Not all Glory and Fame

Today, I will reflect on the recent developments in the industry. Specifically, i'll be providing my views on being able direct purchase insurance, even more regulation to financial planners and commission.

Direct Purchase Insurance

Singaporeans are now able to buy simple life insurance policies directly from companies without having to through an agent, thus saving them commission. If you ask around, the agents are surprisingly, not worried that this would affect their rice bowl. This is because being in this industry, we KNOW that people WILL NOT BUY INSURANCE ON THEIR OWN. There is a saying, people often don't know what is good for them. Will there be some people who takes the  free advice and then purchase the insurance on their own? sure, there will be some of these people, but not a large enough percentage to actually cause a problem. In essence, it will take someone with a certain level of financial knowledge and discipline to  purchase insurance on their own. 

More Regulations AGAIN

The latest regulation is the implementation of the balance scorecard, which aims to penalize agents that anyhow sell products and didn't make an effort to find out the financial situation of their clients. 

I always welcome more regulations, it helps to keep the industry on its toes and maintain a high service level. Hopefully, consumers can see that the industry is slowly being revamped and the negative stigma towards the industry can be elevated.However, there will still be cases of mis-selling as there are always loopholes to be found. What is important at the end of the day is to get an adviser that places your interest over theirs.  

Commission

The issue of commission seems to be secretive and taboo between clients and the agent, but in reality that is not the case. Every policy will highlight its distribution cost, that is the amount paid to the agent as commission and to the insurance company for administrative costs and underwriting. Again, if you think insurance agents can live on air and water, then i think we should stop the commission structure. Then some people will say, without thinking about the consequences, give them a regular salary ! Who will bear this cost of the regular salary? You, the consumer. Will there be incentives to promote insurance to the under-insured population? NO. Will there be more mis-selling? YES, if they are forced to hit a high enough sales quota. Ultimately, be more self-centered when you purchase a policy, think about the cost and benefits from your own perspective. Is it worth it for me to spend x amount of money to receive x amount of benefits. 

"I buy this fishing pole for $100 because it can allow me to fish for food whenever i want"  

NOT

"I don't want to buy this fishing pole because the store owner will make $25 from me and I can use this $25 to buy fish for myself for this month"

Term Policies Vs Whole Life Policies

Ladies and gentlemen, today we will be discussing a very old topic : Should I buy term or whole life?

There is no easy answer my friends, simply because everyone is different, both in terms of finance and mindset. BUT allow me to voice MY opinions, i believe it would be helpful to some people. 

TERM POLICIES

SO term policies are basically death protection and nothing else, you are making a bet with the insurance company. If you die within certain number of years (term plans varies in number of years of coverage), the insurance company pays you a large sum of money, if not they keep your premium. How do they get the odds for the bet? they check out the statistics to see how many people die at different age and set the payouts accordingly. 

FOR EXAMPLE,  if 1 out of 100, age 20 Singaporeans die each year, how much should i collect in premium from 1 person?

To pay the person that died $100, we would need to collect $1 from each person, so the insurance charge will be $1 for every $100 in coverage. $10 for $1000 coverage. SUPER SIMPLE RIGHT!  now you can start a insurance company too. Of course it will cost more than $1 because of the admin fees, which are necessary for someone to do the job of collecting the money and to selling the policy.   

In my honest opinion, buying term is good fo the following groups of people. 

1) Financially Savvy people who knows how to handle their money, enough knowledge to know how investing works. Because the price difference of a term plan and whole life plan can be used to generate a much higher return in the market. Hence the term "buy term invest the rest" Notice the pun? 

2)Low income families, this group desperately needs insurance but will SIAM insurance far far away until cannot see the dust. In the event of the sole breadwinner's death , your TV drama tragedy stories will then commence. TERM is CHEAP, most low income families should be able to afford some protection, even at $1 per day or less. 

WHOLE LIFE POLICIES

There are many many types of whole life policies, but essentially what they do is they collect more money than required to cover the insurance charges and then use the excess to invest, generating returns to cover the insurance charge. Which is why after many many donkey years you can get back more money then you paid for the insurance plan. However, the returns generated from these policies are often very very low, therefore taking ages for it to break even. 

So who is recommended to own whole life policies??

1)Anyone below age 40, this group of people have one valuable asset which is time. Their insurance charge is very low and the excess they are paying now can have ALOT of time to accumulate into a substantial amount when they retire. Also, some whole life plans only need to pay 20 years, so at age 40, they are done with paying for insurance and their insurance policy becomes part of their retirement fund. Ideally, if you are a smart parent, you will want to get a 20 year policy for your baby at age zero.  Did i mention the death benefit also grows with time?? TIME = MONEY, UNIVERSAL TRUTH (works in one direction only, money cant buy time) 

For people above age 40, they are in a interesting position, the reason they want to buy whole life is to probably leave an inheritance behind for their kids. Or they could go with a mix of term + whole life, depending on their mindset, goals and needs. Of course if you think you can live to quite old, please buy whole life, haha. 

Thats all folks. If you wanna contact me, can email me, don't spam me please. HAHA

What type of insurance do you actually need ?

The question of what insurance to buy is not easy to answer, because everyone is different and has different needs. Yet most people always assumes that everyone has the same needs. Think a 80 year old man and a 25 year old graduate, will they have the same financial needs? The example may be extreme but it captures the essence of what i'm trying to say. Many other factors also affects the choice, number of dependents, age, financial status, investment portfolio, savings, inheritance, hobby and so on. This is why agents need to meet their clients to assess the situation before they can make a recommendation, if not it would be mis-selling and people would start complaining to MAS

BUT

IF you were to point a gun to my head to list down some insurance products that generally everyone should have, it will be these few. 

