Look out for gaps in insurance coverage

Many are under-insured, so do check if you and your loved ones are adequately protected

Lorna Tan
Invest Editor/Senior Correspondent
10 September 2017

No one wants to be caught short when a life crisis strikes, so it's no wonder that the risk of being financially unprepared tops the list of concerns among Singaporeans.

Buying appropriate insurance cover is a way of transferring this risk and getting some protection, but how much is enough and what policies should you consider?

A 2012 study by the Life Insurance Association Singapore (LIA) on under-insurance identified a $462 billion gap for working Singaporeans and permanent residents.

This gap is defined as the protection need (death coverage) of all economically active adults here minus Central Provident Fund savings and existing insurance coverage.

On an individual level, it comes to $242,500 for a working adult or 3.7 times his annual income, after taking into account CPF savings.

Against a backdrop of Singapore's rapidly ageing population, a growing incidence of chronic diseases and escalating healthcare costs, LIA has commissioned a similar protection gap study to assess the current level of under-insurance. The results are expected to be released early next year.

This time, it aims to measure two aspects of under-insurance - the mortality protection gap and the critical illness cover gap.

The 2012 study did not include the critical illness component.


PROTECTION GAP
Whether as individuals or families, we are exposed to various kinds of risks, says Manulife Singapore chief executive Naveed Irshad.

"There is the pertinent risk that a critical illness or unforeseen accident could bring about financial disaster in a family - from the sudden financial burden of hefty medical bills to the potential loss of household income due to the inability to work," he says.

"Such unplanned-for problems would put a dent in household finances, compromising the ability to meet financial commitments."


Ms Myra Pang, Great Eastern's head of customer propositions and marketing for group product management, notes that the provider gains assurance when loans, household expenses and education funding are taken care of. With these issues settled, family members will also be relieved of heavy financial burdens.

LIA defined the protection need as the sum required by dependants over a defined period, in the event of the main breadwinner's death, to take care of numerous expenditures such as funeral expenses, personal and housing loans, and ongoing expenses for children, elderly parents and spouses.

What they cover
Term insurance
Payout in the event of death and total and permanent disability within a specified period

Whole life insurance
Provides protection and savings

Critical illness insurance
Lump sum payout in the event of critical illness

Disability insurance
Payout to cover against loss of income in the event of disability due to either an injury or illness

Personal accident insurance
Payout in the event of accidents

Hospitalisation insurance
Protects you from hospital charges

Long-term care insurance
Monthly payouts if you are unable to perform activities of daily living

Source: INSURERS SUNDAY TIMES GRAPHICS

The protection gap is the protection need less an individual's CPF savings and insurance coverage and other income-producing assets left behind after death. Note that the protection gap is only relevant for economically active adults with at least one dependant.

LIA executive director Pauline Lim says the inclusion of critical illness cover in the protection gap study is timely in view of Singapore's falling old-age support ratio, rising cost of living and increasing incidence of chronic illnesses.

In fact, the rising cost of healthcare continues to be an important issue whether you are planning for retirement or already retired.

A recent HSBC report found that 82 per cent of working-age people believed retirees would have to spend more on healthcare in the future, while 85 per cent were concerned about being able to fund their healthcare.

And 50 per cent of working-age people here are worried about the availability and affordability of healthcare, compared with the global average of 25 per cent.

Mr Andrew Yeo, NTUC Income's general manager for life and health, points out that Singapore has the third-best life expectancy rate in the world, at about 83.1 years, according to the latest World Health Organisation statistics.

"However, Singapore has an average healthy life expectancy of 73.9 years - this refers to the number of years that a person can expect to live in 'full health' without disease and/or injury," he adds.

"This means that the average Singaporean can expect to be suffering from illnesses and/or be afflicted with injuries for almost 10 years of his living years, which could adversely affect the quality of his life."

WORKING OUT WHAT YOUR PROTECTION GAP IS
Mr Brandon Lam, the Singapore head of the financial planning group at DBS Bank, says that a standard rule of thumb is to take 10 times your annual earnings as your protection gap.

However, many factors need to be considered, including your life stage and remaining estimated mortality years, and the number of dependants you have and their ages, as well as any outstanding liabilities such as mortgages, and any inheritance or assets set aside.

For business owners, other considerations would include tax liabilities and/or capital that must be set aside in the event that you are unable to continue working.

Providend chief executive Christopher Tan believes that how much is enough really depends on individuals, so his company does not apply a standard rule of thumb when advising customers.

50%
WORKING-AGE PEOPLE HERE WHO ARE WORRIED ABOUT THE AVAILABILITY AND AFFORDABILITY OF HEALTHCARE, COMPARED WITH THE GLOBAL AVERAGE OF 25 PER CENT.


