Make a balanced decision

A few insurance agents have criticised me for my views about over-spending on buying of critical illness and private shield. They argued that, even though the risk is small, it is necessary to protect against the risk.

It is important for consumers to make a balanced decision. Each person has only a limited amount of savings. If you spend too much of your savings on insuring against risks with a low probability of happening, you will not have sufficient savings for other risks.

The biggest risk is insufficient money at retirement. Most people will survive to retirement without a critical illness or big hospital bill. If you over-spend your savings on insurance, you will not have enough savings for your retirement.

When you buy insurance, make sure that you pay the right amount of premium. Do not pay too much. Do not buy insurance that is not really necessary. Choose an adviser who takes care of your interest, rather than one that wants you to spend more (and you know why).

You can buy term insurance (including cover for critical illness) up to age 60 (or earlier) to give a large cover for a modest premium. You can scale down the cover at the older ages, to keep the premium low (e.g. decreasing term insurance or family income benefit). Read this FAQ for the benchmark premium.

Most people need insurance when they are young but they only need to cover for a period of say 25 years. After 25 years, they will have sufficient savings to protect them against loss of income due to illness or unemployment. But they need to put their savings in a low cost fund, so that it can grow and give a good rate of return. (Most structured or life insurance savings products take away too much charges and give a poor return).

There is a big argument about the merits of Medishield and Private Shield. There is no doubt that Private Shield covers more than Medishield, but consumers should ask the question - is the justified to incur a higher cost? The lifetime cost for Private Shield Plan A is 2.5 times of Medishield. Why pay 2.5 times of the cost when for most cases, Medishield will be sufficient to cover all the cost (excluding the co-payments). In fact, Private Shield requires you to bigger co-payment when you are hospitalised.

I want you, as a consumer, to be aware about the choice to be on Medishield. I have presented my reasons. Your insurance agent will present the argument to be on Private Shield. You have to make the final decision.

If you are happy with Private Shield, it is all right. If you decide to convert back to Medishield, you can get cancel your Private Shield and ask the insurance company to put you back on Medishield. I did that.

To recap: You have certain amount of savings to take care of your future financial security. You have to use this savings wisely. You can cover some risks through insurance, but you have to pay the right premium. Do not over-spend on insurance, and leave insufficient money for your retirement needs (as this represent the biggest risk that you have to face).

Tan Kin Lian