When should Young Adults Start Insuring Themselves?

 “What? Insurance? I’m not interested!!!”… OR

“I’m still young, don’t think I need any insurance coverage!!!”… OR

“I’m just graduated and get into this first job, I don’t have much money for insurance!!!”… OR some even with

“I don’t believe in insurance!!!”… etc.

Do they sound familiar? They are very common responses from people especially youngsters when they are asked to plan for their insurance coverage. They do not feel that planning for insurance is important at their “young” age because they are still young. So, when is the best timing to start planning for insurance coverage as a youngster?

Before joining this industry, I never think of getting an insurance products for myself, especially those with protection elements because of those common reasons which everyone can think of. I’m still young, what should I? I don’t even have enough to feed myself, how can I? All kinds of reasons appeared in my mind too, just like you.

However, when I first joined as a financial consultant, I slowly changed my mind from NO to YES. From a “100% NO to Insurance”; to “Savings Products seem better than keeping all my monies at a bank”; to “Savings with some Protection elements at the same time is better”; to “100% Protection first then followed by other products” currently. What are the reasons that changed my mind along these years?

Do allow me to relate such planning to the major life stages with some “valid reasons” which make us to procrastinate our FIRST insurance planning:

Life stages:

  1. Start working – lower starting pay, enjoy first, buy “wants”…
  2. Dating – common expenses like meals, movie, holiday…
  3. Applying BTO – down payment, stamp duty, renovation, furniture…
  4. Before marriage – planning for a grand wedding bouquet…
  5. After marriage – honeymoon period, travel more, house expenses…
  6. Conceiving – expenses on check-ups before delivery & hospitals…
  7. Become a parent – more expenses on kids like medical & planning for their education…
  8. Middle age – kids pursuing tertiary education, aged parents, own health status, start worrying about retirement due to high inflation and shorter time to save…
  9. Retirement – exceed the maximum entry age for most of the insurance products, super high premium and may be excluded for some conditions due to existing health status if still eligible for certain products…
  10. Before pass away – ill health, more check-ups, higher medical expenses…
  11. After pass away – estate duty or creditor if any, high bills for next generation to repay…

The list seems long, thus do allow me once again to summarise the long list to a shorter form:

When to save?

  • Age 25:
    • We are young and just starting out
    • We don’t make much money yet
  • Age 35:
    • Our mortgage and family bill take all of our pay checks
    • We can’t afford to save anything
  • Age 45:
    • We can’t save now as kids are in college
  • Age 55:
    • It’s not easy to start at our age
  • Age 65:
    • We should have started long time ago but it’s too late now

Even with so many reasons to say a NO to insurance planning, yet it is a MUST to say YES to your first insurance planning when you are still young, why???

Reasons?

  1. Start younger to enjoy lower premium
  2. Start earlier when you are healthy
  3. Start faster to have more years to save means lower monthly burden and longer time to accumulate wealth
  4. Start before marriage so that to reduce commitment when you have a family
  5. Protect yourself before saving so much
  6. Imagine when you are ill, how do your loved one feel? Especially when your family background is not wealthy and they have to bear tons of your medical expenses

Apart from the above-mentioned reasons, there is a very common phenomenon like increased numbers of retiree who self-extending their retirement age due to shortage of savings in either their CPF accounts or own retirement savings. Even Singapore government has implemented a very good “forced-savings” scheme, but due to withdrawal of CPF-OA for purchase of HDB, at the same time reducing the balance in CPF and concurrently reducing the balances in CPF account. Not only down payment for HDB, some even using their CPF-OA to repay the monthly housing loan. It means the accumulation is getting lesser and lesser, or even nearly to zero if the loan amount is big enough.

In a nutshell, it’s either you choose to enjoy now but work later or work harder now to enjoy your life during retirement age. Time waits for no man, quickly contact us for your FIRST insurance planning NOW!!!

