Seth’s Blog on Finance

Types of Life/Health Insurance Coverage

It may be a little overwhelming for someone who has little to no experience in insurance to start figuring out what kinds of insurance coverage are available and more importantly – what are the ones really essential to him or her. I hope to highlight the more important forms of coverage and their intended purposes so that people have a better idea on where to start thinking about their insurance portfolio.

While not exhaustive, here are some of the more important forms of coverage.

Hospitalisation & Surgical

Most Singaporeans are insured by a national insurance scheme Medishield. Medishield was designed as a low-cost insurance scheme to cover hospitalisation expenses in Class B2 and C wards. The premiums are payable using one’s CPF Medisave savings.

The CPF Board allows the use of CPF Medisave savings (up to specified limits) to enhance the coverage of Medishield with private insurers. This allows an individual to increase coverage for higher wards and also higher bill sizes. Riders are available to reduce a person’s co-payment. Such policies are called integrated “Shield” policies.

Disability Income Insurance

Disability Income Insurance insures an individual’s earned income against the risk of an illness or accident rendering the person unable to work. In such a situation, the policy replaces the person’s income by paying him a monthly payout after a deferment period (option of 3 or 6 months).

Such a policy can typically be bought either till age 55, 60 or 65, depending on the person’s preference. An escalation benefit of 3% should also be chosen to hedge against inflation over a long period of disability. The limit of income insurable is capped at about 75%.

Life Coverage

This is a sum assured that is paid to the person’s beneficiaries upon his/her death. It is used to provide for dependents such as aged parents or young children who financially rely on the insured. It is sometimes used to provide a legacy for the next generation.

Critical Illness Coverage

This is a sum assured that is paid to the person in the event of medical diagnosis of one of the 30 Critical Illnesses listed in the policy. The Life Insurance Association of Singapore has standardised the definitions of 37 Critical Illnesses. Each company typically selects 30 of this 37 to be covered.

This is intended to cover for certain medical expenses that may not be covered under a person’s Shield policy, e.g. travel overseas to seek treatment. It may also be a form of income replacement for an individual who – depending on circumstances – may not qualify for a Disability Income Insurance claim. Furthermore, it may be used to cope with a higher cost of living due to impairment, e.g. in the case of stroke, the hiring of a nurse or maid to assist one’s living activities.

Long-Term Care Insurance

Long-term care coverage is to offer a monthly payout to a person who is severely disabled, i.e. unable to do at least 3 of the following 6 activities of daily living: washing, dressing, feeding, toileting, mobility and transferring. Such a policy provides financial assistance to the insured mainly to pay for home nursing services, nursing home

Singaporeans are enrolled for ElderShield, an opt-out national long-term care insurance scheme, when they turn 40. Premiums are payable with one’s CPF Medisave savings. It currently provides $400 every month for 6 years. Like Medishield, it can be enhanced with a private insurer to provide higher payout and a longer payout duration with one’s CPF Medisave savings up to a certain limit.