Who needs Insurance Protection more? The Rich or the Poor?

My belief in Insurance, as it has always been since its creation, is in the pooling & transferring of risk. 

I [quote] from wikipedia on the term "Insurance": [Insurance is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for payment].

We all have possessions in life, and what accompanies with them is the potential of loss. Murphy's Constant also states that "Matter will be damaged in direct proportion to its value". Hence, we protect and manage our beloved/prized possessions for the fear of losing it. We manage our relationship, for the fear of slipping into a separation. We lock our doors to keep the intruders away from unwanted theft. The fear of losing our possessions stems from the sense of ambiguity. We are just not sure if it would happen. But because of fear, we choose to protect it against potential loss. An example widely used in the insurance industry is the "Spare-tyre" theory. Why do we have with us a spare tyre in our car boot when all the four are still in perfect condition. Yes, you just mouthed it…"JUST IN CASE!". The act of carrying a spare tyre is a classic exhibition of an engineered contingency by transferring any possible risk of a damaged tyre to the spare one!

Regardless of wealth, we all have possessions, tangible and intangible. The need for an equitable transfer of risk of a tangible loss is arguably declining when plotted against a person's accumulation of wealth. A Wealthy car-owner will find it financially manageable to repair/replace his damaged/stolen vehicle. But then again, why has he taken up motor insurance? Does he really find no value in implementing it other than for reason of legislation?

Now, let us study a scenario in an average breadwinner, John, whose wife does not work and stays home to take care of their school-going kid. John strives hard at work to bring food to the table, and expenses on any other items could possibly be deemed as luxury. One day, John is diagnosed with kidney failure and requires periodical admission to the hospital and routine renal dialysis. Do you think medical insurance is a luxury or a necessity for him and his family? On hindsight, with the above scenario painted out in the first place, I would imagine that anyone who is of a sane mind would have advised John to pay for a medical insurance, no matter how meagre his discretionary income is. Now, put yourself through those unwanted scenarios. Have you implemented the applicable insurance coverage that you would have advised John to do?

In my view, a person's insurance need has minimal, if any, correlation to his wealth. No amount of wealth can buy you a crystal ball that tells you what is going to happen next. When one cannot and/or chooses not to live with some forms of uncertainty, they have an option to transfer the risk of a tangible loss via Insurance. And when such an act is duplicated by a large number, it transforms into a phenomenon known as "pooling of risk". Though the risk has been pooled, it is not going to be offered to you for free. It comes at a cost or what we called premium. Then it is down to any willing individual to work out and allocate a budget for this purpose.

This writing here is by no means an attempt to debate on the subject. Rather, we like to urge you to review the priorities in your Insurance Protection needs. That is, which type of Insurance do you need more. If you are unsure, do not hesitate to review this with your trusted adviser!

Does everybody have a Will?

As a matter of fact, yes we do. Even we have not visited any lawyer nor wrote anything before. The Will is actually a default Will decided by the government.

Let's talk about what happen the morning "After" death. If there's a Will in place, the person will die testate. If there's no will then the person dies intestate.

If the person dies testate (with a Will), the "appointed" representative (executor) will go to the court and go through the Probate Process and distribute the estate according to the Will.

If the person dies intestate (without a Will), the "agreed" representative will have to go to the court and go through the Administration Process and the distribution will based on the Intestate Succession Act.

Look and sounds the same? Well, not quite. In fact, there's a big difference. Let's see what's the inconvenience if the person dies intestate (without a Will):

1) "Agreed" Representative
Family members will need to agree on who will be the representative which can cause inconvenience and delays. Upon agreement the representative will be need to apply in the court to be the Administrator.

2) Bond & Sureties
Depending on the court, the Administrator might need to provide a bond and sureties (which each sureties asset worth's is same or more than the deceased) especially when there's minor involves.

3) Intestate Succession Act
The distribution can be found here at point no. 6:
https://www.mlaw.gov.sg/content/pto/en/deceased-cpf-estate-monies/information-for-next-of-kin-estate-monies.html
Generally, if the deceased dies leaving Spouse:
- with no children & parents : 100% Spouse
- with children & no parents : 50% Spouse; 50% Children
- with children & parents : 50% Spouse; 50% Children

It's correct. Parents will not get anything, if the deceased dies leaving spouse with children.