Term Life Insurance Explained

Term life insurance is an inexpensive form of insurance that most people will find affordable as long as they have an income. Term life insurance offers a death benefit depending on the number of years the client has coverage for.

A term insurance policy can ensure and guarantee that the beneficiaries will receive payout upon the death of the life insured. This is especially important if the life insured is the sole bread winner in the family.

The payout can be used to cover for funeral expenses, mortgage payments, car loans, school fees, etc, everything that is needed to keep a family going even when the sole breadwinner has passed on.

Another advantage of a term life insurance is the flexibility in deciding the number of years the client wants to be insured for. Upon acceptance, the annual premiums are usually level or fixed based on the client’s age of entry at the point of policy inception.

This means that premiums will not increase even as the client ages within the period of the policy. Meanwhile there are also other variations of term policies such as renewable term, increasing term and decreasing term. These are variations that are designed to suit the client’s needs and affordability at different stages in life.

Another advantage is that term policies often have the privilege of being converted into whole life policies within a specific period of time depending on the client’s need.

Term life policies are the best value for money should a client wants to leave a huge amount of money for their family when they pass on.

The life insurance coverage can amount to anywhere from hundreds of thousands to millions of dollars. This is an extremely affordable risk management tool for many who face financial constraints in insurance payments.

Riders can also be attached to the main term life policy covering early critical illnesses or late stage critical illnesses. The only downside is that the premiums paid are flat and thus will not be accumulated into any savings or refunds. It offers the client the highest leverage in maximizing coverage without any surrender value.

For example, Mr. John Lee, the sole breadwinner in his family, wants to leave a large sum of money to his family should he pass on. He is financially strained due to his low income in a low paying job. With a wife and 2 children who are still young, it is advisable for Mr. Lee to cover himself with an affordable term life insurance policy should any misfortune befall on him.

The payout depending on his insurance coverage should be calculated to an age where his children are old enough to support themselves financially after his passing on. As it is a level premium policy, it is advisable for Mr. Lee to have the policy incepted early as premium is a lot cheaper while he is still young.

Medical Cost in Singapore. Is It Affordable?

From a small thing like surgical suture, needle, cotton ball, medication to a big item like operation room, ward etc, cost us a big sum, some even drain up our savings, either from our Medisave Account or bank accounts.

In Singapore, an adage “It is better to die than to fall sick” is well known among Singaporeans, especially those from the lower and middle income families. However, this is not only true in Singapore, healthcare systems all over the world are struggling with the rising healthcare costs. This leaves Singaporeans worried about their current and future medical needs.

Medical cost inflation is mainly the reason which causes the increasing medical cost borne by us nowadays. But, why does this happen? Against the backdrop of rapid economic growth, high medical cost inflation and a demographic transition leading to issues of rapidly aging population.

Hence, at the population level, aging and disease patterns play a large part in explaining the issue of rising costs. Singapore is rapidly aging as a country and the rates of chronic conditions such as diabetes, high blood pressure increase with age and with worsening lifestyle habits. Thus Singapore is facing a double whammy: We are getting older and fatter!!!

With the concerns over healthcare costs have surfaced with greater alarm in Singapore, the government is paying much attention in handling this issue. For example, enhance our existing healthcare system, Medishield to Medishield Life.

This new system has been implemented last November and it covers every Singaporean as well as Singapore Permanent Residence. Apart from that, annual claim limit has been increased too and those who have been “abandoned” due to existing health condition(s) will be “accepted” into this new system with few criteria to be met.

Nevertheless, is the newly adjusted annual claim limit enough for us, especially in this rising trend of medical cost? It really depends on the situation faced. It will be more than enough to settle the bill within the limit if the condition is mild, but what if the condition is worsened or the diagnosis is serious?

Are we able to settle the bill if the figure falls outside the annual limit or such condition requires us to have further on-going medical reviews after we are discharged from hospital?

