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3 Surprising facts about the MINDEF and MHA Group Insurance we never knew

Posted 8 March, 2018 by Clearly
in Technical Smechnical

 

Ah humility!

Thou art a delightful teacher indeed – disappearing for long stretches, only to surprise us with a grand entrance. When it comes to Insurance, there is always something to learn.

We have been researching; studying; analyzing; interviewing; critiquing; exploring and investigating Insurance related material for over 3 years now (not to mention our 2 decades of combined work experience in the fields of Finance, Banking, and Insurance).

Yet it seems that we’ve barely scratched the surface at times.

 

Take the MINDEF and MHA Group Insurance (administered by Aviva) for example. It has been around for donkey years, and the concept is straight forward enough: If you have served in the armed forces, civil defense or police force in the past, you and your spouse are eligible to get some really low cost cover, courtesy of this scheme.

The premise is simple: No frills insurance. Choose what you need, buy the coverage amount that you want, and then live happily ever after.

We thought there was really nothing much else to know, really. Until humility came knocking, and knocked us down a peg or two.

In this case, it took the form of a very pleasant person called Jiale, who brought up 3 points to our attention.

Boy did we have much to learn.

 

Surprise 1: The Government owns the policy, not you

 

This is a Group Policy (as opposed to an individual policy, which is underwritten on a case by case basis per individual). And the owner of a Group Policy… is the group itself. In this case, that Group happens to be the government, since they are the nice guys that run the Armed Forces and Fire Fighters and Police.

Side gripe: It is this same government that is planning to raise GST by 2%, circa 2021 – 2025. Just saying.

Since they own it, they hold the full rights to adjustments to this policy. Including termination. Although that is unlikely, but the point still remains: You are not in full control here.

Check out the screen shot below – relevant portions underlined in red ink.

 

Ownership of Group Policy

Screenshot of an actual Certificate of Insurance. Had to be resuscitated 4 times while reading the entire section – why are big pharmas bothering to search for the cure to insomnia?

 

Surprise 2: Nominations are not possible. Payouts follow Intestate law

 

So we’ve learnt that we don’t own the policy per se. Fine. But since we are paying the premiums, can we do as we wish as far as payouts are concerned? Its going to be my money (or my estate’s!) right?

Unfortunately, no. Here is a screen shot of the specific FAQ, under the Aviva website.

 

Claims Procedure

Source: https://www.aviva.com.sg/en/faq/mindef-and-mha-group-insurance-faq/

 

Once again, the lack of nomination feature stems from it being a Group Policy. The claims payout will be distributed according to either Intestate Law or Muslim Intestate Law (faraid).

In a nutshell, Intestate Law governs the distribution of your estate after you pass on, according to set rules. In cases were there are no suitable persons to receive your estate, it will be kindly given to the Government. Presumably with thanks to your nation building contribution.

 

We covered nominations at length in this previous article. In case you are wondering, who might be a proper claimant, here is a quick explanation:

The insurer could, at its discretion, release up to $150,000 of the claims amount to a “Proper Claimant”. This could be the spouse, parent, sibling, children, nephew or niece of the deceased.

 

Surprise 3: Claims payout due to Terrorism and War are Abysmal

 

Not even kidding. I struggled to find another word stronger than Abysmal to convey the gravity of the situation. (FYI, I couldn’t)

Suppose your policy covers you for a cool million dollars. And you pass on due to a war. What percentage do you think you can claim for, under the policy?

50%?
That’s optimistic.

25%?
Not quite

5%?
Getting there, but not yet

Try 0.75%. (or $7500. Barely enough for a funeral)

Edit: This is our interpretation of the following paragraph below. There is another reasonable interpretation by reader Adrian, which we will elaborate.

 

Limitations to Policy Cover

Source: https://www2.aviva.com.sg/pdf/MINDEF_MHA_GTL_Product_Summary.pdf

 

Edit: Adrian’s interpretation is different, insofar as the term “Aggregate Sum Insured” is concerned. It could refer to the Total Sum Insured recorded under Aviva’s books for this policy.

Here is how both interpretations can play out (We wrote in to Aviva to check, and will update this article if they reply).

Our interpretation of Aggregate Sum Insured: It is the Sum Insured due to people that need to claim due to War/Terrorism. For example, if there are 3 people who died due to a terrorist act, and their total Sum Insured was 1 million (say 700k + 200k + 100k). Aviva then pays out 0.75% of that proportionally to each person.

Adrian’s interpretation of Aggregate Sum Insured: Sum Insured due to ALL policy holders under this scheme, which is far more substantial. Lets assume it is 100 billion, spread over 300,000 Policy Holders. If the same 3 people died due to a terrorist act, then the total payable by Aviva is 0.75% of 100 billion, which is 750 million. Then each person will receive their due amounts (700k/200k/100k), and Aviva still has another 749 million available as payouts if there are more of such claims.

