Tips on insurance for a new Graduate

Dear Mr. Tan,

I have been visiting your blog since your retirement as CEO of NTUC Income. It provides clear, objective and unbiased opinions for the general public. I learned a lot about insurance from your blog. Thanks for writing this blog!

You have been emphasizing the concept "separate insurance from investments", i.e. "buy Term and invest the difference".

I will be graduating from a local university next year. I intend to buy Term insurance. During National Service, I bought the SAF Group Insurance which covers death, total permanent disability and accidental death up to age 65. The coverage will still apply even after the insured is no longer with SAF. I pay a monthly premium is $16 for a sum assured of $100,000.

I am also insured under NTUC Dependent Protection Scheme(DPS). I also bought the normal CPF Medishield Plan since last year.

Question: Are these insurances sufficient to meet my medical needs? Do I need to be insured for critical illness? Should I upgrade my CPF Medishield plan to one offered by a private insurance company?

Reply: CPF Medishield covers you for the cost of treatment in B2 ward in restructured hospital. This includes treatment of critical illness. There is no need for you to upgrade to a more expensive plan.

When you start work, your employer is likely to provide medical coverage for you at higher class wards anyway. You should wait and decide later, if you really need to upgrade to an expensive plan. Personally, I think that it is unnecessary.

Life Insurance (i.e SAFRA and Dependent Protection) are Term insurance plans. They pay on death only. They are to provide a lump sum payment to the dependents (and not to cover medical expenses).

Question: If a person buy a Term insurance that covers up to age 65, what happens if he is diagnosed with serious illness? Where can be find the money to pay for the large medical bills?
Some insurance agents often use this reason to persaude people on why they need to get a whole-life, critical illness insurance.

Reply: Your Medisheld plan can cover the cost of treatment for critical illness after age 65. At that time, if you have saved and invested your money wisely, you probably have a large sum of savings (say $500,000 or more) that can meet all of your medical bills and leave a lot behind.