Buying Insurance can be likened to assembling a watch. Each piece, every moving part needs to be placed correctly before you have a time piece that lets you know its dinner time. One component of the wrong size, or placed in the wrong order – and all you end up with is an expensive paperweight.
This article is about how a proper set of insurance plans can be made for 3 Singaporeans under 30, all leading different lives and having different sets of goals. We would like to show how different plans can be used for different purposes, and how to estimate the amount of cover required, along with the length of coverage.
Singaporean 1: 25 Year old Shawna – The Avid Shopaholic
Shawna is currently working as a marketing executive in an FMCG company, and draws a monthly salary of 3800 SGD a month. She loves to shop (like most women) and doesn’t have much in the way of savings. To her, the Great Singapore Sale is always on, either online or offline. She is planning to get married in 8 months time. Her parents have a thriving ceiling fan business, and does not need financial support from her.
Our planning for Shawna:
- A Fully Upgraded Medishield Plan
- A 40 year Term Insurance with CI to a tune of 250k cover
- A Whole Life Plan with CI (50k)
- (Optional) An Endowment Plan saving 1500 per year
The bedrock of any insurance planning in Singapore is first and foremost, the Medishield Plan. We highly recommend that every man, woman and child get it as their first line of defense. What the government provides is fine and dandy, but it is definitely worth the extra money to upgrade the plan fully such that any hospital related bills will be taken care of, from the first dollar charged.
Since Erica is a spender and not a saver, and since old habits die hard, we will go with a 40 year Term plan to get her covered till age 65 (approximately retirement age). This is significantly cheaper than a whole life plan for the same coverage amount.
The small(ish) Whole Life Plan that is next on the list is for Erica to start building her nest egg, be it for retirement or perhaps her children’s education. Its small to keep costs low, but the coverage amount is meant to top up her total cover to 300k, which is the bare minimum we expect in Singapore.
And finally, the Endowment plan is made optional to her because it is something nice to have but not essential. She does not do her own investments, so this Endowment plan is likely going to outperform her current strategy of doing nothing.
Many people rant and rave against the seemingly low returns provided by Endowment plans, but they forget at least most of the time, Endowment plans outperform their Gucci handbags they buy.
Singaporean 2: 29 Year old Timothy – The Stable Single
Timothy teaches in a secondary school making a salary of 5500 SGD a month, and lives with his parents. He is currently single and does not intend to get married. He does, however want to buy his own HDB once he reaches 35. Tim has a car as he enjoys the convenience of driving to work. Plus he parks for free in school. Tim doesn’t have much experience in investing, nor does he particularly care to invest his money actively.
Our planning for Timothy:
- A Fully Upgraded Medishield Plan
- A Whole Life Plan with CI (200k)
- A 36 Year Term Plan with CI (300k)
- An Endowment Plan saving 10000 per year
The Medishield Upgrade is once again the first plan that Timothy should purchase, and also to keep it active for the rest of his life. It is renewable yearly, so once it has been bought, it can be renewed to infinity.
The second plan that Timothy should consider getting is a sizable Whole Life Plan. The CI coverage is a default choice since treatment in Singapore is shockingly expensive and more and more of us are falling prey to critical illnesses these days (but surviving more due to better medical options). This Whole Life plan serves as his retirement nest egg while providing him significant coverage that increases over time.
The third plan on the to buy list is a term plan that bumps up his total cover to half a million. Why? Because he is a single and planning to stay that way, so he does ensure that he has enough coverage for his parents if he dies, falls seriously ill or suffers some sort of permanent disability. (He can also have enough to take care of himself if the latter 2 scenarios play out)
And finally, the 10 k per year Endowment (savings plan) is meant to address his lack of enthusiasm for investing. Since he doesn’t like to self invest, it is always better to have money working for him rather than sitting in the bank garnering negligible interest.
All in, Timothy expects to spend around 20k for insurance a year, half of which is direct savings. The Whole Life Plan is the next costliest item on his list (around 8k), but goes to building his nest egg for retirement as well.
Singaporean 3: 28 Year old Erica – The Entrepreneur
Erica runs her own start up, which is an information site for women’s career advice. Before she set up her own company, Erica was a successful private banker and built a nest egg of nearly 400k to run her business. She is financially savvy, having worked in the industry for a number of years and is able to handle her own investments (she favors reits and bank stocks). However her website is not making her much money, and she is spending 5k a month on herself and the business.
Our planning for Erica:
- A Fully Upgraded Medishield Plan
- 10 year Term Insurance with CI to a tune of 300k cover
By now, you can see that a fully upgraded shield plan would be our first priority for anyone. The only surprise here is why a term insurance for only 10 years?
This is because Erica needs to bootstrap for her company. If it turns out profitable for her, she can always pick up more insurance later on. If it turns out unprofitable for her, 10 years time is enough for her to find another source of income and she will have protection throughout this period.
There are no endowment plans recommended because she can do her own investments (and probably more efficiently than an endowment plan), and a whole life plan is not suitable for her at this time because every cent of her cash is important to her.
We mentioned that insurance planning needs to be precise and well calculated, but it is also important to note that it is as much an art as it is a science. The situations for each of these 3 individuals might change at any given moment, which will lead to modifications of their insurance needs.
The plans suggested for them here would give them the best bang for buck while accounting for their lifestyle and personal preferences, while also maintaining flexibility for any future changes. We hope that this article has given you some insight into how insurance planning should be done, but this is only the tip of the iceberg. If you need even more advice, do check out our forum where you can post your insurance questions.
Do you agree with the recommendations made here? Share with us your thoughts in the comments below!
www.ClearlySurely.com aims to eradicate the knowledge gap between consumers and Life Insurance. Our Vision is that one day, every Man, Woman, and Child will be properly insured.