Insurance Planning

Purpose
Protect you from financial burdens in unfortunate events
Poor instruments for savings and investments
Should only be used for the sold purpose of protection
Types (Applicable to young adults)

1. Life Insurance***
Whole Life
Whole Life Limited
Premiums paid only for a period of time
Policy can cover insured for life
Cash value when we surrender policy
Term Life
Lowest premiums
No cash payouts
Have to pay premiums for as longs we own the policy (same as whole life)
Coverage
Critical illness coverage
Insurance payout will provide policyholder with enough money for
upkeep for the period when he or she is unable to work while
undergoing treatment or rehabilitation
Typically need to have enough coverage to provide 2-5 years of
monthly expenditures (or income) and 1-2 years for early stage critical
illnesses
Death coverage
Single
No need for much death coverage; just a nominal amount for
funeral expenditures
With dependents
Elderly parents (assuming they live to 85 years old)
(85 - current age) x 12 months per year x monthly
allowance for upkeep
Non-working spouse
Include retirement needs

Children
University education
Monthly upkeep until they graduate from university
Increase death coverage by amount of debts e.g loans and mortgage

2. Endowment
Provide low coverage (lower sum assured than whole life policies) and a form of
low-risk savings with better returns than bank interests BUT lower returns than a
well-managed moderate risk investment portfolio
Many use this as a saving plan because:
Bank interest rates are too low
Hedge against or beat inflation
2-in-1 feature; insurance and investment
Also perceived as less risky BUT
Pathetic returns of 1-5%, though rarely on the high side
Low returns do not justify inflexibility and illiquid nature of the
policy
Policy may not breakeven by maturity
Solution: invest in an investment portfolio consisting mainly of equity
funds or buy bond funds for similar returns but without lock in period
Upon maturity, policyholder will receive guaranteed + projected payout and
plan will terminate
A portion of premium goes to insurance charges and the remainder invested in life
fund
Life fund is subjected to market risk
Aects the non-guaranteed portion and hence the projected payout
Determines breakeven point

3. Investment-Linked Policies
Greater flexibility than endowment
Premium holidays
Allow policyholders to stop paying for a certain period
Able to change amount of coverage
Adjusting allocation of premium between insurance charges and
investment
HOWEVER
Limited numbers and types of funds
High management fee and sales charges
No incentives for financial adviser to monitor the investment performance of
the ILP in the long term
Part of premium goes to insurance charges and remainder invested in selected
investment funds chosen by policyholder
However, premium charges increase as you grow older
Reaching a tipping point when insurance charges are higher than premiums

100% premium plus existing investing value used to pay insurance

charges

4. Hospital and Surgical Insurance***

No cash received from this policy
Help to oset medical expenses up to level of coverage provided
Only applicable in event of hospitalisation, surgery or selected outpatient
treatments
Probably the most important as it helps to protect us from astronomical
medical bills
None of us are immune to illnesses or diseases
Can be paid using Medisave
Dierent levels of coverage available
B1-A1 wards in government hospitals
Private hospitals
Get a rider to cover the deductible and co-insurance

5. Disability income
Especially important for breadwinners
Pays monthly allowance to policy holder should he or she loses the ability to work
temporarily or permanently
Unable to claim life insurance because he or she is still alive
Should consider if budget is not a constrain
We dont want to become a burden to our loved ones should we lose the
ability to work