Post by oldman on May 15, 2014 15:50:19 GMT 7
The most important insurance to have is your health insurance. An example of a health insurance plan is the Private Integrated Plan which provides hospitalisation coverage above the basic government plans. The premiums for these depend on the class of ward that you have selected. If you are hospitalised, these plans should cover all or most of the cost of your stay and treatment in the hospitals.
For these insurance plans, as one ages, the premiums will go up. But the good thing about these plans is that there is usually a very high cap on the amount claimed (eg, up to $700,000 claims every year) and they can provide a lifetime of coverage. The yearly premiums are usually not affected by the amounts that you have claimed in the past. If you are hospitalised in a government hospital, the payment for the stay and treatment may be billed directly to the insurance company and there is then no need to even raise a claim as the insurance company would have settled the bill directly with the hospital. For private hospitals, you are usually required to pay upfront and the hospitals will reimburse you when the amounts have been settled by the insurance company. Usually the reimbursement by private hospitals take a few weeks to process even after the insurance company has paid the private hospitals.
Health insurance should cover the hospitalisation costs for the family. Some of these policies also cover up to 3 months of pre and post outpatient costs....following which, we have the pay the outpatient costs ourselves. I am alright with this arrangement as I feel that the most important feature of health insurance is its ability to cover the full cost of large ticket items rather than to cover all eventualities including GP and outpatient visits.
When you have sorted out your health insurance plan, you can then look at life insurance. Life insurance usually cover one of two eventualities: dreaded diseases (also known as critical illness insurance) and pure life insurance. Dreaded disease insurance will pay out a sum of money when you are diagnosed with a medical condition like cancer, stroke or heart attacks or when you die. Pure life insurance on the other hand, will only pay out a sum of money on your untimely death. Put it another way, pure life insurance can be seen as a subset of dreaded disease insurance as dreaded disease coverage includes both dreaded disease and death. But, the premiums for dreaded disease coverage is a lot higher than that of pure life insurance.
The insurance agent makes the most money from selling you life insurance rather than health insurance. These life insurance policies usually cost hundreds of dollars monthly. Also, do note that these policies usually do not cover the cost of hospitalisation (for which you still need the health insurance coverage).
Perhaps the best way to look at insurance is to ensure that firstly, you have the best health insurance plan that you can afford. If you still have extra money to put into insurance, only then should one consider life insurance plans.
To add complexity to the life insurance plans, most insurance companies add in an investment component and then call the combined insurance as a whole life insurance policy. When you are presented with whole life policies, it is best to split up the policy into the insurance component and the savings component.
For the insurance component, the premiums that you pay will go entirely to the insurance company for taking on the risk of insuring you. Part of your premiums will go to paying the insurance agent for successfully selling the policy to you.
For someone in the 50's age group, you can expect to pay roughly $20 a month for every $100,000 of life insurance. If you are younger, your monthly premiums will be much lower. If the policy costs more than this amount for the same life assurance coverage of $100,000, then the rest of it is is likely to be used to pay for the savings component. A pure life insurance policy will not have any cash value as all the money that you have paid is used to insure you. The premiums for pure life assurance policies are usually very much smaller than the premiums for the savings component.
It is the savings component that gives a cash value to the life insurance policy. The savings component is usually invested with a fund manager after the insurance agent and company have taken their cut. It is quite common for the insurance agent and company to take between 50% and 100% of your first year premium and smaller percentages in the following 2 years. The fund manager then charges at least 1% every year for managing your funds, whether or not your funds make money. If your funds do well, don't be surprised that the fund manager will take a further 10% or more of the profits.
So, if you put in $100 a month into an investment linked product, you would have paid $2,400 in 2 years. Your insurance agent and company may take between $600 and $1,200 of this capital as their commission for the first year and a reducing amount in subsequent years. What is left is then put into a fund. As this number is now much smaller than your initial sum of money that you have put in over the 2 years, it will take easily 7 to 10 years later, for you to just break even on the amount of money that you have put in.
By splitting these 2 components, you will have a better idea of whether the savings component is worth paying for as you can then compare this against the expected returns. For me, as I invest on my own, I simply tell my insurance agent that I am only interested in pure life insurance and do not want to consider the savings component. When you say this to your insurance agent, he will usually not be happy because it is the savings component that they take their largest commissions.
Many insurance policies are a mixture of a life insurance plan and a savings component. Whenever there is a cash value to the policy together with projected returns, there is usually some form of a savings component. It is easier for the insurance agent to sell these hybrid products as they can attract you to the projected returns that the policy should give you. Always remember that these are projected returns and you cannot hold the insurance company to task if you do not get these types of returns.
Also remember that the insurance agent will certainly take care of himself.... so will the insurance company and the fund managers. If everyone else takes care of themselves, it is likely that someone will lose out in the end. Hence, we owe it to ourselves to look carefully at each and every insurance policy that we intend to take up or have taken in the past.