He suggests calculating the capital that would be needed on your death by multiplying your estimated annual income by the number of years required to replace that income until your youngest dependant becomes independent.

Let's say you are 35 now and your planned retirement age is 65. If by then, you will have no more dependants, you will need 30 years of insurance coverage.

"Take into consideration university education costs for your children, all outstanding loans, gifts to beneficiaries, and additional capital that you wish to give your family to meet unexpected expenses," says Mr Tan.

"Then calculate the existing resources you already have by taking into account your existing death coverage, your company insurance coverage, bank deposits, CPF savings and other investments, and any other income-producing assets (for example, additional investment properties that can be sold)."

The difference between the capital needed and the existing resources that you have is your protection gap.

In addition, you can go to www.diyinsurance.com.sg and use the Life Insurance Calculator to work out your protection gap.

TERM INSURANCE
Tokio Marine chief executive James Tan says term insurance is a good starting point for an individual who wants to plug a protection gap. The cover is for a specific period, and offers payouts in the event of death or total and permanent disability.

Providend's Mr Tan points out that buying insurance to replace your income in the event of death or total and permanent disability is a temporary requirement. This is because the need for income replacement does not exist once you are retired and your dependants no longer rely on you.

He adds that, for most people, the replacement amount required is typically large, so the most affordable and practical way to get yourself sufficiently covered is through term insurance.

On the other hand, whole-life insurance is useful when your need is a permanent one, such as having to pay for alternative treatment that is not covered by hospital plans when you are critically ill.

In this case, you have to decide if you want insurance cover for such a need or if you prefer to absorb the risk and self-insure. This is because not every risk needs to be covered.

Some people might not feel that compelled to buy cover for alternative treatment, while others might not have the budget to do so. And whole-life and/or critical illness plans are expensive.

Mr Lam of DBS explains that whole-of-life and jumbo universal life plans are cash-value policies and they, therefore, require higher premiums.

"They are suited to individuals who expect the return of cash values upon maturity, or the surrendering of such policies," he says.

"Term insurance does not have any cash value, and is, therefore, more affordable and more commonly used to bridge the protection gap at a lower cost."

WHAT TO CONSIDER WHEN BUYING TERM INSURANCE
First, work out how many years you need the insurance for. The second step is to determine how much you need. You can then look for plans that are the most suitable and cost-effective for you.

It is not always true that the cheapest is the best but, for term insurance, this is generally valid as such plans are plain vanilla, pure protection policies without the bells and whistles of other policies such as whole-life, says Providend's Mr Tan.

Ms Nancy Wu, who heads product management at Etiqa Insurance, suggests you should look at the policy's tenure (whether the coverage period is sufficient to meet your needs), the premiums (whether they are affordable) and whether the cover amount is enough.

Before forking out premiums for a term plan, do assess your financial needs and your budget. It is also prudent to review your financial portfolio regularly, says Ms Ho Lee Yen, AIA Singapore's chief marketing officer.

After all, as you reach different life stages, your financial and health needs will evolve, she notes.

PLUGGING PROTECTION GAPS
Some financial experts such as chief executive Ian Martin at HSBC Insurance Singapore believe that ways to plug these protection gaps are not limited to just basic term insurance.

Depending on the cover and concerns that a person wants to address, he or she could seek other solutions, says Mr Martin.

For example, you could consider taking up a critical illness plan, particularly if you have a family history of major illnesses.

AIA's Ms Ho says that, beyond just term insurance, which typically covers dependants' expenses if the insured person dies, critical illness insurance is equally important if you fall sick and want to ensure that you can cover any additional expenses and focus on recovery.

Most insurers now offer critical illness plans that cover 102 to 106 medical conditions. The plans pay 100 per cent of the sum assured in the early, intermediate and critical stages (note that terms and conditions apply).

Insurers also offer mortgage plans. This is a reducing term insurance policy that provides financial protection against death and total and permanent disability for a specific period, say, up to the age of 70.

Ms Ho says that it is also important to insure yourself against the loss of income in the event of disability or inability to work due to either an injury or illness.

One plan to consider is AIA Premier Disability Cover, which guarantees a benefit payout regardless of any future changes to your income or payouts from other disability income policies.

This provides vital financial stability and peace of mind while you adapt to your new situation, says Ms Ho.

Mr Daniel Lum, Aviva Singapore's director of product and marketing, recommends looking at long-term care, hospitalisation and personal accident plans as well.

Aviva offers MyCare (ElderShield), which has a default payout period of six years if you are unable to perform at least three out of six activities of daily living, such as feeding and dressing yourself.

