But First, Understand What Is Compounding Interest…

In a simple way, Compounding Interest is the Interest you get to earn from your Interest and the process repeats.

And to explain this using a 3-year example, you have $10,000 and a 1% compounding interest rate…

• At the end of Year 1, you will have earned $100 (from the 1%). Your amount is now at $10,100.
• At the end of Year 2 (assuming you never touch), you will have earned $101 now (the $1 is from the $100 you have earned in Year 1), so your new amount is now at $10,201.
• At end of Year 3, you will have a new total amount of $10,303.01 which is calculated from 1.01% multiplied with $10,201.

And if you add a monthly saving e.g. $1200 per year, you will get interest from both the initial amount as well as the additional yearly amount.

Calculators & Excel Formulas

— Calculators

One of the tools, that I have commonly used to illustrate the Power of Compounding Effects, is one that our (Singapore) CPF Board has provided. You can access this calculator tool by clicking here. Alternative site is the calculator from MoneyChimp.

— Excel Formula

If you like to see your numbers with Excel / Google Sheet, you can use this formula

=FV(Interest Rate , Number Of Periods , Payment Amount , Present Value , End/Beginning)

where

• FV is Future Value or the Calculated Amount, e.g. $10,100 (after 1 year)
• Interest Rate, e.g. 1%
• Number Of Periods, e.g. 1 (to indicate 1 year)
• Payment Amount, e.g. 0 (to indicate no annual saving) or -1200 (to indicate annual saving of $1,200)
• Present Value, e.g. 10,000 (initial amount)
• End or Beginning – i.e. 0 or 1. Default is 1 if you have an Annual Saving and you want this amount to be compounded.

If things are good so far, let’s look at how your $5,000 (and $1,200 per year) will grow across different Interest Rates and Years

— Compounding Interest Rate Of 0.05% Per Annum

This is the interest rate that the local banks are giving you for your normal savings account with them:

For your lump sum of $5,000:

If you decide to save $1200 per year (or $100 per month) on top of your initial lump sum of $5,000…

— Compounding Interest Rate Of 1% Per Annum

You can usually find this rate among investment channels like Fixed Deposits, Money Market Funds and Bonds.

For your lump sum of $5,000:

If you decide to save $1200 per year (or $100 per month) on top of your initial lump sum of $5,000…

— Compounding Interest Rate Of 3.5% Per Annum

You can usually find this Interest Rate among channels like Traditional Endowment Plans from Insurance Companies, CPF Ordinary Account (2.5%), CPF Special Account (4%).

For your lump sum of $5,000:

If you decide to save $1200 per year (or $100 per month) on top of your initial lump sum of $5,000…

— Compounding Interest Rate Of 7% Per Annum

You can find this interest among investment channels like Equities / Shares Investment. Tools like this come with some investment risks.

For your lump sum of $5,000:

If you decide to save $1200 per year (or $100 per month) on top of your initial lump sum of $5,000…

Key Points To Take Note And A New Concept – Rule Of 72

— The Rule Of 72

If you have looked at the numbers closely, you would have noticed some of the amounts nearly doubled or have increased multiple times from the original amount. e.g. Compounding Interest Rate of 7% across 10 years gives $9,835.76 – nearly double of $5,000.

This is the Concept of the Rule of 72 where you can use it to calculate the number of years for an original amount to double. So for 7%, Years To Double = 72 / 7 = 10.3. From the example above, another 0.3 years (or 4 months later), the amount of $5,000 would have doubled to $10,000.

— Key Concepts

• Higher Compounding Interest Rate Per Annum gives a higher return compared to Lower Compounding Interest Rate Per Annum. So if you are currently saving your money in just a normal Bank Account, it’s time to venture out to look for something with higher interest rate and within your risk appetite.
• Compounding your Money over a longer period gives a higher return. If you see the numbers in the 50 years range for those higher interest rates, you would see the amount increased multiple times the original amount. So if you understand this well, you would want to start saving / investing earlier.
• In reality, Compounding Interest Rates that are high and offered by many of those investment tools out there are not constant throughout. Due to economic conditions, they can be high, low or even flat but if you ride through these over the years, you can average out the returns.

Like any decision, it helps to take into account the pros and cons of each option. Some people also choose to do both – save and pay off debts at the same time.

So, which is right for you? Here, you’ll learn everything you need to know about savings vs paying off debt.