When you are retired, you have to relook at the whole issue of insurance again. This is because you have to be extra careful with the amount of money that you are spending on insurance given that you are no longer drawing a monthly salary. It is still very important to have adequate health insurance as well as some life insurance plans. The health insurance will take care of your hospitalisation needs. The dreaded disease plans will pay out a sum of money if you are affected by one of the dreaded diseases. This can then help you pay for other expenses like mortgage payments and family expenses while you are still recovering from the dreaded disease.
Finally, life insurance is still needed in the event of your untimely death as this can then help your family with living expenses when you are no longer around. In the past, when you were the sole breadwinner, there was always a fear of your early demise and the need to ensure that the family will have enough money to see them through. Now that you are retired and the kids have all grown up and can fend for themselves and your spouse, this fear may not be as critical as before. Nevertheless, it is always good to ensure that you still have some life insurance coverage, either in the form of dreaded disease coverage or pure life insurance coverage.
Do remember that pure life insurance is usually only paid out when you have expired and not when you are diagnosed with a dreaded medical condition. When you are sick with a dreaded medical condition, you may be excused from paying further premiums to your life insurance if you have also bought the required insurance riders. The same goes for mortgage backed life insurance policies. If you are sick with a dreaded medical condition, you may not need to pay your insurance premiums but you still need to pay the bank the mortgage on your house as the insurance money will only be given upon your demise. In other words, if you are sick with a dreaded medical condition, you still need to find a way of paying the monthly mortgage on your house together with all the living expenses of the family.
When you are retired, you have to balance the need to conserve cash and the monthly amount that you have to pay to keep all these insurance policies. Some insurance policies may give you the flexibility of not paying any more premiums by using the existing cash component to keep the policy alive. When you plan your retirement, don't forget to have a chat with your insurance agent as he may be able to offer you other options.
It is important for all of us to know the difference between health insurance and life insurance as each of these cover different aspects of insurance. Ideally, one should firstly get the best health insurance he can afford first. Then, consider life insurance. Under life insurance, it is better to take up dreaded disease coverage as this will then cover both dreaded disease and untimely death. If you take up just the pure life insurance, without the dreaded disease coverage, you will not get any insurance payout if you are struck down with any of the dreaded diseases.
Put another way, when you are sick you want to have a health insurance policy that covers all or most of your hospitalisation costs. When you are stuck down with a dreaded disease, you want a dreaded disease, life insurance policy that will give you a lump sum of money that can help pay for the mortgage payments and your family living expenses. If you only have just pure life insurance, when you are sick, it will not cover any of your hospitalisation costs or your family living expenses.
For these insurance plans, as one ages, the premiums will go up. But the good thing about these plans is that there is usually a very high cap on the amount claimed (eg, up to $700,000 claims every year) and they can provide a lifetime of coverage. The yearly premiums are usually not affected by the amounts that you have claimed in the past. If you are hospitalised in a government hospital, the payment for the stay and treatment may be billed directly to the insurance company and there is then no need to even raise a claim as the insurance company would have settled the bill directly with the hospital. For private hospitals, you are usually required to pay upfront and the hospitals will reimburse you when the amounts have been settled by the insurance company. Usually the reimbursement by private hospitals take a few weeks to process even after the insurance company has paid the private hospitals.
Health insurance should cover the hospitalisation costs for the family. Some of these policies also cover up to 3 months of pre and post outpatient costs....following which, we have the pay the outpatient costs ourselves. I am alright with this arrangement as I feel that the most important feature of health insurance is its ability to cover the full cost of large ticket items rather than to cover all eventualities including GP and outpatient visits.
When you have sorted out your health insurance plan, you can then look at life insurance. Life insurance usually cover one of two eventualities: dreaded diseases (also known as critical illness insurance) and pure life insurance. Dreaded disease insurance will pay out a sum of money when you are diagnosed with a medical condition like cancer, stroke or heart attacks or when you die. Pure life insurance on the other hand, will only pay out a sum of money on your untimely death. Put it another way, pure life insurance can be seen as a subset of dreaded disease insurance as dreaded disease coverage includes both dreaded disease and death. But, the premiums for dreaded disease coverage is a lot higher than that of pure life insurance.
The insurance agent makes the most money from selling you life insurance rather than health insurance. These life insurance policies usually cost hundreds of dollars monthly. Also, do note that these policies usually do not cover the cost of hospitalisation (for which you still need the health insurance coverage).
Perhaps the best way to look at insurance is to ensure that firstly, you have the best health insurance plan that you can afford. If you still have extra money to put into insurance, only then should one consider life insurance plans.
To add complexity to the life insurance plans, most insurance companies add in an investment component and then call the combined insurance as a whole life insurance policy. When you are presented with whole life policies, it is best to split up the policy into the insurance component and the savings component.
