5 basic insurance policies to consider buying in Singapore

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If 2020 has taught us anything, it is that there are many events that are out of our control, some of them potentially expensive. That’s why insurance exists — to offer financial support when disaster strikes.

But it’s easy to get overwhelmed by the array of insurance products on offer, especially if you’re speaking with a pushy agent who’s trying to get you to sign up for everything. Let’s go back to basics and look at the main types of insurance policies that are most important to people in Singapore.

5 basic insurance policies to get in Singapore

Insurance policy What it does
Health insurance Covers hospital and medical bills
Term life insurance Pays a lump sum to your family if you die
Critical illness insurance Pays a lump sum if you’re diagnosed with an illness
Disability insurance Pays a monthly income if you are severely disabled
Personal accident insurance Offers a payout if you’re injured in an accident

1. Health insurance

Health insurance is probably the most essential type of insurance to have on this list. In a nutshell, health insurance pays for your medical bills if you get hospitalised, as well as outpatient bills incurred before and after your hospital stay that fall within certain time limits.

Hospitalisation benefits

If you’re a Singapore citizen or PR, you already have MediShield Life, a very basic form of health insurance from the government. But MediShield Life’s claim limits are quite low and constrain you to B2 and C wards at public hospitals.

Luckily, you can beef it up quite inexpensively with an Integrated Shield Plan (IP), which lets you make higher claims.  You’ll also get to choose to stay at better — and more expensive — public hospital wards or private hospitals, depending on your plan. 

Co-payment options

There is always a co-payment portion, but this can be lowered somewhat by purchasing a rider. You can also pay for a portion of your IP premiums using MediSave.

Sample premium: The Prudential PruShield Premier, which includes the option for private hospitalisation, will cost $327 a year for a 35-year-old. Of this amount, $300 can be paid using MediSave.

2. Term life insurance

A term life insurance policy, in its simplest form, basically gives a cash payout if you die. The money serves as a form of financial protection for your dependants, especially if you have kids. Most plans will also release the payout to you if you become totally and permanently disabled.

Singaporeans and PRs aged 21 to 60 years (raised to 65 years from 1 April 2021) actually have a small amount of term life insurance coverage through the Dependants’ Protection Scheme, which offers a payout of up to $46,000 (raised to $70,000 from 1 April 2021) in the event of death.

Hybrid insurance options

There are many hybrid insurance products such as whole life insurance, endowment plans, and investment-linked plans which offer some form of life insurance coverage while also accumulating cash value or investing your premiums.

Agents like to promote these due to their high commissions, but you should not commit to one without knowing the pros and cons, as well as assessing the true investment potential after taking into account the various fees and charges.

Sample premium: FWD’s Term Life Plus Insurance costs $264 a year to cover a 35-year-old, non-smoking female with a sum-assured of $500,000 for 20 years.

ALSO READ: 5 types of insurance you can get for free in Singapore

3. Critical illness insurance

Many serious health conditions like heart disease and late stage cancer will require you to take time off work or even leave your job altogether, so critical illness insurance offers the financial support you need while seeking treatment. 

Receive payout with confirmed diagnosis 

Critical illness insurance plans pay out a lump sum of cash upon diagnosis. Unlike health insurance claims, which are tied to your medical bills, critical illness insurance payouts have nothing to do with your medical treatment. 

So long as you are diagnosed with one of the conditions listed in your policy, you get your payout.

Sample premium: Singlife Critical Illness Plan Series 1.1 costs $840.25 a year for a 35-year-old female non-smoker with $200,000 of coverage for 20 years.

4. Disability insurance

Disability insurance offers payouts if you become disabled. In Singapore, such insurance is often meant to work in tandem with CareShield Life, a government scheme for Singapore citizens and PRs which pays out a monthly income of $600, if you become severely disabled.

Being severely disabled means not being able to perform three out of six Activities of Daily Living (ADLs), which are defined as washing, dressing, feeding, toileting, mobility and transferring.

Additional coverage for better benefits

Disability insurance plans from private insurers are meant to beef up the protection offered by CareShield Life. They do so by increasing the monthly income you receive, as well as making it easier to qualify for payouts. For instance, most plans will offer payouts so long as you cannot perform two ADLs.

Sample premium: NTUC Income Care Secure costs $483.50 for a 35-year-old female who wishes to receive a $1,200 benefit (including CareShield Life payouts).

5. Personal accident insurance

Personal accident insurance offers a lump sum payout if you die, or become totally and permanently disabled in an accident. Many plans also offer benefits for medical expenses or daily hospital cash benefits, or even both, if you are hospitalised due to a personal accident.

Thanks to Covid-19, some insurers have upgraded their personal accident insurance policies with coverage for infectious diseases too.

Choosing the right personal insurance plan

The perks offered by personal accident plans can be quite varied, so look out for things like free coverage for your kids, emergency medical evacuation, reimbursement for mobility aids and so on. 

If your job is classified as hazardous, look for a plan that does not participate in “occupational loading”, which is a fancy way of saying they’ll charge you higher premiums.

Sample premium: Aviva Personal Accident Standard costs $158.40 per year for a 35-year-old female working in a non-hazardous job.

ALSO READ: 3 tips to save on healthcare in Singapore

How much should you spend on insurance?

As a general rule of thumb, you should spend no more than 3per cent to 10per cent of your monthly take-home pay on insurance. Spending too much on insurance is counterproductive, as the whole idea of insurance is to put you in a financially better position.

Here’s how to keep your insurance costs manageable:

Assess how much coverage you need first 

You should always work out the amount of coverage you need before buying. This varies from person to person and depends on your income and liabilities. 

It’s much better to know how much coverage you need and then look for a suitable plan rather than the other way around.

Keep insurance and investments separate

Your insurance agent might tell you otherwise, but you should probably split your insurance from your investments. 

Beware of those life insurance products that are bundled with investments or cash value accumulation, and only sign up if you truly understand them and have a realistic idea of their true investment potential. 

So if you really need life insurance protection, it might be better to buy term life insurance and then invest separately.

This article was first published in MoneySmart.