How A lot Ought to You Spend on Insurance in Singapore?
In times of plenty, we might have been willing to pay more just to enjoy the warm, cozy feeling of being adequately insured. But thanks to COVID-19, many of us had to tighten our belts, which led us to evaluate recurring expenses like insurance premiums.
However, how do you know if you are overspending on your insurance and needing to make cuts? Let's take a look at what kind of insurance makes sense.
How much of your income should you spend on insurance?
As a general rule of thumb, financial advisors tend to spend money 3% to 10% of your take home income (without CPF deductions) on pure protection insurance.
This is just a guideline for the average person. For example, if you are secretly a billionaire but your household is frugal and very modest, you can spend a much smaller portion of your income on insurance.
If insurance is your only form of investing or saving, you may want to spend more as the 3% to 10% apply to pure insurance policies and don't include hybrid plans like lump-sum plans or investment-linked plans.
If you are now spending well over 3% to 10% of your deductible on insurance, it may be time to compare your premiums against market prices.
Here is a look at the sample cost for a young adult in Singapore.
How Much Should Health Insurance Cost in Singapore?
In Singapore, hospital insurance is considered essential. If you don't have any other insurance, this is the first type to consider. This type of plan will cover most of your medical expenses when you are hospitalized.
For Singaporeans, the most affordable type of health insurance is the Integrated Shield Plan (IP), which is offered by 7 insurers in Singapore. Part of the premium would have to be paid by MediSave; However, as you get older you should be prepared to spend more of the premium in cash.
It turns out that as you age, you have more to worry about than wrinkles. Hospitalization insurance premiums increase with age, so you have to pay more every time you move into a new age group.
Model premium for health insurance
Let's calculate the premiums a 30 year old Singaporean can expect.
As a 30 year old Singapore citizen, you can expect to pay a total premium of over $ 400 per year for an intellectual property qualifying for residence in Class B1 stations, approximately $ 450 per year for Class A and approximately $ 600 + per year to private health insurance.
The above-mentioned premiums are payable in CPF MediSave as long as the annual limit for your age group is not exceeded.
If you choose to have a co-paid driver, you will have to pay him in cash. Budget another $ 100 per year for class B1, $ 200 per year for class A or $ 600 + per year for private hospital plans.
How to lower the health insurance premiums
If you only have the standard MediShield Life and want to upgrade to an IP, you can compare the 7 IP insurers' tariffs for an affordable option. However, there is no guarantee that your premiums will stay low forever.
Choose your provider carefully as you will be stuck with this insurer as soon as you develop a disease. If you switch to a new insurer, it will not cover any previous illnesses.
If you don't want to risk that, you can consider switching from a private hospital plan to a public one. Many Singaporeans choose the former for more security, but it's much more expensive than even a Class A IP.
Continue reading: The Integrated Shield Plan rewards are increasing. Whose fault is it?
How much should term life insurance cost in Singapore?
There are many types of hybrid products that offer life insurance coverage, but for the purposes of this article we will focus on term life insurance, i.e. term life insurance. a pure hedging plan that protects you during the term of the plan and has no cash value or investment component.
Life insurance is essential if you have loved ones – this could be children, a non-working spouse, parents, sugar baby, etc. who are financially dependent on you. In the event of death, your life insurance pays a lump sum as income replacement.
Model premium for term life insurance
A 30-year-old male nonsmoker with $ 500,000 insurance and a 20 year contract should be willing to pay about $ 22 to $ 35 per month for term life insurance.
Here are some examples of popular term life insurance policies:
Term life insurance premiums are tied to the age at which you sign up for the plan. The premium will then remain the same for the duration of your plan. So if you have a 20 year plan, you will pay the same premiums for 20 years.
If you choose to renew your plan after the term has expired, your award will be updated based on your age at the time of the renewal.
How to lower the premiums for term life insurance
The best way to keep costs down is to get term life insurance as early as possible. Since the premiums are calculated according to age, you can secure a favorable tariff for the entire term when buying early.
Don't forget the comparison shop if you don't already have insurance! You can get free term life insurance quotes and cross-insurer comparisons on MoneySmart.
To keep your long-term costs down, avoid signing up for a term that is too short for your needs. This can save you from having to pay higher premiums when the extension period comes.
If you are just looking for basic life insurance coverage, consider purchasing direct purchase life insurance, which is cheaper and can be purchased without consulting a broker. Further information on direct purchase insurance can be found here.
How Much Should Serious Health Insurance Cost?
Critical illness insurance is a good form of insurance to consider if you already have health and (for survivors) life insurance. This insurance usually offers a lump sum payment if you are diagnosed with a serious illness.
You can get Critical Illness Protection by purchasing a Serious Illness Driver for your life insurance. However, you will receive a payout in the event of critical illness can then you will void your entire policy.
For this reason, many Singaporeans choose to purchase self-contained serious illness insurance. There are a couple of permutations, all of which are differently expensive:
- Cancer insurance
- "Big 3" (cancer, stroke, heart attack) insurance
- Standard health insurance (late stage)
- Early-stage health insurance
- Multiple Payout Serious Illness Insurance
Sample premium for critical illness insurance
A 30-year-old male can expect to pay about $ 20 to $ 80 per month for a standard stand-alone critical illness plan that offers a one-time payout of $ 200,000 after late-stage diagnosis.
However, this can vary widely depending on the type of plan and coverage. So don't forget to compare between some insurers before you commit.
How to lower the premiums for serious health insurance
If your major illness insurance is too expensive, you can consider cancer insurance or "Big 3" insurance, which can be cheaper.
The obvious downside is that they are limited to cancer, potentially leading to a morbid worst-case scenario where you actually end up hoping to be diagnosed with cancer as opposed to the 37 diseases covered by broader insurance for serious illnesses to be covered.
Alternatively, you can also consider term life insurance with Critical Illness tab. This is usually cheaper too.
Please note, however, that you are only insured for the duration of your choice. If you don't get a serious illness (or die) during this time, you won't get a payout – bad luck if you get sick in old age.
What about everything else?
In addition to the types of insurance mentioned above, you may or need to take out the following types of insurance based on your circumstances.
Car / motorcycle insurance
If you own a vehicle, motor vehicle liability insurance is compulsory. The price depends on factors like your age, your driver's license and your car model (ah beng car models pay more). Car insurance costs at least $ 1,200 for one year in the first year of driving.
Protects your home and belongings from terrible events like fire and exploding, splashing sewage. Nice to have when you own a home. Budget approx. $ 40 to $ 100 + per year for coverage between $ 20,000 and $ 50,000.
Personal accident insurance
Insures you if you die in an accident or become permanently disabled. This is important if you are a gig worker or have a high risk profession. Budget approx. $ 80 to $ 180 per year for this.
Pay an allowance if you are disabled. You can get a plan related to the state CareShield Life program; a 30 year old man should at least budget $ 200 per year.
Overall, those of you who have an okay life and who actually own things like cars and houses have a budget of about $ 1,500 to $ 2,500 per year for insurance extras like those mentioned above.
What to do if you overpay on insurance
It's not exactly an easy read, but try to find the courage to review your policies regularly, either alone or with a financial planner.
Next, it's time to open your insurance cover to Marie Kondo and forget for a second that your policies are very unlikely to bring any joy. Pick the policies that are no longer cost effective and consider abandoning them or replacing them with cheaper plans.
Focus on what you really need – protection, rather than other factors that a Glib agent got you to sign up for.
For example, if you are sticking to life insurance with low coverage, consider abandoning it and taking out term life insurance with higher coverage.
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