At the base of the pyramid are financial plans that should be in place regardless of the situation. These fundamental plans include diverse forms of insurance, emergency funds and short-term savings which intend to address your short -term financial needs and goals. With this, you can answer the following questions:
These questions naturally evoke emotions in people and if they strike you at the very core, that is because personal finance has an emotional dimension to it. But let’s face the reality. Anyone who aspires to be a functioning member of the society requires a strong foundation in the wealth building process.
Here’s a checklist that you should have:
Health insurance is the most basic and essential financial product that you must have, regardless of demographics.
Why is it important to ensure that you have enough health insurance coverage?
Health insurance helps to cover your medical expenses and prevents you and your family from suffering a financial loss as a result of an accident, illness or disability.
It also finances you with an income when you are unable to work due to your sickness.
Under this type of policy, there are 3 types of medical insurance plans.
1. Shield Plans (MediShield Life and Integrated Shield Plans), which are funded by the Government
2. Global Medical Insurance. A comprehensive international health insurance plan.
3. Private Medical Insurance (Individual & Group).
The Hospital Cash Insurance basically provides you with a fixed amount of cash payouts for each day you are hospitalised.
However, the total amount paid under this policy may be more or less than your actual medical expenses.
The objective of this plan is for income replacement purposes where you will receive a one-time lump sum to help you with your expenses and reduce your financial burden when you are diagnosed with an early to critical stage illness.
This policy helps to your financial loss which allows you to receive a fixed amount each month if you are unable to work due to an accident or illness.
This policy provides you a fixed monthly sum of money to cover your expenses of medical costs when you are severely disabled.
Most of us know that we have to pay for our own medical healthcare fees and sometimes the health insurance company shares the costs with us.
However, the biggest question is this:
When and how much do we have to pay each time?
To answer this question, you will have to understand what you are paying for your health insurance policies. You may have come across insurance terms such as Premiums, Deductibles, Co-Insurance, and Out-of-the-Pocket maximum. All of these basic terms have an effect on how much you are to pay for your healthcare cost.
Premium is where policyholders are required to pay their insurer an amount of money for an insurance policy. Some policyholders are allowed to pay their premium in instalments (monthly or semi-annually) to keep the health insurance plan going.
If the policyholder fails to pay their premium, it may result in the cancellation of the policy and a loss of coverage.
Deductible is the initial amount of money you have to pay for your medical expenses before your health insurance makes a payout and shares the cost with you.
Co-insurance is basically the amount, generally expressed as a percentage, an insured must pay against a claim after the deductible amount is satisfied.
Out-of-pocket maximum is the most you have to pay for covered medical services in a year. After you spends the out-of-pocket maximum amount on deductibles, and coinsurance for healthcare services, the insurance company will cover every dollar of your health services that is covered in the policy.
The stage of your policy use also affects how much you have to pay for your medical bills.
Understanding what you are paying for your health insurance plan and how much you are being covered for is important so that you know how much you can claim from your insurer. By acquiring this knowledge, you will know the amount of deductible and co-insurance you are comfortable to undertake yourself with.
Health insurance fraud is one reason why premiums of healthcare insurance kept rising over time. Health insurance fraud or Provider Fraud, is the most prevalent type of health insurance fraud where medical experts and healthcare providers falsify documents and commit the fraudulent act for their own financial gains and benefits.
The most common fraud methods used by healthcare professionals are:
How do you protect yourself and ensure that you are not one of the victims of healthcare insurance fraud?
Don’t be afraid to ask questions to your doctor and make sure to keep track of your records regularly. By keeping track of your records, it tells the insured what the doctor is billing for. Also, check for the discrepancy in the bill if there is suspicion of fraudulent behaviour by healthcare providers.
If you notice any sign of fraud, you should immediately alert your insurer about the discrepancy.
Auto insurance protects you against medical and liability costs when you are involved in a car accident.
3 main types of car insurance policies:
1. Third Party Policy
The most basic policy which covers only the costs associated with the damages to the property and death or injuries by the other parties involved in the accident.
2. Third Party, Fire and Theft Policy
Expands on the basic coverage by providing additional protection by providing losses due to accidental fires and theft.
3. Comprehensive Policy
This is the most commonly bought policy in Singapore. It covers everything including third party liabilities and fire or theft, losses and damages done to the policyholder as well as the vehicle, passenger and belongings.
When a claim is made on these incidents, the insurer is only subjected to pay up to the maximum policy limit.
Home insurance policy also provides liability coverage against accidents in the home or on the property. However, the policy has a liability limit, which determines the amount of coverage you has, should an unfortunate incident occur.
In an event that a claim is made, the liability limit stipulates the percentage of the coverage amount that would go towards replacing or repairing the damage to the property structures, personal belongings, and the costs to live somewhere else while the property is being recovered.
Home insurance is a form of property insurance that covers losses and damages your house and assets in the event of a disaster or accident. It can also provide liability protection for accidents that occur at your home.
What does Home Insurance cover?
It usually covers 5 kinds of incidents on the insured property:
Not only does Homeowners Insurance protect your home and belongings from accidents, it is also a necessity to receive a mortgage.
Mortgage insurance protects your lender in the event that you default on your mortgage loan.