Similarly, for foreigners who are holding a valid pass at Singapore, they are facing the same issue like us. Even with the new healthcare system, they are still not enjoying the benefits as what we are enjoying currently and worst of all is their medical expenses is not subsidized by the government. So, how are they going to solve the rising medical cost when they stay in Singapore?

Additionally, current healthcare system as well as the new system do not cover some medical cost incurred, and how are we going to cope with it if the figure exceeds the withdrawal limit of own Medisave account?

To some people who prefer more privacy, they would opt for higher ward types but the system offers limited options for ward types such as B2 or C ward of government hospitals. So how does this group of people to “enjoy” this benefit even they are hospitalised?

In a nutshell, people who basically stay in Singapore will still upgrade their hospitalisation plan with private insurance companies to counter some of the flaws in the healthcare system, not only to have a higher annual claim limit but also to have some coverage on the pre- and post- hospitalisation period as well as some uncovered medical cost.

Understanding Mortgage Loans & How to Manage Prevailing High Interest Rates

Owning the house of your own, its probably most if not all people’s dream. In Singapore, a home comes in many shape and sizes, such as landed, semi-detached for the richer, condominiums, executives condominiums for the sandwich-classes, DBSS (Design, Build and Sell Scheme) & HDB flats for executives, if not most of the population in Singapore as they are considered the “more affordable” homes that most of us could afford. BUT without proper financial planning, buying a house/ flat in Singapore will be almost impossible!!!

In Singapore, I would say we are lucky to have a ‘force saving’ scheme called CPF. Wait, Wait… I know this is a sensitive issue, I’m just showing the other side of the coin. Let me ask: “What if, we don’t have CPF, do you still think that you can even buy a HDB in Singapore???” Where would your down payment, stamp duty, and monthly loan servicing come from?

Here are some of the costs that you will need in order to get you the more basic homes in Singapore:

  • 5% in cash
  • 15% from CPF as down payment for HDB flats OR 20% for condominiums
  • 1-3%++ stamp duty for HDB flats OR 13% stamp duty for condos etc.

Now, most of us will require a loan to get a house for a HDB flat (min $180,000). Housing & Development Board is kind enough to offer Singaporean HDB flat owners a loan for a flat 2.6% p.a. compounding interest for your loan amount, averaging 20-30 years loan tenor. Depending on the loan amount, if the home owner loans 80% of a HDB flat costs $260,000, 2.6% at a compounding rate, is actually scary for a loan tenor of 25 years.

And the other loan option will be the bank’s loan. Especially recent years, due to the economic downturn, the bank loan interest has in fact in their lower time!!! This is an opportunity for ‘small investors’ like you and me. For property loans, normally is bank interest + SOR or SIBOR rates. Please refer to moneysmart.com for the differences between Sor & Sibor)

As for me, I bought an EC back in 2010; I took the opportunity of taking up a bank loan. From 2010- 2014, my average loan for bank interest + SOR is 0.97%! Compared to a 2.6%??? That’s super huge savings for me for the past few years! But of course, the economic is better now, and the SOR rate itself is 0.98%. So what I did was to do a partial repayment to the bank, and reduce my loan amount by half. Many have asked: How am I able to do this?

This is how my wife and I planned it.

1) We have invested our CPF monies with an insurance company, wasn’t making money as the agent wasn’t really there to  look after our monies, lost some money but I was desperate to get a place of our own, wanted to make more. Cut story short, I came into the industry, understood how the investment works, we made some money and down pay for my executive condominium. Potential investment return for CPF if you invest with insurance company now is estimated to be around 6%-8% p.a. It’s a preferred choice by many as CPF is giving 2.5% p.a. interest only. It take a longer time to growth my money if I leave it in CPF.

2) After we have taken up the loan, we bought a mortgage insurance to protect my ½ million loan amount. We love each other so much that we couldn’t bear letting any of us suffer if one of us passed because of unforeseen circumstances. That protects our property and our money in our bank.

