Ever since my recent article on how much is required to achieve financial freedom for my household, I received plenty of feedback that I am probably spending too much on insurance. The figure that I disclosed, with some degree of buffer, came up to approximately $14,000 per annum for a family of 3. Several readers even wrote in to ask for a more detailed breakdown, either out of curiosity or concern that this category is a high proportion of my living expenses. Regardless, since there is considerable interest in this topic, I decided to blog about how much and in what areas does my family spend on to achieve comprehensive insurance coverage in Singapore.
Comprehensive insurance coverage for my household
Diagram 1 provides a high-level summary of the various areas of insurance that my family has purchased over the years.
1. Integrated Shield Plan
I had the painful experience of not having an integrated shield plan (‘IP’) when my child was hospitalised on Day 9 for high fever. The bill came up to over $4,000, which was thankfully not an amount that would lead to financial ruin. Yet, it was significant enough to drive home the importance of having our own personal private hospitalisation policies.
Besides purchasing integrated shield plans for each household member, we have also added supplementary riders to cap our co-payment to a maximum figure of $3,000. Although riders can only be paid in cash and hence represent a real cash expense, we feel that they remove the uncertainty typically associated with astronomical hospital bills.
With the exception of Olympia, the rest of the family members’ coverage limits are pegged to that of a Ward A in a restructured hospital. I am aware that this is not the “full coverage” and that I possibly face longer wait times etc when seeking medical treatment in a government hospital. However, this is a deliberate choice to strike a balance in keeping the cost of our premiums more affordable. It at least ensures that the interest payments from our respective CPF MediSave Accounts (‘CPF MA’) can keep up and service the IP component.
2. Early Critical Illness
I did not purchase any standalone Early Critical Illness (‘ECI’) policies. Rather, I bought them as riders pegged to our respective term policies. Anyway, one area of concern is that pay-outs for Early Critical Illness are often in a single lump sum. Without careful financial planning, they can be exhausted very quickly for after-care/rehabilitation treatment. That is why it is often very important to also be covered for disability and severe disability as the pay-outs for these are often recurring in nature.
3. Disability Income
I often term this as the most overlooked insurance policy as its awareness is incredibly low. However, its importance cannot be understated. We buy disability income policies because we want to protect against the economic fall-out from a disability that renders us incapable of performing our previous jobs for a prolonged period.
Come to think of it, we spend a good 20 years studying hard to be educated so that we qualify for good jobs that pay well. We do not want all these to go to waste because of an unfortunate disability. This is therefore a risk worthwhile hedging against. As long as I intend to stay employed, I will continue to pay for the premium on this policy.
4. Severe Disability
Many of us aged born between 1980 to 1990 may not be aware that we have already onboarded to CareShield Life, a national long-term care insurance scheme that provides basic financial support should Singaporeans become severely disabled. Given that one is auto-enrolled, there are no exclusions and medical underwriting required, which also means that pre-existing conditions are covered as well. The payouts are recurring and for a lifetime. I have explained earlier that CareShield Life is not the same as Disability Income but in fact complements it.
The premiums can be paid from CPF MA and I am thankful that I am still enjoying this policy for free as a result of the annual interest from my CPF MA. Since this is compulsory for my age group, I have added it into Diagram 1 anyway.
5. Personal Accident
I do not have a Personal Accident (‘PA’) policy as my previous companies provided them for the employees. However, I do note that such an arrangement is not ideal as it makes administration more cumbersome. This is certainly a gap I should be looking to plug.
Heartland Girl does have her own PA policy. This policy has more than served its purpose as she has sought reimbursements on her medical treatments after repeatedly injuring herself in the gym. (don’t ask me how) Similarly, Olympia has her own PA as we find it important to guard against incidents that a toddler like her are more prone to.
6. Term/Whole Life
One of the term plans that both adults have is the Dependants Protection Scheme (‘DPS’). This is a non-compulsory insurance policy that covers against Death, TPD and terminal illness. I am happy to keep this for now as the sum assured has gone up while the premium has gone down after Great Eastern has taken over the administration from NTUC Income.
We also made the decision to purchase Whole Life policy for Olympia. I have covered this under the baby insurance policy that I bought for my child.
Overall, the sum assured for each adult comes up to approximately $1.5 million, an amount that we arrived at after a frank discussion with our financial advisor. At the current family nucleus, this amount should be sufficient to tide through our dependents and parents who rely on our monthly allowance to supplement their own incomes.
Note that the sum assured varies across every individual as each of our financial circumstances are different. Therefore, it is best one considers the amount carefully and not just aim to hit a magical number.
Other insurance policies that my household have purchased but not included in this article is home content insurance. Anyway, you would have realised that I have written several articles on why I have decided to purchase these insurance policies. You can read each of them to get an in-depth understanding. On the other hand, I hope this article provides a more holistic overview of how these policies interact with each other in a family unit setting. My view on insurance is that it plays a very important role in my household financial planning. Without insurance, I do not think that I will be able to achieve FIRE with peace of mind.