For the insurance component, the premiums that you pay will go entirely to the insurance company for taking on the risk of insuring you. Part of your premiums will go to paying the insurance agent for successfully selling the policy to you.
For someone in the 50's age group, you can expect to pay roughly $20 a month for every $100,000 of life insurance. If you are younger, your monthly premiums will be much lower. If the policy costs more than this amount for the same life assurance coverage of $100,000, then the rest of it is is likely to be used to pay for the savings component. A pure life insurance policy will not have any cash value as all the money that you have paid is used to insure you. The premiums for pure life assurance policies are usually very much smaller than the premiums for the savings component.
It is the savings component that gives a cash value to the life insurance policy. The savings component is usually invested with a fund manager after the insurance agent and company have taken their cut. It is quite common for the insurance agent and company to take between 50% and 100% of your first year premium and smaller percentages in the following 2 years. The fund manager then charges at least 1% every year for managing your funds, whether or not your funds make money. If your funds do well, don't be surprised that the fund manager will take a further 10% or more of the profits.
So, if you put in $100 a month into an investment linked product, you would have paid $2,400 in 2 years. Your insurance agent and company may take between $600 and $1,200 of this capital as their commission for the first year and a reducing amount in subsequent years. What is left is then put into a fund. As this number is now much smaller than your initial sum of money that you have put in over the 2 years, it will take easily 7 to 10 years later, for you to just break even on the amount of money that you have put in.
By splitting these 2 components, you will have a better idea of whether the savings component is worth paying for as you can then compare this against the expected returns. For me, as I invest on my own, I simply tell my insurance agent that I am only interested in pure life insurance and do not want to consider the savings component. When you say this to your insurance agent, he will usually not be happy because it is the savings component that they take their largest commissions.
Many insurance policies are a mixture of a life insurance plan and a savings component. Whenever there is a cash value to the policy together with projected returns, there is usually some form of a savings component. It is easier for the insurance agent to sell these hybrid products as they can attract you to the projected returns that the policy should give you. Always remember that these are projected returns and you cannot hold the insurance company to task if you do not get these types of returns.
Also remember that the insurance agent will certainly take care of himself.... so will the insurance company and the fund managers. If everyone else takes care of themselves, it is likely that someone will lose out in the end. Hence, we owe it to ourselves to look carefully at each and every insurance policy that we intend to take up or have taken in the past.
When you are retired, you have to relook at the whole issue of insurance again. This is because you have to be extra careful with the amount of money that you are spending on insurance given that you are no longer drawing a monthly salary. It is still very important to have adequate health insurance as well as some life insurance plans. The health insurance will take care of your hospitalisation needs. The dreaded disease plans will pay out a sum of money if you are affected by one of the dreaded diseases. This can then help you pay for other expenses like mortgage payments and family expenses while you are still recovering from the dreaded disease.
Finally, life insurance is still needed in the event of your untimely death as this can then help your family with living expenses when you are no longer around. In the past, when you were the sole breadwinner, there was always a fear of your early demise and the need to ensure that the family will have enough money to see them through. Now that you are retired and the kids have all grown up and can fend for themselves and your spouse, this fear may not be as critical as before. Nevertheless, it is always good to ensure that you still have some life insurance coverage, either in the form of dreaded disease coverage or pure life insurance coverage.
Do remember that pure life insurance is usually only paid out when you have expired and not when you are diagnosed with a dreaded medical condition. When you are sick with a dreaded medical condition, you may be excused from paying further premiums to your life insurance if you have also bought the required insurance riders. The same goes for mortgage backed life insurance policies. If you are sick with a dreaded medical condition, you may not need to pay your insurance premiums but you still need to pay the bank the mortgage on your house as the insurance money will only be given upon your demise. In other words, if you are sick with a dreaded medical condition, you still need to find a way of paying the monthly mortgage on your house together with all the living expenses of the family.
When you are retired, you have to balance the need to conserve cash and the monthly amount that you have to pay to keep all these insurance policies. Some insurance policies may give you the flexibility of not paying any more premiums by using the existing cash component to keep the policy alive. When you plan your retirement, don't forget to have a chat with your insurance agent as he may be able to offer you other options.
It is important for all of us to know the difference between health insurance and life insurance as each of these cover different aspects of insurance. Ideally, one should firstly get the best health insurance he can afford first. Then, consider life insurance. Under life insurance, it is better to take up dreaded disease coverage as this will then cover both dreaded disease and untimely death. If you take up just the pure life insurance, without the dreaded disease coverage, you will not get any insurance payout if you are struck down with any of the dreaded diseases.
Put another way, when you are sick you want to have a health insurance policy that covers all or most of your hospitalisation costs. When you are stuck down with a dreaded disease, you want a dreaded disease, life insurance policy that will give you a lump sum of money that can help pay for the mortgage payments and your family living expenses. If you only have just pure life insurance, when you are sick, it will not cover any of your hospitalisation costs or your family living expenses.
