Recently friends have been asking me about the 1st insurance policy to get. Either for themselves or for their children who are still studying. Below are some guidelines.
On buying your 1st insurance policy, usually I would respond that the 1st thing to do is not to even consider insurance first. You would want to setup at least a 3mth emergency savings buffer as the first priority. After that is to look at your budget & cashflow whereby your total insurance costs should not be more then 10% of your total income.
On a Tight Budget/Cashflow
If you are on a tight budget, the 2 type of policies that provide the most bang for the buck would be a Personal Accident (PA) coverage & a term medical coverage. Most life insurance coverage would provide a coverage of roughly 1,000x the monthly premium payment. Meanwhile, a PA would provide a coverage of approximately 10,000x the annual premium payment. However, a PA would only provide coverage in specific areas namely incidents involving an accident resulting in death or permanent disability. Most policies also provide double indemnity for public conveyancing. This basically means you get double your insurance coverage amount if you die or are permanently disabled in public transportation (e.g. bus, MRT).
PA Cost (Male/Female): 110 per year for 100,000 coverage
Secondly, if you are on a tight budget is to get a term medical coverage. A term medical coverage provides medical coverage for a period of time (usually one year). Do ensure as well that the insurance provider’s coverage is guaranteed renewable every year. A term medical coverage provides a low entry cost into medical coverage. However, a term medical coverage is not very customizable, has no value after the coverage term expires & costs go significantly up exponentially as one gets older.
Medical Term Coverage Cost (Male, 20): 526 per year
Medical Term Coverage Cost (Female, 20): 460 per year
On a Regular Budget/Cashflow
If your budget/cashflow is ok, obtaining a complete life insurance coverage with medical & critical illness would be best. Life insurance coverage is stated in Basic Sum Assured (BSA) which covers death & total permanent disability (TPD). Medical coverage would provide for hospitalization & surgical costs. Critical Illness (CI) coverage would provide a sum payment on diagnosis of any 36 CI helping you to cover costs that are not provided in medical coverage & give you flexibility in terms of seeking additional/alternative medical treatment/other expenditure required.
If you are working already, a rule of thumb would be for 5 years your annual income for the amount of life coverage (BSA) that you require. Use half the amount for Critical Illness (CI) coverage required. For medical, the main difference would be determined from Room & Board (R&B) coverage. If you are not picky about your room & sharing with others, staring from R&B150 coverage would suffice for a 1st policy. The other determining factor would be on co-insurance. Co-insurance would mean that you share in 10% of the total medical costs (usually maximum capped quite low i.e. 500) but your overall medical costs would be lower.
If you are not working, use 10 years of your annual expenses to determine your life coverage (BSA), half the amount for Critical Illness (CI) & 150 for Medical R&B. If unsure of expenses/calculation, a good starting point would be to use 100,000 for life coverage (BSA), 50,000 for CI & 150 for Medical Room & Board.
A good rider (attachment) to add on would be a premium waiver whereby you would not need to pay for insurance costs any more in the case of TPD or CI. Most other riders are not strictly unnecessary unless it is really something that you need.
Life insurance coverage BSA 100000, CI 50000 & Medical R&B150 with co-insurance
Male, 20: 150 per month (1800 per annum)
Female, 20: 125 per month (1500 per annum)
Life insurance coverage BSA 100000, CI 50000 & Medical R&B150 without co-insurance
Male, 20: 150 per month (1800 per annum)
Female, 20: 175 per month (2100 per annum)
Comments & queries are most welcome. Hope this helps!