Tokio Marine Life Insurance Singapore has TM Protect 1, a disability plan that provides payouts upon the loss of the ability to carry out a single daily living activity.

"Disability income plans provide necessary financial support to individuals at the onset of disability by covering costs, such as those related to rehabilitation and mobility aids," says Tokio Marine's Mr Tan.

What you need to know about DPS coverage

Lorna Tan
Published Jun 25, 2017

The CPF Dependants' Protection Scheme can be a great help to members, but note its finer points

The Dependants' Protection Scheme (DPS) is a life insurance term plan covering many people here. But ask anyone what it covers and it is likely the details would be hazy simply because the finer points of a policy are not front of mind until something untoward happens. Here are some things that policyholders ought to know about DPS:

WHAT IS DPS?
DPS generally covers insured members for a maximum sum assured of $46,000 up to the age of 60. It aims to provide Central Provident Fund (CPF) members and/or their families with some money to tide them over the first few years after the insured member dies, or suffers from terminal illness or total permanent disability. The coverage is worldwide.

The scheme works on an automatic opt-in basis. So unless you opt out, the annual premium is automatically deducted from your CPF account.

DPS is extended automatically to CPF members who are working Singapore citizens or permanent residents between the ages of 21 and 60 when they make their first CPF working contribution. Those who are below 21 but above the age of 16 can apply for DPS cover. The objective is to insure members as early as possible when they start working, as they are more likely to be healthy and insurable then.

Those who do not wish to have this cover have to sign an opt-out form and the premium will be refunded to their CPF accounts. DPS is administered by two insurers: Great Eastern (GE) Life and NTUC Income.

DO YOU HAVE SUFFICIENT CPF SAVINGS?
DPS premiums can be paid using CPF Ordinary Account (OA) or Special Account (SA) savings. While no out-of-pocket cash is required, it also means that the policy will lapse if we have insufficient CPF savings and fail to pay the premiums using cash.

This was what happened to Mr Henry Li, 59, who died of liver cancer in December last year. His DPS policy, which was due for renewal in May last year, had lapsed as he had insufficient CPF money to pay for it and was unaware that he needed to make a cash payment.

Mr Li and his wife were living in a three-room HDB flat and their CPF savings were being used to pay the mortgage. According to his widow, Mrs Li, her husband had no intention to let his DPS policy lapse.

As his OA savings were running low, Mr Li managed to get some monies transferred from his CPF Retirement Account (RA) to his OA in April last year. He had no money in his SA. Mr Li had believed that these monies could be used for both the mortgage and the DPS premium deductions. But he was wrong.

His widow learnt only after his death that the monies transferred from her husband's RA to OA could be used only for housing payments and not DPS premium deductions. The CPF Board said it had sent a letter to Mr Li explaining this before his death, but his wife was unaware of the letter. She recalled that her husband was disoriented and had memory lapses for several months before he died.

DPS insurer GE could have rejected the DPS claim by Mrs Li on the grounds that the policy had lapsed before her husband died. Instead, it honoured the claim on the basis that Mr Li had suffered from a terminal illness before the lapse of the policy, after assessing his health reports.

Mr Patrick Kok, GE's managing director, group operations, said: "GE took into consideration many factors, including detailed hospital medical reports of the diagnosis of the late Mr Li's terminal illness and the extenuating circumstances, chief of which were the actions taken by Mr Li to ensure that his policy did not lapse by arranging for continued payment of his premium through his CPF savings, notwithstanding that he was unaware that this is not permitted."

He said that in addition to delivering on its contractual promise, GE is also committed to "honouring the spirit of the policy and to paying every legitimate claim sensitively, compassionately and efficiently".
GE informed Mrs Li that she would be receiving the full sum assured plus bonuses, which worked out to be about $53,000, after a nominal deduction for outstanding premiums.

Note that you can continue to use your OA savings for insurance premiums under the DPS and the Home Protection Scheme, after setting aside your retirement sum at age 55. However, if you do not have enough savings in your OA, it would be advisable to ensure that you have alternative funding, such as relying on cash payments instead of your CPF savings. This is to avoid the undesirable situation where your insurance plans lapse because there are insufficient CPF savings for premium deductions.

The CPF Board advises that besides OA savings, RA savings in excess of the Basic Retirement Sum can be used for housing purposes. These savings will be transferred to the OA upon request and specifically earmarked for the members' housing needs. Members above 55 can pay their DPS premiums in cash if there are insufficient OA savings.

It advises members who have problems paying their DPS premiums to approach the Board and it will assess such requests on a case-by-case basis.

