurance coverage works.
1. Protection against Medical Bills
Medical and hospitalization benefits are provided and their benefits are:
- Annual sum capped at a stated figure, subjected to $35 per visit at any Registered Medical Practitioner per calendar year.
- Any outpatient specialist consultation at the public healthcare network of hospitals and specialist centres subject to a capped figure. Family as a whole is also entitled to a further cap per calendar year
- About $10,000 per calendar year in public healthcare network of hospitals and specialists centre. Family as a whole is also entitled to a further sum about $10,000.
- Co-pay of 10% for self and more than 20% for family for all medical and hospitalization claims.
Medical insurance is the foundation of all financial planning, especially with the rising medical costs in Singapore. As Singaporeans, we do have access to some medical coverage (CPF Medishield Life) which entitles one to treatment in B2/C wards. However, there are individual items (surgery tables) limits to adhere to.
There are currently six insurers in Singapore that allows individual to do enhancements to their medical insurance using CPF Medisave account. By doing this, the coverage will be significantly enhanced to which individual items will be capped at “as charged”. However, it will still be subjected to the “deductibles” and “co-insurance” of the bills.
For comprehensive coverage of medical bills, it will be best to include the riders that cover the “deductibles” and “co-insurance” together with some other additional benefits that varies with insurers. These riders require cash premium payment.
2. Income Loss Due to Disability (D.I)
Disability income protection is not a common policy that Singaporeans look into because when you take up a life insurance, total and permanent disability is usually included in the coverage. This leads to individuals thinking that they are well-covered against disability since they will have a lump-sum payout from the policy if they fulfil the claim criteria.
Group Term life insurance is provided to their employees and coverage is as follows:
- Coverage covers Death and Permanent Disability and sum assured is 12 months of the total base salary.
This means that when an individual start serving their bond, assuming their salary is $4,000 per month, the sum assured will only be $48,000 for death and permanent disability.
What many may not know is that Total Permanent Disability (TPD) and Disability Income Insurance (D.I) serve different objectives. TPD can only be claimed in the event of loss of two hands, legs or eyes, providing a lump sum of insurance pay out. Its terms are often quite stringent – the disability has to be permanent and severe enough to render the policy-holder unable to perform 3 out of 6 of the activities of daily living (toileting, dressing, washing, mobility, feeding and transferring from bed to wheelchair).
On the other hand, disability income insurance provides a percentage of your income should you be unable to work due to a disability (which can be temporary). For a dentist who will definitely need his fingers to be fully mobile in performing his work, hurting his hands/fingers badly or permanently losing the use of them will entitle him/her to a claim which TPD insurance may not pay out.
Policyholders of a disability income insurance can receive a monthly payout of up to 75% of existing income. For a dentist who is starting, assuming their salary is $4,000 per month, which means that he can claim up to $3,000 per month. This can help with having some form of income during rehabilitation period, after which they can hopefully return to full-time employment.
3. Loan Protection against Loss of Health (Early C.I)
Another plausible scenario that can disrupt the serving of the bond is the diagnosis of a critical illness. Although an undergraduate’s relative youth places him at a lower risk of critical illnesses, the financial implications of it happening can be debilitating.
Upon the diagnosis of early stage critical illness, there is a high chance that the assured has to terminate work or be on a long-term leave of absence for treatments. This can result in either having no income, or being forced to break the bond due to inability to work. Early critical illness policy will be useful in both of these scenarios, providing either funds for repayment of the bonds or money to sustain his lifestyle and cover treatment fees.