How We Keep Our Insurance Expenses LOW

After sharing that our costs of insurance is only about $160/month (translates to <$2,000 a year) in our fixed expenses post, we got several comments from readers (with good intentions, I must say) that appear to suggest that there is a strong possibility that we were under insured, just like many Singaporeans.

Many studies like this and that conclude that Singaporeans are not well-insured even though many are already spending a considerable proportion of their salaries (>10%) on insurance polices. Funny, isn’t it? But let’s just assume that these studies are right, even if they are commissioned by the very people who are selling insurance products. (talk about vested interests).

So what’s wrong then?

The problem is that insurance agents prefer to sell a policy which provides them with more commissions and profits which is also more likely to be detrimental to the consumer.

“You do not get anything back when you buy term! I suggest a whole-life policy where there is a surrender value… blablabla”. All sorts of reasons to convince you to pay more premiums for the same coverage but also conveniently omitting the fact that they receive more commissions from those policies they recommend, eh?

Therefore, to protect ourselves from this potential conflict of interest, we learnt that it was important to be able to advise ourselves. Afterall, no one can protect our self-interest better than us. This was the thought process that we went through to keep our insurance costs much more manageable:

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Our insurance philosophy

Private insurance companies are not charities. Even though I have illustrated in my previous post that purchasing insurances should increase the individual’s utility, the well-being of the society is not the priority of these insurance companies. They are profit-making enterprises by nature.

Therefore, we prefer to self-insure if possible. That’s also why we look at policies like dental insurance with disdain. It really shouldn’t be that hard to save up a few thousand dollars to insure against the small probability of requiring a dental operation. However, it’s a whole different ball-game if the sum involved is a 6-digit figure which will wipe out all our assets currently and create financial strain in our lives. That’s where we reluctantly seek the help of those mercenary insurance corporations.

We also actively avoid policies with saving or investment elements. It’s a no-brainer since we have the discipline to save ourselves and are capable of investing on our own. Such policies tend to require higher premiums and consequently, higher commissions to agents which are directly detrimental to our financial health. Besides being difficult to understand, they also tend to charge significant management fees for mediocre performance. (Show me a policy that has outperformed projections, no?)

Find out who and what we are protecting against

Instead of leaving a sum behind for our dependents, I believe that the more important benefit of insurance is to prevent us from being a financial burden to our loved ones. As a result, we are more concerned with the looming threats of disability and debilitating illness as compared to our deaths.

Actually, since we can easily subsist on one person’s income, you could argue that disability income might not even be necessary for us. However, being the main breadwinner, I feel comfortable parting away with $350 a year to Great Eastern to ensure that we would have $2,600 of monthly income if ever I were unable to perform in my current job.

We also do not have any Critical Illness cover since I believe that we would likely be hospitalised if we ever contract one. The Hospitalisation & Surgical (H&S) insurances like our Medishield would then kick in. We are covered by NTUC’s Enhanced Income Shield with an additional rider that reduces our co-insurance to 10% and cap hospitalisation expenses to $3,000 a year. $3,000 of out-of-pocket expenses is pretty reasonable to us and premiums would be much higher if we prefer to have zero out-of-pocket expenses due to the higher perceived risk of moral hazard.

We are lucky in the sense that our parents are all working and have plenty of CPF funds for their old age. In our opinion, they are pretty self-sufficient financially. Coupled with the fact that we do not have children yet, there really isn’t a need for us to buy term life insurance at this stage of our lives.

However, I have decided to err on the safe side (buy when you are young and healthy) and purchased some life insurance for both of us. I have a term coverage of $150k from Aviva and another $40k from the basic DPS while Mrs 15 HWW has a $300k policy. Furthermore, our mortgage insurance also acts as a cheap decreasing term policy. If something unfortunate happens to one of us, our 5-room flat ($250k of loans) would be fully paid for by the compensation.

Even when we have children, it’s unlikely that our insurance expenses will increase by much (probably purchase some health insurance like Medishield LIFE which is also likely to be mandatory for them). Unless we have many children (>3). the >$500k worth of benefits should easily be able to provide for them until they turn 21 years of age. Our savings and assets should also be steadily increasing in the meantime and hopefully, they can more than replace these term insurances in due time. Appointing a guardian would then be the next most important decision to ensure any assets are being managed properly.

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This is the 2nd of a 3-part series on the topic of insurance. You can refer to the 1st part on the Basics of Insurance here.

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    9 thoughts on “How We Keep Our Insurance Expenses LOW

    1. Ben

      “However, being the main breadwinner, I feel comfortable parting away with $350 a year to Great Eastern to ensure that we would have $2,600 of income if ever I am unable to perform in
      my current job.”

      Hi, could I just ask, what is the name of this product from Great Eastern?

      1. My 15 HWW Post author

        Hi Ben,

        This policy is PaySecure. A disability income insurance that covers partial disability too! If I don’t remember wrongly, it can only be purchased from a GE agent.

        1. chingquan

          Aviva has a similar product as Paysecure. I got Paysecure after doing a comparsion, i.e. costs, coverage and etc.

          1. My 15 HWW Post author

            Hi Chingquan,

            If I am not wrong, these are the only two companies that offer disability income plans in Singapore. I also remember my financial planner recommending Paysecure after doing a simple comparison. It’s an honest assessment since he would not receive any incentives (commissions) if I bought that policy.

            1. Julien

              Hi, great article as usual. May I ask if you plan to write an article about your financial planner: how you chose it ? … I would be very interesred. Thanks in advance

            2. My 15 HWW Post author

              Hi Julien,

              I don’t know if I will ever write an article on that. I would have two criteria though:

              1. No conflict of interest. He must not have an incentive to recommend me a product just because he gets paid alot of commissions.
              2. His portfolio or history of managing his own money

              If he passes these two, more likely than not, the guy is going to be a great financial planner.

    2. Megan

      Actually what I know is that there are 3 companies offering this disability income policy – AIA, GE & Aviva.

      I do not know about the GE plan. However, between AIA and Aviva, I would choose AIA because of its terms & conditions and benefits, and of course, its premium.

    3. James

      Hi,
      Thanks for the post, just wondering if there has been any new purchases or rebalancing of your insurances over the last few years! Especially in areas like Critical illness!

      1. My 15 HWW Post author

        Hi James,

        Nope. There has not been any new purchases over the years. A trigger to review our insurance would be when we have a new addition to our family unit.