ARE DPS PREMIUMS CHEAP?
The annual premiums of DPS range from $36 to $260, depending on which age band you fall into. For those below 34, the annual premium is $36. Premiums for the age band of 35 to 39 are $48; for 40 to 44, it is $84; 45 to 49 is $144; 50 to 54 is $228; and 55 to 59 is $260.

Here's what retirement adviser Providend found out after comparing DPS premiums with those of NTUC Income's iTerm plan, which offers sums assured as low as $46,000. Most term plans' sums assured start from $100,000.
Compared with iTerm, DPS is cheaper in the early phase of life. However, from the age of 45 onwards, the premium increase is significant, meaning that purchasing a private term plan could be cheaper than DPS. This assumes that you have no pre-existing illness by then.

If DPS is kept throughout your working years from age 25 till 60, the total premiums work out to be $4,180, significantly higher than those for iTerm which would be about $1,717 for a woman and $2,268 for a man.

Providend says that DPS policyholders in good health may wish to review alternative plans as they reach 40 to take advantage of the lower premiums.

For national servicemen, a good alternative or add-on is the affordable group term insurance offered by the army.

DO YOU NEED TERM LIFE COVER BEYOND 60?
One downside to DPS is that the cover ceases at the age of 60. As term insurance is meant to cover the policyholder in his working years, the scheme should take note of the current higher retirement age by aligning it with the payout eligibility age for the national annuity scheme CPF Life, which is 65 for those born in 1954 and later.

Unlike DPS, most conventional term plans now provide cover till at least age 70 and up to age 99.

DO YOU WISH TO BE REINSTATED ON DPS?
If you have opted out of DPS, you can apply to be insured at a later stage with either Income or GE directly. You will be subject to medical underwriting then.

COULD DPS BE MORE RELEVANT?
Given that term insurance rates have fallen owing to a low mortality rate, it is time to review and make DPS more relevant. This is particularly so as we are enjoying longer lifespans and the CPF Life payout eligibility age will be 65 for CPF members born in or after 1954.

The CPF Board could also review and allow CPF RA monies to be used to pay DPS premiums till age 60, thus reducing the danger of policies lapsing. Nevertheless, until the scheme is enhanced, for many Singaporeans who do not have adequate life cover, DPS is still a real benefit to families who are left behind to fend for themselves when a breadwinner dies or becomes disabled.

Given that term insurance rates have fallen owing to a low mortality rate, it is time to review and make DPS more relevant. This is particularly so when we are enjoying longer lifespans and the CPF Life payout eligibility age will be 65 for CPF members born in or after 1954. The CPF Board could also review and allow CPF RA monies to be used to pay DPS premiums till age 60, thus reducing the danger of policies lapsing.

Critical illness health insurance

Dr Larry Haverkamp
The Sunday Times
18 September 2016

A problem with business versus consumers is conflict. On the one hand, firms are tempted to boost profits by selling high-margin products.

The conflict is apparent in financial services like banking, investments and insurance. A reader wrote and asked me: "How about critical illness insurance? Is it worth the money? Should I buy it?"

My analysis is that critical illness health insurance is worth the money if you have a big budget. Like a Rolls-Royce automobile, it is a nice car, but do you really need it to move from point A to point B? It goes beyond the basics. That is the short answer: Here are the details:

DOUBLE COVERAGE
The biggest reason not to buy critical illness health insurance is that it is double coverage. That is because you are already covered under MediShield Life and maybe under a private insurer's intergrated plan(IP) as well.

That makes it double coverage, which you can live without. But wait. Isn't double coverage health insurance disallowed?

Correct. But critical illness insurance is an exception.

The double coverage makes critical illness almost like gambling. If you fall ill, you win the lottery and collect a large one-time payout that you can spend however you like. You need not spend it on medical care since that is already covered by MediShield Life.

Critical illness covers 37 diseases. You can file a claim to collect if you fall ill from any of them. The more common ones are major cancers, heart attack of specified severity, coronary artery by-pass surgery, kidney failure and stroke.

Actually, your critical illness coverage can go beyond these 37 illnesses. Great Eastern Life, for example, has an add-on policy (a rider) which increases payouts and expands the coverage to 92 diseases.

But it is going to cost you. Like most things you buy, the basics are cheapest and add-ons - like extended coverage - are usually more profitable for firms and more costly for consumers.

It seems it would be important to covered under these illnesses but, as mentioned, you are covered already through your MediShield Life and possibly an integrated plan if you purchased one. Do you need an IP policy on top of MediShield Life? That is a hot topic that I will answer in the near future.

WHY DOUBLE COVERAGE
The rationale for double coverage of health insurance is that its purpose is to pay for lost wages.

