Insurance riders in Singapore: Which ones do you actually need

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Just when you think you’ve compared insurance products thoroughly and found the absolute best one for your needs, you scroll down and realise that there are these things called “riders” to choose from.

What they heck are they, do you have to pay for them and do you really need them?

What are insurance riders, exactly?

Insurance riders are optional add-ons that can be purchased for an insurance policy. A rider offers extra benefits or protection to enhance the protection of the original plan. So, when comparing insurance plans across insurers, it’s important not just to compare the basic plans but also the riders.

Of course, riders aren’t free. The cost of the rider is tacked on to your total premium.

The riders you’re most likely to come across in Singapore are health insurance riders and life insurance riders. The good news is that riders for these two types of insurance tend to be quite similar across the various insurers, which makes comparing them simple.

What are health insurance riders?

Health insurance is a broad term, but for the purposes of this article we’ll be discussing Integrated Shield Plans (IPs). IPs are hospitalisation insurance plans that work with MediShield Life, the basic government health insurance scheme that Singapore citizens and PRs are covered by.

In a nutshell, IPs cover most of your medical costs if you get hospitalised. The bulk of your hospital bills, as well as related outpatient costs like GPs’ visit incurred within a specified time frame, will be covered by the plan. 

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You might have noticed that I said “most of” and not all of your costs. IPs in Singapore are not allowed to cover 100 per cent of your costs.

Before you can make a claim, you have to pay something called a “deductible” in a lump sum. That’s not all.

A portion of the bill, called the “co-insurance” or “co-payment” portion, also needs to be paid by you. This is to ensure that people don’t get hospitalised for fun or ask to be checked into the most luxurious hospital suite.

IP riders are typically focused on reducing the deductible and the co-insurance or co-payment portion of your hospital bill in order to keep your out-of-pocket costs as low as possible.

There are also riders that offer extra benefits, such as hospital cash benefits, medical coverage and other perks like ambulance rides.

How do health insurance riders work?

As mentioned earlier, you can reduce your deductible and co-insurance portion with an IP rider. Thanks to riders, the insurer can pay up to 95 per cent of your deductible and reduce your co-insurance to as little as 5 per cent.

Let’s say your Integrated Shield plan has a deductible of $3,500, and a co-insurance portion of 10per cent.

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You decide to buy the most comprehensive rider the insurer is offering, which will have the insurer paying 95 per cent of your deductible and reducing your co-insurance portion to 5per cent.

You then incur a hospital bill of $100,000.

Without the rider: You would have to pay $3,500 deductible + $9,650 co-insurance [$100,000 – $3,500 x 10 per cent]. That’s a total of $13,150 that must be paid out-of-pocket, or with Medisave.

With the rider: You will pay a $175 deductible + $4,825 co-insurance [($100,000-$3,500) x 5 per cent]. That makes a total of $4,700 — almost $9,000 less.

OK, what about life insurance riders?

Life insurance is meant to give your family financial support if you pass away or are no longer able to work. The policy has a sum assured, which is an amount that will be paid out if you die, usually in a lump sum. Some plans will also offer you protection if you suffer from total and permanent disability and/or terminal illness.

The most basic form of life insurance is term life insurance, which simply offers life insurance protection for a defined term.

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There is another type of life insurance, whole life insurance, which is meant to cover you for life or until you reach a certain age like 99 or 100. Whole life insurance also accumulates cash value over the years.

Whether term or whole, life insurance tends to come with a rather wide variety of riders. It is not uncommon to see five to ten riders available for a single plan, which is a nightmare for those with decision paralysis.

And unlike health insurance, where the riders tend to be focused on reducing your out-of-pocket costs, life insurance riders come in a whole variety of flavours and all have different purposes.

However, we can explain the three most common types of life insurance riders: Total and permanent disability riders, critical illness riders, and premium waiver riders.

What are total and permanent disability (TPD) riders?

Life insurance riders commonly extend the coverage of your basic plan. This means you can get a payout in more scenarios than the stipulated ones in your basic plan.

For example, many life insurance plans only pay out in the event of death or a terminal illness diagnosis. The insurer usually offers an optional rider so you also get a payout if you get a total and permanent disability (TPD).

If you buy the TPD rider, you have the assurance that you will receive your sum assured if you end up with TPD. This money can be used to support you and your family.

Before you opt for a TPD rider, though, do compare against other insurance plans. Some life insurance policies already cover TPD from the get-go without requiring a rider, which may be more cost-effective.

You can compare life insurance policies on MoneySmart or read more articles on our blog.

What are critical illness riders?

Critical illness riders work similarly to TPD riders. They offer you additional coverage by extending your life insurance payout to when you get a critical illness diagnosis.

If you buy one, you will receive a lump sum payout if you get diagnosed with a critical illness that is covered by the plan — conditions like heart attack or terminal cancer are usually covered.

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Getting a life insurance policy + critical illness rider can be a good idea if you want to cover all the bases.

However, some life insurance policies might become void once you get a critical illness payout. That means you won’t be eligible for a life insurance payout after getting your critical illness payout.

This varies from policy to policy — check the fine print.

To avoid this happening, you may want to consider buying separate critical illness or cancer insurance plan.

What other types of life insurance riders are there?

The third common type of life insurance riders are premium waiver riders. These riders excuse you from paying premiums in certain situations, such as if you are diagnosed with a critical illness.

Your plan will continue to run after that, but you will no longer have to pay premiums thanks to the premium waiver rider.

You can also buy payer premium waiver riders if you are paying for someone else’s life insurance policy. That way, their premiums will be waived if something happens to you.

Other common riders include personal accident coverage, disability benefits, hospitalisation cash benefits and so on. These vary greatly depending on the insurer.

So which insurance riders are worth buying?

If I had to pick only one rider, an IP rider would be my top pick. The differences in out-of-pocket medical costs with and without riders can be significant, so it’s a good idea to pay little more for a lower deductible and co-insurance.

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When it comes to life insurance, if your plan doesn’t already offer TPD cover, it might a good idea to either get some through a rider, or simply pick a basic life insurance plan that offers TPD cover without having to add it on. Make sure you check the cut-off age for TPD cover as it usually doesn’t last forever.

If you still have cash left over, you can also consider a critical illness rider if you don’t wish to get a separate policy for critical illness. Just make sure you read your plan carefully, as these riders may not be that straightforward — in particular, check whether the payouts will be taken from your basic plan’s sum assured or are separate.

Finally, remember that insurance premiums rise with age and the same goes for your rider premiums, so check how your total premiums will evolve over time and make sure you don’t overcommit.

This article was first published in MoneySmart.