Personal insurance coverage

I have covered the insurance coverage for my child in an earlier post and thought to do the same for myself. Technically, I recognise that I have a young dependent and housing as a big ticket item. In the case of my early dismiss, I need to ensure that at least the housing loan is settled and some monies to go towards the care of her. It is more than sufficient to bring her up on one parent’s income with the big ticket item taken well care of.

Insurance Type

Aviva MyShield Plan 1 + MyHealth Plus Option A
$209.00*Annual for lifetime
Private Hospital Standard room, cover co-insurance only
Critical IllnessAviva My MultiPay Critical Illness Plan III $780.50Annual till 75
Sum Assured $50,000
Accident PlanSompo PA Star Standard$101.65*Annual till 85
Disability IncomeAviva IdealIncome$539.24Annual till 65
$4,000/month income
Term LifeSAF Group Term Life Insurance$123.00Annual till 65
(optional till 70)
Sum Assured $250,000
Term LifeDirect – Etiqa Term Life$412.00Annual till 65
Sum Assured $400,000
Term LifeDependants’ Protection Scheme$36.00*Annual till 60
Sum Assured $46,000
Term LifeGroup Term Assurance Scheme$0Covered during hire tenure
Sum Assured $150,000

*Premiums are subjected to annual revisions

One insurance type which I do not see being discussed often or even recommended is Disability Income. DI kicks in when you are temporarily unable to work at your trade due to an illness or accident. It pays you a fixed amount each month to replace the income you lose. It has a different meaning to losing an arm or leg or permanently incapable of working due to a physical disability. Having worked through how much I need minimally each month to live comfortably, this is the amount that I am willing to pay to insure myself.

Is this insurance coverage sufficient for myself? It is good to set a basis to work against for the coverage for oneself. While it has not reached the optimal level, I daresay this is the level I am comfortable to risk versus what I am currently insured for. As life goals change, it is an area which I will come back to look at annually.

Insurance coverage for my child

I am a strong advocate of Buy Term Invest the Rest (BTIR). Insurance coverage in my opinion, should be bought to cover the unexpected negative events that happen in life. This may include unforeseen death, illnesses or injuries. Savings and investment should take a separate track.

Insurance Type

HospitalisationAviva MyShield Plan 1 + MyHealth Plus Option A$76.00*Annual for lifetime
Private Hospital Standard room, cover co-insurance only
Critical IllnessAviva My MultiPay Critical Illness Plan III$752.00Annual till 75
Sum Assured $100,000
AccidentSompo PA Junior Bunny$85.60*Annual till 21/25
EndownmentAviva MyWealthPlan$4,073.85Annual
LPP 10 years / 20 year plan

*Premiums are subjected to annual revisions

Is the insurance coverage sufficient for her? Well probably yes, at this current stage in life. The essentials are pretty much coverage until we review it again down the road.

Some people advocates purchasing Whole Life or even Term Life policies for their children now because it is cheap. First things first, coverage for death should be targeted towards liabilities that arises from the early dismiss of one. This may include outstanding housing loans, dependents such as young age school children or non-working homemakers. No matter how cheap the policy is, rationally, children do not need coverage for death as they have no dependents or liabilities.

You may observe that as a firm believer of BTIR, is it not contradictory having an Endownment plan? The Endownment plan is contributed by my wife who is not an avid investor but still wants to provide something to our child when she turns 21. The premiums paid after 10 years is $40,739. The guaranteed portion is $49,500 while the non-guaranteed portion is $8.377, calculated at 3.25% investment return.

To put into perspective the returns from the above mentioned Endownment plan:

PremiumsGuaranteedNon-guaranteedTotalAnnualised interest rate
$40,739$49,500$8,377 (written in policy)$57,8772.10% p.a.
$40,739 $49,500 $4,189 (if 50% of NG is met)$53,6891.59% p.a.
$40,739 $49,500 $0 (if 0% of NG is met)$49,5001.08% p.a.

I would conservatively estimate that at least 50% of the non-guaranteed portion is possible to be obtained. This translates to roughly 1.59% annualised interest rate over 20 years. Not the very best when you look at annualised returns instead of absolute numbers, however we will keep to this plan as her way of committing to forced savings for our child.

With the above data, this further reinforce why I would personally avoid Endownment and Whole Life policies for their returns.

Never too late to compound your SA and save on taxes

I started Retirement Sum Topping-Up Scheme (RSTU) or topping up my child’s SA in Sep 2019. Working out the sums, I have seen how small contributions over a long period of time could substantially snowball into a big sum. What if I look further beyond the OA to SA transfer and also do a cash top-up on a frequent basis? There is still a good 20-30 years before I reach 55 or 65. I am not too late in the game to let the money roll.

Moreover, cash top-ups in the preceding year under the CPF RSTU to your Special Account (below age 55); or Retirement Account (55 and above) enjoys up to $7,000 tax relief from your assessable income.

Starting from Sep 2019, I will be contributing $100 monthly to my SA as well. It is a small and manageable amount. Also, this will translate to an annual $1,200 in tax reliefs for my self. With this, I will be maximising my CPF returns even more and will reach Full Retirement Sum (FRS) even sooner.