OK. There is a certain logic to that. You have one insurance policy - MediShield Life - to pay for your medical costs and another to pay for lost wages.

The only issue is your wages may not be cut off when you fall ill. Many employers continue to pay wages if the time off is not too long, like for a month or so.

It also depends on the job. Lower income and hourly workers are more likely than salaried workers to have their wages cut when they miss work because of illness. Ironically, they are also the ones who are the least able to afford critical illness health insurance with its riders.

A side point worth considering is the employer has an insurable interest when employees continue receiving wages while on medical leave. It is reasonable therefore that employers - rather than employees - provide the insurance coverage.

AN UNUSUAL RISK
Another side point: Could an unintended effect of critical illness insurance be that it could increase risk to the insured?

For example, I have a friend who had heart bypass surgery and made a claim under his critical illness plan. He was relieved that bypass surgery was one of the 37 illnesses covered under his plan but unfortunately. it covered triple bypass surgery and he only needed a single bypass.

So his claim was denied, and he had to pay with MediShield Life and his own savings. While it was a surprise, his employer continued to pay, so his costs were manageable.

He made the prudent decision. but it is an individual choice and someone on a budget might be tempted to delay the surgery. It is risky, but exactly how risky is not known for many diseases.

The joke at the time was he should have asked the doctor if he would please do two more bypasses since he was in there working on his heart already.

Then he could have collected on this critical illness insurance. Of course, it was only a joke since no doctor would do that, and my  friend didn't even ask the doctor.

A Sunday Times article from 2011 told the story of breast cancer patient Theresa Tan who had her critical illness claim rejected because hers was an early stage breast cancer.

She had three critical illness policies and was surprised to learn that all covered only later stages of cancer. All rejected the claims she made for her mastectomy surgery.

lhaverkamp@smu.edu.sg

An adjunct professor at SMU, Dr Haverkamp contributes this column weekly to help our readers understand money matters better

Buy insurance policies you can afford in old age

The Sunday Times
Goh Eng Yeow
6/4/2014

Recently, I visited my 104-year-old aunt in Hong Kong again.

Except for a slight wobble when she walks, she is as fit as a fiddle. She can read the newspapers without reading glasses and still keeps abreast of current affairs by watching the nightly news on TV in the nursing home where she lives.

It is an Olympian feat to live to such a great age. But the big blessing for my aunt is to be able to still undertake the daily activities that we take for granted, such as eating and walking unassisted.

In contrast, my 83-year-old mum - 21 years younger - is confined to a wheelchair after suffering two strokes which left her partly paralysed. There is a maid to attend to her daily needs, but I sense her frustration at not being the active person she once was.

Given the choice, I would like to live the life of my aunt who worked till she was in her late 80s.

But the sad fact is that many of us will suffer the same fate as my mum when we are old and infirm, whether we like it or not.

As such, it is not surprising to find that health care is our top concern as we see our parents ageing before our eyes.

It is with this in mind that I recently took a hard look at my insurance coverage to try to plug the gaps.

But just as with investing where I buy stocks which I'm comfortable holding for the long term, I would buy insurance coverage whose premiums I would have no problems paying years from now.

One shortfall I identified is coverage that offers a steady income if I find myself disabled.

So I called my friend, a Great Eastern Life agent, to sign up for ElderShield - the severe disability insurance package giving basic financial protection to those who need long-term care.

Singaporeans and permanent residents with Medi-save accounts are automatically covered under ElderShield when they turn 40. They get life coverage on ElderShield if they continue to pay their premiums up to the age of 65.

But when ElderShield was launched in 2002, I had opted out because I felt that the monthly payout of $300 for up to five years was too small a sum covering too short a period to be of any use. For long-term invalids like my mum who suffered her first stroke 12 years ago, the monthly payouts would have run out long ago.

That means that if I want a monthly payout of, say, $1,600, I would have to supplement ElderShield with other coverage.

My agent friend suggested adding two other policies - ElderShield Comprehensive which offers a monthly payout of $300 on top of the basic ElderShield plan, and a LifeSecure policy which comes with a monthly payout of $1,000.

The only snag is that premiums for both policies have to be paid till the age of 80 to get life coverage. That means even in my old age, I must have sufficient cash to continue paying for them.

Together, the three policies cost me $1,909 a year - a sum which is still within my means even if I only live off my savings and passive income.

Currently, my company's insurance scheme covers my bills if I am hospitalised, but what happens when I stop working?

To take care of the out-of-pocket hospital expenses, I have a Safra Living Policy which offers a lump sum payout of $100,000 for critical illnesses covering me till I am 65. The premium is only $420 because it covers Singaporeans who served National Service.