Example, husband and child met with an accident and passed away. The husband estate will go to the child and wife; with no estate for the husband's parents. And when the wife passed away, her estate (including her husband's $2 million) will go to her parents.

Without a Will, you cannot determine how your estate is distributed when you passed on and it can end up with the person you dislike.

So will you make a Will?

[Newsletter]Which estate cannot be distributed by Will?

Which estate cannot be distributed by Will?
The answer is CPF-OA (Ordinary Account)

Dependants’ Protection Scheme (DPS) looks expensive after 40

On The Sunday Times, well-known Invest Editor, Lorna Tan, wrote an article on DPS with the title "What you need to know about DPS coverage".

Link here: http://www.straitstimes.com/business/invest/what-you-need-to-know-about-dps-coverage

Similar to the article we wrote previously below (23Feb2017), it also shows that DPS is more expensive:

If DPS is kept throughout your working years from age 25 till 60, the total premiums work out to be $4,180, significantly higher than those for iTerm which would be about $1,717 for a woman and $2,268 for a man.

Providend says that DPS policyholders in good health may wish to review alternative plans as they reach 40 to take advantage of the lower premiums.

There's also a table of comparison:

So now you know. Time to take action.

[Published on 23 February 2017]

What is Dependants’ Protection Scheme (DPS)?
DPS is an opt-out term insurance scheme which is automatically extended to eligible CPF members. It provides:
1) a Sum Assured of: $46,000 + $5,000,
2) a Coverage Term up to 60 years old &
3) coverage for Death, Terminal Illness (TI) or Total Permanent Disability (TPD)

DPS Premium Rates:

Age (Last Birthday)	Yearly Premium
34 years and below	$36
35 – 39 years	$48
40 – 44 years	$84
45 – 49 years	$144
50 – 54 years	$228
55 – 59 years	$260

From 40 to 59 years, the total premium you will need to pay is $3,580
($84x5 + $144x5 + $228x5 + $260x5).

Now, let's do a simple comparison. Go to CompareFirst website and search for similar products as DPS:
Look under "Term Life Products" with the following options:
- Date of Birth: 1 Jan 1977 (for 20yrs calculation)
- Smoker: No
- Premium Type: Annual
- Coverage Term: 20 years
- Sum Assured: $50,000
- Critical Illness Benefit: No
- Sort Results by: Premium (Lowest - Highest)

You will find that AXA Insurance & NTUC Income are among the cheapest for female at $72/year and Great Eastern Life is the cheapest at for male at $91/year (as of 23Feb2017).
Note: Reducing Sum Assured is different from DPS as the sum assured reduces over time.

So for a coverage term of 20 years, you will only need to pay $1,440 & $1,820 for female & male rates respectively, to provide for:
1) a Sum Assured of $50,000,
2) a Coverage Term up to 60 years old &
3) a coverage for Death, Terminal Illness (TI) or Total Permanent Disability (TPD)

The above comparison would result into a total savings of $2,140 (60%) for female and $1,760 (49%) for male, relative to DPS rates!

The only caveat is that you need to utilise Cash instead of CPF monies to purchase the Term Insurance. I would think that so long as $72/year or $6/month does not make significant (if any) impact to your monthly discretionary income, this is a potential form of absolute savings. To add, accumulating your monies with CPF, currently gives you a minimum of 2.5% interest.

From the findings above, DPS does look more expensive after 40 years old.

Earn 71x your Savings Account Interest Rates

On The Sunday Times, well-known Invest Editor, Lorna Tan, wrote an article on "Higher interest on enhanced savings plan".

Link here: http://www.straitstimes.com/business/invest/higher-interest-on-enhanced-savings-plan-investroundup

Similar to the article we wrote previously below (12May2017), it highlights the Maybank SaveUp savings programme:

The Sunday Times highlights a savings programme, two insurance products and a new personal finance mobile app.

The Save Up programme was enhanced on June 1. Maybank customers now have nine options to choose from, to help them achieve the maximum interest rate of 3 per cent a year.

The deposit cap for the bonus interest has also been raised, so customers can enjoy higher interest on the first $60,000 in their SaveUp Account, up from $50,000.

