You are walking on the pavement when an out-of-control car heads towards your direction. Out of nowhere, you are pushed from behind and have managed to avoid the oncoming vehicle. You turned around and realised that the one lying underneath the errant car is actually your life insurance policy.
This sounds a little crazy but that is the mental image when someone tells me that life insurance protects my life. Well, one may argue that the idea of protection is a figure of speech and not literal. However, my argument is that my life is real and definitely not figurative.
What exactly is life insurance then?
We can get all technical and tell you about contracts, agreements, et cetera but a really simple way to describe insurance is that it is a bet on an event that involves you. You are punting that the event will not happen whereas the insurance company is betting against you.
If the insured event occurs, the insurance company loses and has to pay you the agreed sum. Otherwise, you have to pay your premium to maintain the annual wager.
If you like to have an occasional flutter, you already know how creative betting can be. Just take soccer betting as an example. The orthodox gamble is on the final score, amount of goals score and the identity of the goal-scorer. However, you can also put a wager on which team is awarded the first throw-in, who is given the first yellow card and even on the jersey colours.
Life insurance does not accept bets of such variation. However, there are quite a number of events that you can place your money on so that you may be financially compensated when you need it the most. We will give you a lowdown on these events one by one.
This insured event is the most basic coverage in life insurance. You can bet on your own death (and that is a 100% win rate btw) for the benefit of your family and loved ones. Otherwise, you can purchase a policy on someone else’s life and benefit from his or her death.
If you are thinking of buying a policy on your most hated person’s life, stop dreaming. Without an insurable interest, you have no chance of doing so.
Policies that cover death: Term, Whole Life, Endowment, Investment-linked Product (ILP).
Terminal Illnesses (TI)
When a doctor gives a professional opinion that one is likely to die within the next 12 months, this means that one has a terminal illness. This is often viewed as an accelerated death benefit so that the terminally ill patient gets to see the fruits of his/her financial prudence.
Do not confuse TI with critical illness (CI) though. We will come to CI later on.
Policies that cover TI: Term, Whole Life, Endowment, Investment-linked Product (ILP).
Total & Permanent Disability (TPD)
This is another benefit that often accompanies death benefit (but not always). To be able to make a claim under TPD, you must not be able to engage in any sort of occupation. Another definition of TPD is when you are unable to perform 3 out of 6 activities of daily living.
Not sure of the difference between the two types of disability?
Please allow Clint Eastwood and Morgan Freeman to explain them to you.
Policies that cover TPD: Many life products do but you need to check the T&C to be sure.
Critical Illness (CI)
CI aka Dread Diseases are ailments that often lead to serious health complications and even death. This sounds like a lot of possible diseases but CI in Singapore is clearly defined by LIA. Other than the 37 conditions listed here, you will not be able to claim from your CI policy.
Major cancers are the leading cause of death in Singapore. We assure you that it is not coincidental that cancers are included in the list of 37 along with other lethal killers such as heart attack and stroke. Learn how to combat some of these horrible murderers here!
Policies that cover CI: CI policies and riders.
Early Critical Illness (ECI)
With advancement in medical treatment, a lot of previously-fatal conditions are now treatable. As such, you don’t get to trigger events such as death, TI or CI (thankfully). The insurance companies understand that there is a need to have coverage for earlier detection and come out with ECI coverage.
ECIs are not as clearly defined as CI itself so it is important to know what you are getting. The rule of the thumb is not to go for prices but to look at a number of factors – waiting period, number of ECIs covered and the maximum number of ECI claims you can potentially make.
When disability is not total and permanent, it is not claimable under the TPD coverage listed in above. Thus, this disability coverage is meant for those that are either temporary or incomplete. The latter means that you are still able to work but in a reduced capacity.
Disability in insurance is tied closely to having an income. However, in many instances, people tend to overlook the need to protect their wages from disability. Do not make these 5 mistakes!
Policies that cover disability: Disability Income Insurance.
When something unexpected happens and the consequences are pleasant (such as the invention of Viagra), we call it as an inspiration or an ingenious act. When the result is negative, we call it an accident. We don’t love accidents so that is why we try to mitigate the unsavoury effect as much as possible with insurance.
Accidents can come in many different forms – slipping up in the kitchen, crashing into a tree while driving or even drowning in a vat of molten chocolate! That is why accident plan carries a wide range of benefits such as medical reimbursement, partial dismemberment compensation, hospital cash benefit, etc. With the definition of an accident being widened by the Court in a suicide case, there are more reasons for you to take up this event bet.
Policies that cover accidents: Personal Accident Insurance.
The last one on the list isn’t a true life insurance benefit. However, we always like to mention it because of its importance. Hospitalization is actually the number 1 priority when it comes to insured events. With medical inflation rate at 15% in 2015 and 10% in 2016, it will be increasingly costly for you if you do not insure this event.
The go-to hospitalization plan in Singapore is Medishield Life which is actually compulsory for all Singapore citizens. However, it is not sufficient for most of us. That is why getting an Integrated Shield Plan may be the smartest bet of them all.
Policies that cover hospitalization: All variants of Shield plans, employee benefits insurance (your company bets on you not to be sick!)
Why you should always bet on life insurance.
You cannot get rich if you place a wager on the above mentioned events which is unlike Toto. However, losing your Toto or 4D bet is not catastrophic in any manner. On the other hand, the financial impact of aforementioned events are.
Your family may lose its breadwinner. You will have a hard time coping with daily expenses when a critical illness strikes. And your emergency fund is definitely going to be depleted if disability or accident happens.
It is simply too painful not to insure these events. How damaging these events can be will depend on your situation – whether you have dependents and how much your savings can last you. You can do an assessment on the pain scale to prioritize or allow our genius bot to help you out.
Perfection is just an action away.
No matter how well we have explained and how much you know about life insurance, it is incomplete until you take action. That is why our guide is only nearly perfect – we cannot force you to insure yourself right.
So we urge you to take that last step which is to open up your wallet and start betting.
On life insurance that is.
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.