What happens after I turn 65? My agent friend tried to sell me another critical illness plan offering a $200,000 lump sum payout, but the yearly premium was a hefty $7,000. That may give me cashflow problem if I stop working. A better option is to set aside the same sum every year while I work.

Like two-thirds of Singaporeans, I am on an Integrated Shield Plan, or IP, which offers higher hospitalisation coverage than the basic MediShield plan run by the Government to help defray the bills for subsidised wards in public hospitals.

But I did not opt for the most expensive IP which would have covered me for treatments in private hospitals. My mum had been treated at Changi General Hospital and the quality of care she received there reinforced my faith in the public health system.

I believe I made the right choice. Last year, my IP premiums went up about 20 per cent after changes were made to MediShield benefits, while older friends on the most expensive IPs found that their premiums had almost doubled.

Worse, the payment on the "rider" to ensure that their medical bills would be paid entirely from insurance had shot up as well.

This makes them worried that once MediShield Life - the universal health insurance coverage for Singaporeans - is implemented, their medical premiums may escalate so much that they will not be able to afford their current coverage.

I empathise with their concerns since my IP premiums are likely to rise too. But even based on the current IP premiums,they may still be forced to downgrade in their old age.

The table from my insurer shows that annual IP premiums for the most expensive plan jump from $1,909 at age 65 to $8,566 past the age of 100. Now, even if I live to 100, I may have a problem paying that kind of premium when I have no income.

So sticking to an IP whose premiums I can afford to pay in my old age will mean big savings which I can then use to cover any expenses arising from an illness.

Some will argue that it is better to trim spending in other areas to foot the premiums for the most expensive IP in case we need it, just to get the best medical help which money can buy.

But I believe that rather than try to insure against every conceivable medical risk, the better option is to eat healthily and exercise regularly. My 104-year-old aunt is living proof of that.

engyeow@sph.com.sg

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Background story

Long-term view

Health care is our top concern as we see our parents ageing before our eyes. It is with this in mind that I recently took a hard look at my insurance coverage to try to plug the gaps. But just as with investing where I buy stocks which I'm comfortable holding for the long term, I would buy insurance coverage whose premiums I would have no problems paying years from now.

Plans for the ultra-rich are indeed different

5 September 2012
Richard Hartung

"Let me tell you about the very rich," said F Scott Fitzgerald. "They are different from you and me." And one of the biggest differences, surprisingly, is in insurance.

These simple products take on a new twist when the ultra-rich are involved. The average person buys insurance out of fear, one industry expert opined: Fear of high medical expenses, of losing their home in a fire or of their family being bereft when they die. Ultra high net worth individuals (UHNWIs) worth tens of millions, however, have enough money to overcome those fears. They buy insurance for "want" rather than "fear". They want to preserve the family company, or give money to a second family, or leave a legacy.

For something simple such as a car or home insurance, these differences may not matter as much. The only real difference is the amount of coverage for a Corolla or a Lamborghini, or a bungalow instead of an HDB flat.

Even for medical insurance, it is more a matter of amount - if UHNWIs get insurance at all, that is, rather than deciding they can pay their own medical costs and self-insuring. Even Prudential's new medical insurance product, which offers critical illness protection of up to S$3.6 million, may be of less interest for UHNWIs, who are defined as having at least US$30 million (S$37.3 million) in financial assets.

Where coverage gets really interesting is in life insurance. There are specialised products designed to help the wealthy achieve very different goals than insurance for the man in the street.

One goal, for example, could be to leave the family business to the one child who runs it and to use insurance to give an equivalent value in cash to the other children. Another goal could be to provide enough money for a companion to enjoy a nice lifestyle without anyone else knowing about them. Or the UHNWI may want to set up a foundation to donate money to charity after their death.

A life insurance policy lets them achieve these objectives without touching the other assets in their estate. The amount of insurance to achieve these goals can be fairly high, and a single premium policy could cost millions. Whereas an average person pays their single premium up front, private banks are often willing to loan the millions for the premium. And a loan can mean that the policy turns out to be almost free.

Let us suppose, for example, that the UHNWI wants to leave S$25 million to his daughter. A single premium for a S$25 million universal life insurance policy could easily cost about S$6.5 million. The private bank loans the UHNWI 90 per cent, or S$5.85 million, at an interest rate of about 1.6 per cent.

Interest costs of about S$93,000 per year might seem like a lot. If the UHNWI invests the S$5.85 million they did not need to pay and gets a return of just 3 per cent, however, they will receive about S$175,000 per year. For a cost of just S$650,000 for the insurance premium, the UHNWI is getting lots of life insurance and pocketing more than S$80,000 per year in profit.

