According to a recent survey, half of Singaporeans lack sufficient insurance. That’s not as blameworthy as you’d think. A fair number of insurance options are overpriced; and an hour long chat with an insurance agent probably isn’t high on the list of thrilling weekend activities. So if you’re not into insurance, here are some quick options:
What is Insufficient Insurance?
For the most part, “insufficient insurance” means relying completely on default government programmes, like MediShield and MediSave.
Now it’s not impossible to get by on those (especially if you’re young and healthy). Then again, you might not die if you try untrained parachuting either; that’s still not a good reason to do it. Here at MoneySmart, we advise all readers to complement their government-given schemes with private insurance.
If your main gripe is high premiums or low returns, make sure you at least have:
- Term Insurance
- An Emergency Fund
- An Alternative Investment
1. Term Insurance
We have a more complete explanation in another article. But in general, you should complement MediShield with at least term insurance.
Term insurance has the lowest premiums, often falling in the two digit range (per month). This kind of insurance expires after a given number of years (the “term”), and has no pay out at the end. However, it’s cost is so low you’ll barely even notice it.
Whether you’re budget conscious or just thrifty, this is the minimal degree of protection you should have.
2. An Emergency Fund
If you want to be self-insured, you need to accept punishing levels of financial discipline. Among other things, it means accumulating an emergency fund of six months of your income.
Yes, six months. Obviously, this isn’t something you can get done by next January. It could mean strict budgeting for years. And if you’re not insured while accumulating the fund, you’d better accelerate your hoarding (although ironically, spending 2014 on an affordable spam-and-bean-sprout diet probably will land you in need of healthcare).
There’s a reason for such a sizeable fund. Remember that, even if you cover medical fees, you may not be able to jump right back into work. That’s what happened to me a while back; I suffered a severe injury that stopped me writing articles for a year.
(I broke my small toe. Shut up, it’s a good reason.)
3. An Alternative Investment
Insurance policies are also needed for their savings component. Most endowment schemes grow your money by 3% to 5%, and the Investment Linked Policies (ILPs) grow it by 7% to 9%.
Prudence is investing in a way that beats inflation by 2%. So a decent rate of return would be at least 6%, in the current context.
This growth is not about greed; it’s part of your financial security. As inflation progresses, the value of your money also falls. Recall that in the 60’s, you could probably buy a flat for under $100,000. Come 2050, a 2-room flat might cost enough to send a small African state into recession.
If you don’t want to invest through insurance policies, makes sure you have an alternative in place. Build your own portfolio, have an independent financial consultant, buy gold, etc. Do something, don’t just leave your money to stagnate.
You can talk to us on Facebook if you need ideas.
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