[Published on 12 May 2017]
[Updated with Maybank SaveUp account. Thanks reader for the updates]
Previously we shared how you can easily earned 20x your Savings Account Rates without even leaving your home... simply by just opening an online account and transfer your funds in.

If you have not read how you can easily earn 20x, click on the link below:
Easily earn 20x your Savings Account Interest Rates

To earn 71x, you need to work a bit. Don't worry, it's achievable and mostly automated :) If you don't know yet, nowadays banks are giving higher interest rates on your deposit if you use their services. These are the 3 common things you need to do:

1) Spend on their Credit Card

2) Pay Giro bills using their account

3) Deposit your salary to their bank

Checkout the interest rate (last column) below:

Take example of the last highlighted row, to enjoy 3.55% interest rate (that is 71x your Savings Account of 0.05%), you need to open an account from Bank Of China (BoC) called SmartSaver and do the following:

1) Spend $1,500 on their credit card

2) Set-up a Giro or pay your bills to 3 different account numbers with minimally $30 each bill (can be your credit card bills, utilities, mobile, tax, etc.)

3) Inform your HR to transfer your salary here with net salary (after CPF, etc.) of more than $6,000

Note: Actually there's additional bonus that is not indicated here where any incremental value compared to last month balance, you will get additional 0.6% making it a total of 4.15% (3.55% + 0.6%). And that comes to 83x your savings account rates. But the amount is based on only the incremental value and not your total savings/balance in the account. Thus we did not include in the overall calculation.

If the credit card expenses and/or the salary is hard to achieve, you can look at the lower tier one where you just need to:

1) Spend $500 on their credit card

2) Set-up 3x Giro/bills with $30 each

3) Deposit net salary of $2,000

With this you will get 2.35%; that is 47x your savings account rates.

Note: Not all company have the option to deposit your salary to BoC. If your company doesn't allow, the next best option is Maybank. If still cannot, then it'll be either UOB or OCBC account.

If you have more than $30,000 in your savings, then UOB One Account is preferred. Else can use OCBC 360 Account which gives you slightly higher interest rate.

For UOB One Acc, the interest rates are incremental from 1.5%~3.33% depending on your balance. If you have $50,000 fixed, then you will enjoy an interest rate of 2.48%. That is, monthly you will get $103! Compared to just $2 if you put into your Savings Account. And you just need to do 2 things:

1) Spend $500 on their credit card

2a) Set-up 3x Giro/bills   OR

2b) Deposit net salary of $2,000

If you are still keeping your money in your normal Bank Savings Account, don't waste your time anymore, take action now!

So instead of having a free McChicken ($2) every month, you can get yourself and your loved one a free buffet for 2 ($100) every month :)

If we would to rank them (based on salary of <$6,000 & card bills >$500):

1) 3.00% Maybank SaveUP
2) 2.48% UOB One Account
3) 2.35% BoC SmartSaver

Consolidated banks interest rates:

Integrated Shield Plans - Potential Claim Dispute

I took up the "Private Hospital" plan for my Integrated Shield (IP) plan and everything is "As Charged". Or is it really "As Charged"?

Beware.

For "Private Hospital" plans it normally covers only the "standard ward". Should someone warded under "deluxe" or "luxury suite" or whatever ward that's non-standard, pro-ration will apply! And it can be BIG pro-ration.

Let's have a look at one of the "Private Hospital" IP plan's policy wording:

E.g. Mr.A covered under Myshield Plan 1 hence entitle to stay in private hospital standard ward. However upon admission, for whatever reasons, he admitted to luxury suite instead.

Room rate for standard ward	$500/day
Room rate for luxury ward	$1,500/day
Pro-ration factor applicable	500/1500 = 33%
Total hospital bill incurred	$100,000
Total claimable (after pro-ration of 33%)	$33,333
Total non-claimable	$66,666

Mr.A has to pay :$66,666


Mr.A might say that it is the hospital who "auto upgrade" the ward type for him or no standard ward available so no choice have to take luxury suite. Whatever the reason, Mr.A has enjoyed the luxury suite and may be "special care" that comes with luxury suite and nothing comes free. In the policy wordings it already stated clearly that they will only pay for expenses incurred when they stay in standard ward, therefore it will be a near zero chance to try and claim for the "luxury comfort".