Along with the relatively low cost, the UHNWI avoids publicity after they die because insurance payments usually do not go through the public disclosure of probate. The money goes where the UHNWI wants, since it is harder for heirs to dispute an insurance payout than a will.

The UHNWI could get money back from the policy's cash value if they really need it. And a key benefit of some of the really big policies is that they come with a concierge service that can help book the UHNWI into the best medical clinics in the world if needed.

Insurance policies for the ultra-rich are rarely talked about outside of specialised insurance companies and private banks, so they might seem like a rarity. With the latest World Ultra Wealth Report from Wealth-X showing that at least 1,350 people in Singapore have more than US$30 million in assets, though, they may be more common than one would expect.

There is also some talk to make such policies available to more people, for lower amounts. And with the latest Capgemini World Wealth Report showing about 91,200 people in Singapore with more than US$1 million of investable assets, there could well be a pool of people interested in these big policies.

Richard Hartung is a financial services consultant who has lived in Singapore for more than 20 years.

Women wise up to money needs

Mon, May 09, 2011
The Sunday Times
by Lorna Tan

International Women's Day is celebrated tomorrow so it's pleasing to report that women here not only feel more optimistic about the future after the economic woes of last year, but are also more proactive about setting themselves up for retirement.
These findings - from recent surveys - show that women have made some progress in terms of personal finances.

The Tsao Foundation-TNS an-nual Ageing Preparedness Survey polled about 300 respondents in the second half of last year, on how prepared they are for their retirement. Half of the 300 were female. It found that compared with the 2008 survey, more women believe that retirement planning is important, are saving actively and are realising they may have to work beyond 60.

This is evidence of a trend in the right direction and shows that the importance of preparing for retirement is getting through to people, says the Tsao Foundation.
Not surprisingly, the survey also notes that income security is the topmost concern for a happy retirement.

'It is heartening to know that preparing for one's retirement is increasingly becoming an important part of a woman's life,' says Tsao Foundation chief executive Tan Bee Wan.

This is because women very often have to make sacrifices for their families and end up neglecting to care for themselves.

'Awareness is the first important step. Next comes action and that is to get themselves equipped with the necessary skills to prepare for retirement,' adds Dr Tan.

Positive news comes from a second survey as well. The MasterCard Worldwide Index of Women's Advancement found that more women are taking charge in the household.

Throughout the region, an estimated 66.5 per cent of women are taking on the role of decision-makers, up from 45.6 per cent last year. Conducted early this year, the biannual survey measured consumer confidence in 21 markets.

Here are some things to consider for a woman reviewing her financial needs.
Broadly, these differ from those of men because of a woman's physical makeup and her family circumstances.

For instance, women live longer than men, earn about 20 per cent less on average and retire younger. They are more likely to work part-time and take time out to be caregivers. Women also tend to suffer from more debilitating diseases in old age.
1. Cover against critical and women-related illnesses

Financial experts highlight that women are more susceptible to critical illnesses. Besides, certain illnesses are more prevalent among females such as systemic lupus erythematosus (SLE), osteoporosis, arthritis and of course breast cancer.

So while health insurance is important to everyone, women should ensure they have sufficient coverage against certain illnesses while they are still healthy.

Mr Patrick Lim, associate director at financial advisory firm PromiseLand Independent, notes that Manulife's critical illness plan lists SLE as one of 30 illnesses in its coverage. 'Another plus from taking up Manulife's 30 critical illnesses cover is the additional free coverage of up to two children per policy for the sum assured of $10,000 for serious illness of a child.'

Besides critical illness plans which can be bought by men and women, the market offers plans targeted at women who wish to insure against female-related conditions. This is especially suitable for women who have a family history of female-related cancers, says Ms Cynthia Toh, senior executive life planner at Great Eastern (GE).

To sweeten such plans, insurers may bundle extra benefits such as no claims discounts, additional critical illnesses coverage and other female wellness privileges such as biannual health checks.

An example is GE's PinkLife health plan, which charges an annual premium of $970 for a 30-year-old female who opts for a sum assured of $50,000. Prudential Assurance offers a similar plan called PruSmart Lady II.

Ms Toh says the main benefits of such plans are that they pay a lump sum upon the diagnosis of the specific female illnesses, provide for surgical procedures and even cover certain reconstructive surgery such as breast reconstruction.

This is typically excluded in all hospitalisation plans as it is not deemed a medically necessary procedure to treat breast cancer.

The downside is that these plans typically provide cover until age 65 and the sum assured is commonly capped at between $50,000 and $100,000, which may not be enough for the long-term treatment of advanced female malignant cancers.