Hospitalization Plan

This is very straight forward, hospital bills are expensive, so why not get a hospitalization plan to cover ourselves if we ever need to be hospitalized for a long period of time?  Integrated shield plans can be paid using MEDISAVE, which the whole purpose is to cover hospitalization expense. 

Accident Plan

Another straight forward plan, accidents happens everyday. Accident plans covers accidental death as well, this is really good for younger people as most pass away due to accidents. It also covers hospital expenses due to accident. Most NSFs will be covered under an accident plan for 2 years during active service if they do not opt out of the plan. 

 Life Insurance

There are many types of life insurance to cater to different needs. Generally, if you have any dependents, you need life insurance. Without you, your dependents'  standard of living would drop and they may be forced to change their lifestyle. Many family tragedies occur because the sole bread winner refuses to be covered for death, sure you may die and heck care everything, but your family members would ultimately be the ones suffering. Whenever, i see a family tragedy occur in the news and the so called "victims" claimed that they were not wealthy enough to buy insurance, i feel indignant. EVEN IF you save $1 a day you CAN afford insurance.  One example is the taxi driver involved in the Ferrari crash, his family claimed that they cant afford insurance. Really now?

Medishield Life

Medishield Life is basically a hospitalisation insurance plan that would be implemented next year (2015) to all citizens of Singapore. The main thing that we are interested in is how is it different or better? I'll try to list the changes and explain based on what i know.

1. The premium.

It is obvious that better products come with higher premium. The first difference is that the premium Singaporeans pay would be higher. How much higher you ask? It depends on your age group, but it is roughly twice of what you are paying now. 

(Image from Channel News Asia)

My friends, there is no free lunch in the world. Even with subsidy, you are likely paying more than the previous Medishield from your Medisave. It is also uncertain how long will the subsidy last, 1-5 years maybe. The older generation, the pioneer generation, would not be affected too greatly as the government would be topping up their Medisave account to pay for this increase in insurance premium.

However, I believe that the plan in general is beneficial to most Singaporeans and especially those with pre-existing conditions that are unable to purchase their own insurance. 

2. The Coverage.

Firstly, MediShield Life as its name suggests is for life, you are under the scheme for as long as you continue to pay premium and stay alive.

Benefit Parameter	MediShield	MediShield Life
Daily Limits	$450 / $900 (Normal / ICU Ward)	$700 / $1200 (Normal / ICU Ward)
Surgical Limits	$150 - $1,100	$200 - $2,000
Community Hospital Limit	$250 per day	$350 per day
Outpatient Cancer Treament Claim Limits	Chemo: $1,240 per 21/28 day cycle Radio: $80 - $160 per session	Chemo: $3,000 per month Radio: $140 - $500 per session
Deductibles ( B2 / C )	80 and below: $2,000 / $1,500 Above 80: $3,000 / $2,000	No change
Co-Insurance	Inpatient: 10 - 20% Outpatient: 20%	Inpatient: 3* - 10% Outpatient: 10%
Annual Limit	$70,000	$100,000
Lifetime Limit	$300,000	Removed

- See more at: http://www.moh.gov.sg/content/moh_web/medishield-life/benefits.html#sthash.n64b588N.dpuf

I think the table is pretty straight forward, in a nutshell, you will pay less for Hospital Bills. 

The biggest change would be that the life time limit is removed, good news for those with illnesses requiring long term treatment.

The Co-Insurance also decreased by a decent percentage, resulting in a lower medical bill for big illnesses.

I would say that the changes are reasonable given that we have to pay almost twice as much for the additional coverage. Although it remains to be seen how private integrated shield plans from private insurers would be affected. Does this mean you should wait until Medishield Life is out before you make any decision to purchase integrated shield? I don't think so. If you want to do that, pray hard nothing happens to you within the year. Anyways, integrated shield can be renewed once every year and can be canceled if you feel you don't need it.

Start of new Blog

Well, lets get started on this blog. So why did i create this blog ???

I hope to share my honest opinions on insurance products and educate people along the way. So, before i did a course about the industry, i was like many others.
Hear the word "Insurance" - ZAO ah SCAM MONEY !! DON'T YOU TRY SELL ME
But is that really what the industry is all about? Scamming innocent citizens off their retirement savings?? 

Ignorance is often not a good thing, i believe there is no harm in finding out more. Do you want to be ignorant and continue to think that the earth is flat? Sure go ahead, be careful not to fall off the edge.

Of course, there must be a reason why people are afraid of the word insurance right?
My guess is that insurance is often associated with death. If you buy insurance, you are admitting that you are vulnerable and could die at anytime. People simply don't like to feel vulnerable,but the cruel reality is that we are just feeble human beings.

Another reason is that people don't like to be sold things. They feel that if they need to be convinced to buy something, it probably mean that they don't really need that product since they've been fine and dandy even without the product. People don't see it as an immediate need, like food and drink. Humans are supposed to be smart and plan ahead, if you fail to plan, then you plan to fail.

Finally, i must admit that misselling  has a huge part to play as well. The industry is commission based and many planners chasing the $$$ will anyhow sell to any clients. This is less prevalent now as the industry is better regulated. But if these clients were educated, misselling would not have occurred. Knowledge is power my friends. Or if you lazy, ask for referrals from friends for a honest financial planner. Best if you personally know a life planner or have a relative working as one, that way they have your best interest at heart.