Either way, there is a potential limitation to the original payouts, which is the point we want to make.
Many thanks to the readers who gave their input, which helped improve our perspective.

 

Most regular Life Insurance policies (Term, Whole Life, etc) do not have this restriction. Within reason, of course. For example, you can’t jolly well be the terrorist and expect a payout. IKR?

 

How now, brown cow?

 

Given this new information, should you still carry on with the Group Insurance scheme?

 

ABSOLUTELY.

 

(I still keep mine, and have expanded upon the coverage. Intentionally, too)

 

Make no mistake, it is still a very good option to receive cover. There are not many providers out there that provide protection at such a good price.

I would wager that the Government won’t be terminating this scheme anytime soon. And even if they did, there would be a replacement for it. Most of the time, Intestate Law works just fine – unless there are specific family members you really hate, or there are charities that you really want to support. (an estimated 98% of all Life Insurance policies have NO named beneficiaries).

 

To address any potential Critical Illness protection shortfall on your own, check out FWD Insurance. They have a fully online and hassle free purchase experience.

 

The only point that I would be concerned about is the payout reduction due to Terrorism or War. I wish I could say that there is a 0 chance for both, but I lent my crystal ball to Nostradamus and he didn’t bother to return it.

So my personal take would be to hedge your policies. This Group Insurance scheme makes for a great starting point for cover, then top up with other policies that you can fully own and control.

 

Attribution

 

This article was only made possible by a deep dive into the clauses of the Group Insurance policy, a deep dive that we are blessed not to have conducted ourselves.

That person who trawled waves upon waves of policy wording was Jiale, who kindly let us transcribe (loosely) his points from his video below:

 

 

About Jiale

 

About+Jiale+2

 

No stranger to our site, Jiale has been contributing content on Clearly Surely regularly since 2017.

For more than half a decade, his passion has been guiding families and individuals with plainspoken, no-nonsense financial advice, and Investment is his forte. Presently working with over 300 families across SEA, he serves them through personal consultations, client seminars and insurance videos.

Jiale presently holds the highest financial advisory title of Senior Executive Financial Planner.

 

Contact

Mobile: 9786 5900

Email: kahloktay@gmail.com

Website: https://www.jiale.finance/

 

If, like Jiale, you have knowledge to share, or a story to tell, or even questions about Life Insurance, feel free to reach out to us here.

 

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.

And we love having fun while writing about insurance, especially when someone else does the heavy reading.

  1. Sinkie

    Same as for all other group term policies e.g. civil service, company-level, etc.

    Those above have greater portability risk (you lose coverage if resign), and in the case of company-specific group, the company has higher chance of cancelling or reducing benefits if not doing well, recession etc.

    1 thing to note about the Group Risk Limitation for War & Terrorism:
    The more other “victims” with the same policy kena killed in war or terrorism, the better the payouts.
    E.g. 100 people with the group policy & each having $1M coverage — each person limited to 0.0075 X $100M = $750K.

    2 sub-notes:
    i) Those with higher cover “subsidise” those with lower cover.
    ii) More reasonable for war when fighting in your SAF unit & many having this group coverage …. in civilian life if kena terrorism, not likely to have many other victims having this SAF group policy to “beef up” the claim benefits.

    1. Adrian Khiat

      My understanding…

      1,000 policyholders with $1million cover = $1,000,000,000 total aggregate Sum Assured.
      0.75% of $1billion will be $7.5million.

      2 of the policyholders die from Terrorist attack.

      Aviva should pay the full $1 million to each policyholder because the limit is $7.5million.

      However, if 10 of the policyholders die from terrorist attack, Aviva will only pay $750k to each policyholder because the limit is breached and all share the 0.75% aggregate Sum Assured.

      My opinion, risk is low because I believe the aggregate Sum Assured is more than the billion dollar example I had quoted.

  2. Hanwei

    We didn’t know about the “cummulative victim benefit” and perhaps it applies to other group plans, not the Mindef one. But still useful to know. But it looks like there is no difference in the payout to each individual to me. The 750k still has to be shared with 100 people – each one gets 7500.

    Has the above been verified? It looks like the below is correct.

    1 thing to note about the Group Risk Limitation for War & Terrorism:
    The more other “victims” with the same policy kena killed in war or terrorism, the better the payouts.
    E.g. 100 people with the group policy & each having $1M coverage — each person limited to 0.0075 X $100M = $750K.

    Maybe can write in to Aviva to confirm?

    Gan cheong NSman

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