This is particularly so when prohibitively expensive drugs like Herceptin for breast cancer and Avastin for ovarian cancers are prescribed for treatment.

2. Cover for pre- and post-natal treatment and childbirth
PinkLife and PruSmart Lady II plans offer an option to insure mothers against maternity risks like pregnancy complications and birth defects of a newborn.
By insuring against such risks before childbirth, parents have a safety net with cover for pregnancy-related conditions like stillbirth and miscarriage due to an accident. It also covers congenital conditions of a newborn and infant mortality.
Prudential highlights that such birth defects are usually not covered when parents buy an insurance plan for the child after birth as the child has to undergo health declaration. The optional maternity risk cover also includes hospital care for the infant if incubation or intensive care is required.

3. Disability income cover
Both Mr Lim and Ms Toh stress that there are two types of disability plans. The first is an occupational disability income policy that covers an individual's income.
Ms Toh strongly recommends women with good income to consider buying an occupational disability income cover. 'This is to ensure that you will continue to receive a certain proportion of your monthly income stream should you fail to perform the duties of your job or related jobs on a prolonged basis, resulting from a health condition or disability.'

With more women working and contributing substantially to the household income, such policies will certainly provide peace of mind, she adds.

Such covers are offered by insurers such as Aviva, GE and Manulife. GE's Paysecure charges an annual premium of $1,192.50 for a 30-year-old female in an office job. This is based on a monthly benefit of $5,000.

In the case of Manulife, the disability income cover is an optional rider. Mr Lim says the annual premium for a Manulife term plan with such a rider, for a sum assured of $1 million, is $2,024. This is based on a 30-year-old woman who opts for the cover to cease at age 55. The other is a severe disability plan for people over 40, and it aims to provide a rehabilitative income to cover the expenses on contracting severe old age disabilities.

Besides offering the severe disability plan ElderShield, GE has a Long Term GoldenCare Policy where the cover is based on fewer restrictive health conditions.
It charges a female who turns 55 at her next birthday $5,733.50 a year, for a monthly benefit of $5,000 for life. Other insurers that offer similar long-term care policies are Aviva and NTUC Income.

4. Adequate insurance protection
If you are a housewife, it is only prudent to make sure that your husband has put aside sufficient insurance coverage for your family's financial needs if he dies prematurely or suffers from a disability.

An economical way is to buy term insurance on your husband's life as it covers huge sums for a small annual premium compared with other plans like whole life and endowment.

Another area often overlooked is mortgage insurance. If your house is not fully paid up, it is important to ensure the mortgage is adequately covered.

5. Managing investments proactively
Whether single or married, women should adopt a proactive attitude towards upgrading their financial know-how and managing their investments.

Surveys show that women tend to be good savers and are more conservative in their approach to money.

Mr Albert Lam, investment director of IPP Financial Advisers, cautions women investors that if they hold largely investments that are less risky in nature, it will not help them in the long run if the investments are unable to grow to the amount required for their retirement.

'Let's assume you leave $100,000 in a bank deposit now at an annual interest rate of 0.5 per cent. If inflation is 2 per cent, the sum will dwindle to $86,000 after 10 years. So safety need not always be the best thing. Inflation would have eaten away your principal,' says Mr Lam.

He suggests that all investors look towards the mega trends of the future and invest in a portfolio of instruments that will ride on these trends.

'Some of these will include Asian and emerging markets growth, commodities as a long-term hedge against inflation, and an allocation to physical gold. Investing in gold coins may be something that appeals to women investors... After all, she can leave them as a legacy to her children.'

More savvy female investors can do their own homework and select individual stocks, blue chips or real estate investment trusts that pay out regular dividends as viable investment alternatives.

6. Updating wills and nominations of beneficiaries
Know the contents of your husband's will and make sure that he makes adequate provision, particularly if you are a housewife.

Mr Lam advises married women to update their Central Provident Fund nominations as those done before marriage would have become void.

And if you become a widow, remember to update your will on your husband's death so that your share of his estate will be distributed according to your wishes, says Ms Toh.

7. Professional help
If you have inherited wealth from your husband's estate, it is vital that you appoint an independent corporate trustee rather than an indivi-dual.
Use a lasting power of attorney arrangement to direct the financial affairs and properties should you fall into dementia or suffer from other mental incapacities, says Ms Toh.

This can also be done by setting up a living trust arrangement and designating professionals to handle the management of those assets in the event of disability or critical illnesses.

'Such an arrangement will ensure a continuity of a comfortable lifestyle even after your husband is gone and you are too sick to take care of yourself during your retirement years,' she adds.

lorna@sph.com.sg