Insurance is important
This article shall start off with the 3 words “Insurance is important.” At ITP, we believed that insurance is important, however, we realised that there are many consumers and financial consultants in Singapore that do not understand insurance and personal finance management well enough.
This results in many consumers overpaying for too little coverage.
For many in Singapore, much of our activities revolves around money, however, for something that is so vital in our lives, many of us neglects it and do not understand how to control it.
Insurance is a important tool
Insurance is a tool that allow us to divert certain risks away from us at a small cost. The key word is “small cost”. Many Singaporean are caught in the situation of overpaying for policies that either do not provide us enough coverage or holding onto policies that are not really insurance.
Typically, we want to first look at our situation and buy what is needed. What we need are coverage for hospitalisation, critical illness, accident and death (only applicable for people with dependants).
Typically, saving plans, investment linked plans and retirement plans are redundant for doing too little for too much money.
Her Situation + The Solution Offered
Recently, we read a sponsored news article on Straits Times about how an financial consultant provided advice for himself for a female client.
- $4000-$5000 a month after 55 years old for retirement
- 3 overseas trip a year costing about $12000 a year
Her current status
- Employed as an account manager
- Planning to have her own business
- Retirement plan providing a guaranteed $1000 from age 55 to 70 at $8000+ a year for 10 years
- Death coverage of $600000 with $150000 of early and critical illness coverage at $4550 a year for 25 years
What she owns in total
- Endowment, hospitalisation, retirement, critical illness protection with different insurer
- $12000 annual premiums to Insurer M alone
- $6000 annual premiums to Insurer P alone
This article mainly features the retirement plan provided by the FC from Insurer M. The main reason why the retirement plan was recommended was because
“she runs the risk of not having monthly Central Provident Fund contributions set aside for her retirement when she becomes self-employed. To help her achieve her retirement goals, he recommended a retirement insurance plan”
She commented that,
“If I’m self-employed in the future, my income will become ‘lumpy’ instead of regular. To cope with rising costs of living, a retirement plan will definitely help to ensure a flow of monthly income to meet my future needs.”
Over-paying. Under-insured. Additional Expenses.
Unfortunately, the verdict we have is that she has not secured her retirement future, instead, she has just spent more than $12000 to further destabilised her financial future.
Here are the reasons why
- Death coverage is only needed if she has dependants, it is unknown if she has dependants for her whole life. Therefore, it can be a bit redundant to have Whole Life plan. (All things equal, it could be a personal choice instead of a financial choice.)
- Self-employed need only to contribute to Medisave. Having a retirement plan, the premiums are fixed, but the income of a budding entrepreneur is “lumpy”. When she don’t have enough cash to pay for the premiums, her policy will lapsed. The plan will end up being a liability.
- Otherwise, self-employed can make voluntary contribution when they have spare cash. Topping up to CPF allows you to get tax rebates as well. CPF won’t lapsed if she doesn’t contribute.
- CPF Life pays out for life. The retirement plan pays out from 55 until 70.
- CPF Life has a guaranteed interest of 4% in SA, which is even higher than both the guaranteed and non-guaranteed returns of the retirement plan. (SA interest can go up to 5%.)
- Early and critical illness coverage of $150000 sounds severely insufficient.
- $12000 in annual premiums to Insurer M and $6000 to Insurer P is too much for an individual. Especially for a budding entrepreneur with “lumpy” income.
While there are insufficient information from the article to do a proper needs analysis, a bold guess is that along the way, she would have policies with overlapping coverage.
It seems like the advice is an advice made to fit the financial consultant’s her budget instead of her need. Therefore, what she has done is to take on more liabilities instead of ensuring her retirement stability.
Therefore, it is important to understand money and personal finance management, if not, we will be manipulated by money.
Our founder, Chloe Lin has recently made an interview with Chris TV on how to save more money.
Do note that payouts from both her policies and CPF will not be able sustain her requirement of $4000-$5000 a month and $12000 per year for holidays after retirement. The only way to sustain her expenses is through investment if she is not to cut down on her expenses.
Everyone works hard for their monies, you would want to spend it yourself, instead of having someone spend it for you. It pays to be educated in money if not you will be paying for it.
Psst. We have also written some articles about good investment opportunities in Singapore, not so good investments and the danger of ignoring your investments and handing them over to professionals as well as the myth of investing in bonds.
Investment in Singapore for Beginners
If you are looking for investment in Singapore for beginners, and if you want to prepare yourelf to take advantage of the opportunities the stock market presents you, you must first educate yourself. Chloe Lin, the founder of Invest Travel Play (ITP), was featured on Singapore national papers 联合早报 (Lian He Zao Ba) on 22 Aug 2018, which she actually shared a simple strategy to help readers to start investing safely with just $360 and building up your passive income in Singapore!
Want to learn how to make money safely and consistently from the stock market, check out Supercharge Investing Acceleration Program and it’s Skillfuture credit claimable. SIAP is a 2-day workshop that teaches students how to perform fundamental analysis on stocks and ultimately, decided whether to invest in certain stocks. Moreover, SIAP will also be teaching options strategy, a derivative which combines investing and options to increase your return on investment. If you are interested, check out SIAP now.