3) We took up other cash investments and some endowments some years back. Some endowments that matured that I could do the partial repayment, investment that I could draw out money when I need to, all with my insurance company. But still, I could have done more, to have a much better life than now, IF I HAVE KNOWN. Sounds familiar???

There are some consumers who like to do their own investments and trading, and doesn’t like to invest in an insurance company as they mentioned that the return is too low, and slow for them. Only the 1% made it, most gotten their hands burnt.

For me, I wanted to see positive returns, still enjoying the positive returns; rather than venture into something I’m not familiar with.

Rules of thumb:

  1. Force yourself to plan early, even if it’s out of your comfort level. No force no plan
  2. DO NOT invest something without a safety net
  3. Look for something with higher interest than the banks

P.S.: No one plans to fail, most fail to plan!!!

The Myths of Motor Insurance

There are so many kinds of insurance in the market, life insurance, general insurance etc and motor is the most common and widely purchased insurance.

At this space-age century, people are getting more “Tech-Savvy” and most information is widely available on the Internet, be it cheap restaurants, car reviews, wedding venues etc… people will be able to do their research on the answers they are looking for.

And it’s by law that all motor vehicle owners to have a valid insurance when they are using their vehicles, and the ironical part about many car owners, with or without consciousness, will get a higher end motor insurance (of cause of a higher premium) to protect their vehicle, rather than themselves. My question is, if there is no law governing this, I guess no car owners will spend the money to purchase motor insurance.

Here are some benefits of having a motor insurance:

  • Cover repair cost when a accident occurs
  • Hospitalization benefits
  • Courtesy/ replacement car
  • Tow services and the list goes on….

(above-mentioned benefits, motor & travel insurance may vary on the type of benefits a customer chooses)

So what will be the common misunderstandings one may have of getting a motor insurance?

Myth 1:

“I buy motor insurance online is cheaper! I don’t have to pay the middleman fee!”

False! Premiums are derived from:

  1. Claims experience mainly
  2. Car brands
  3. Type of car
  4. Driver’s experience/ age
  5. CC
  6. NCD % (no claim discount)
  7. Excess

The benefit of getting from a broker/ agent, they SAVE all your ‘troubles’, help you with the claims when you are feeling down. On the other hand, if you get it online, you will have to do all the claims by yourselves, liaise with insurance companies etc, when you are not in the best of mood.

I was involved in a chain collusion on SLE towards city about 10 years ago, my car and I was ‘badly injured’, I was really glad that my agent helped me with everything!

Myth 2:

“Brokers will find the more expensive quotes as they want to earn more commission!”

Unlikely! As I have mentioned there are many “tech-savvy” customers, they will be able to get the pricings online if the price is way too much difference from the other companies. Customer should be able to tell that difference in the quotes and pricing.

It is really very competitive especially for motor insurance in terms of benefits v.s. premiums. Also, premiums are strongly regulated in Singapore, companies wouldn’t be able to charge too much. If it is too expensive, there will be no customer buying from such company and the company is losing the business sooner. No companies would want that to happen.

Thus, premiums will be the same be it you get from online or through a broker/ agent, as this is a competitive market in Singapore, every company is trying to cut the premiums to attract new customers.

The reverse will be true that all agents and broker companies will go bankrupt IF online quotes are cheaper. And what will be the reason for the surviving companies that don’t use online systems/ quotes?

Myth 3:

“Commercials are telling us getting online SAVE US a lot of money!!!”

False! There is a min profit margin a company must earn to sustain their business for many years to come, and costs and inflation have been going up, how could the premiums become cheaper? Premiums are derived from claims experiences, and payments for repairs and damages come from the pool of premiums paid, and we are talking about min of 5 figures each accident, so how cheap a motor insurance can go? It certainly makes no sense to do so in losing the business.

I personally will recommend to have someone in the profession to help me with all these, to save me from all the troubles, time and frustrations that I may encounter during claims.