If your property is mortgaged to a bank, the bank would require you to purchase a Mortgage Interest Policy (MIP) to protect the bank’s financial interest for the amount of loan outstanding.
In the event of a failure in servicing the loan due to the damage of the mortgaged home, the bank can make a claim on the MIP and you will remain liable for the outstanding property loan amount.
In the event of a fire outbreak at your home, the fire insurance would protect and covers the cost of rebuilding the structural condition of your home, such as fittings, and the core structure such as floors, walls or pillars.
Home insurance is a supplement to Fire insurance which protects what is in your home, in addition to the property’s structure. It includes furnishings, decorations, and your own personal belongings.
1. Insured peril
This policy is only usable for highly specific disasters such as fires and burst pipes. As such, the policyholders would not be able to claim for any damages or loss caused by other factors like thief or break-ins.
2. All-risk home insurance
This is a comprehensive home insurance policy which covers all types of disasters and tends to be more expensive as compared to the insured peril.
Disability income insurance pays you for the loss of income due to an accident or illness. The policy helps to ease your financial loss, but will not completely replace your income before the accident or illness.
What are the key features of Disabilty Income Insurance?
The common belief of people becoming disabled is due to sustaining a serious injury from accidents. However, the most common cause of disability is actually illness. When that happens, you would be unfit to work, and you won’t be able to earn a stable income monthly.
Provides a fixed monthly payout to cover your caretaking and nursing needs. It is not for income replacement purposes.
Unlike Disability Income Insurance which requires Salary to purchase, Long Term Care Insurance does not require someone to earn a stable salary.
Therefore, if you are jobless or a homemaker, you can buy the Long Term Care Insurance.
Embedded within a life insurance or endowment plan.
A payout of Total Permanent Disability only happens when you cannot work in any occupation for a continuous of 6 months or when you suffer the loss of a pair of limbs (above wrist or ankle).
In such a situation, you will receive a lump sum payout, usually equivalent to the death benefit payout. The policy then will be terminated after the payout.
The coverage of Total Permanent Disability is different from the coverage under disability income insurance. Disability income insurance provides monthly payouts as long as you are unable to do your current job due to a disability, either temporary or permanent, until a certain age.
On the other hand, TPD is only given out, in a lump sum, when it is a permanent disability.
It generally covers the loss of a finger or toe or a 3rd-degree burn. Usually, the injury is not that severe as compared to the other 3 policies.
Factors influencing the final premium amount of Disability Income Insurance are:
Policy premiums for Disability Income Insurance can be as low as less than 1% or up to a maximum of 3%.
Some of the insurance plans could price the premium according to the age band.
Generally, disability income rates for women are higher than males. This may be attributed to pregnancy, childbirth, and higher rates of depression or other pre-existing medical conditions.
Smokers are expected to pay as much as 25% more for the same amount of protection as a non-smoker as there is a higher incidence of smoking-related illnesses.
Life insurance replaces income and this is significant to protect those who depend on you.
Being covered under life insurance, your insurer will guarantee the payment of a death benefit to the beneficiaries you named in the contract when you pass on.
There are 3 types of approach you can use to calculate the amount of coverage you need for life insurance.
Determines your life insurance needs on the basis of your income, financial assets, expenses, savings, and liabilities.
Human life value is the present value of all future income that you could expect to earn for your family until retirement. It indicates the economic loss your family would suffer in the event of your early demise.
It is a quick method where you multiply your current annual income by a factor between 10 to 15.
For example, if you earn $50,000 annually, you would require about $500,000 ($50,000 x 10) to $750,000 ($50,000 x 15) worth of life insurance benefits in the event of death.
Used to calculate your life insurance needs based on several calculations:
Life insurance needs = short-term needs + long-term needs + maintenance (living) expenses – resources.
It is important for you to remember that the amount of life insurance coverage you need, will keep changing, depending on your life stage, your income, family situation etc. These changes usually occur at different stages of life. It is, therefore, vital for you to change and check your human life value regularly.
Emergency Fund is a sum of money that you set aside in the event of a financial emergency for accidents, sudden injury, or an unexpected loss of income. It is meant to be used for covering expensive costs incurred by unpredictable life events such as unanticipated loss of employment and urgent medical emergencies.
The primary objective of keeping an emergency fund is to improve your financial security by creating a safety net to meet emergency expenses. An emergency fund should cover at least 6 months’ worth of expenses.
By ensuring that you have set aside an amount of money for emergency use allows you to live for a few months in the event of you losing your job or if an unforeseen situation happens that costs a fair chunk of money to cover.
Writing a will is essential if you have dependents such as young children or old parents. A will is a written document that sets out your instructions and wishes on how you want your assets such as money, property estate and possession to be distributed after your death.
In planning or drafting your will, is it important to present a draft that captures the instructions and objectives of you comprehensively. The terms of the Will must also be practical so that its execution can be carried out unambiguously when the time comes.
These are the many intangible aspects that could be addressed in a Will but are often overlooked.
These are some of the aspects:
When all of the above aspects are clearly addressed in your estate planning, you will draw utmost satisfaction, fulfilment and peace of mind, by leaving behind a meaningful legacy with your will.