Should I Save Or Pay Off My Debt?

Knowing whether to save or pay off your debts can be difficult. On the one hand, you want to make sure you are financially okay if something were to happen. However, on the other hand you want to get out of debt as quickly as possible.

So, is it better to focus on paying off your debts first? Or should you try and do both? Some of the main factors to consider when making your decision include:

• Interest rates/costs
• Is there a penalty for paying debt off early?
• Is your debt manageable?

It is important to take into account how much interest you are paying, versus how much interest you are gaining. If you are making less interest off of your savings than you are paying for your debts, you’ll want to focus on the latter. It makes sense to pay off high-interest debts first as this will save you the biggest amount of cash.

Another thing to consider is whether there is a penalty for paying off your debts early. Some lenders will require you to pay a fee to pay off a loan earlier than agreed in the contract. If it is a high fee, you might be better off sticking to paying it off as agreed.

Whether you should focus on saving instead will also depend upon whether your debts are manageable. Are you comfortably making the repayments each month? If not, you’re going to find it hard to save money. In this case, bringing your debts down and making them more manageable should take priority.

In most cases, it is better to pay off debts before you focus on savings. However, there are some exceptions.

What About An Emergency Fund?

While you will want to focus on paying off your debts first, one thing you should save for is an emergency fund. Many experts recommend having three months income saved up in case of emergencies. However, for many people this is unrealistic.

A good goal to aim for is $500 to start. Once you have $500 saved up, you can add to it as and when you can. Everybody should have an emergency fund to tide them over in case something happens. If you can’t afford to save for one, work on bringing your debts down and then start a savings fund.

What Is The Best Way To Handle My Debts?

If you are struggling with your debts, there are some strategies you can use to get them down. Even when you feel like you are drowning in debt, help is available.

Let’s look at some of the best ways to handle debt to get it under control…

— Utilize The Snowball Method

When it comes to getting on top of debt, a lot of people find the snowball method highly effective.

With this method, you focus on paying off the smallest debts first. Throw all of the money you have at the debt until it is paid off. Then, use the money you would pay for that debt, to pay off the second smallest debt.

The reason you start with the smallest amount first is because it is easier to pay it off. You’ll see progress quickly, which will spur you on to pay off more of your debts.

Like everything in life, you need to see some progress in order to maintain motivation. The snowball method is therefore one of the best debt management techniques you can use. With that being said, it isn’t necessarily right for everyone.

— Consider The Avalanche Method

An alternative to the snowball method is the avalanche method. This involves paying off the debts with the highest interest rates first.

If you have high-interest debts, it can be difficult to ever get them down. Making the minimum repayment each month will simply pay off the interest, not the debt. So, to get out of debt faster, it would make more sense to target the high-interest loans and repayments that you have.

The thing to consider with this method is whether you can stay motivated while paying off the debt. It will take a lot longer to see any results from this method compared to the snowball technique. Weigh up the pros and cons before deciding which method is right for you.

— Get In Touch With Your Creditors

If you are having trouble making your payments, it’s important to get in touch with your creditors. Most will be understanding provided you let them know what is happening.

You may be able to make more affordable arrangements for a period of time. This will help you to start getting on top of your debts, putting you back in total control of your finances.

— Don’t Ignore It

The worst thing you can do when you are struggling with debt is to ignore it. The situation isn’t going to improve if you pretend it isn’t happening. Instead, it will become much worse.

Always aim to deal with your debts quickly. This will give you peace of mind and ease the stress associated with financial uncertainty.

Tips For Saving

Once you have your debts under control, if you choose to start saving there are a few things to consider. Getting into the habit of saving isn’t always easy. How much should you save and where should you save it?

Some of the best tips to follow when it comes to saving money are:

• Know what you are saving for and how much you can realistically save
• Schedule payments to go directly into your savings account
• Choose a high-interest account

You will need to sit down and work out exactly how much you can save. This means working out your incomings and outgoings. You’ll also want to take your time to compare savings accounts. The higher the interest rate, the more you will get back over time.

A great tip is to schedule payments to go into your savings account directly. Do it as you would when scheduling a bill to be paid. If you view it as a necessity, you’ll find it a lot easier to stick to a savings plan. Just set the payment up like a direct debit and then you’ll be able to forget about it.

Conclusion

Deciding whether to save or pay off debts can be a difficult decision. However, for most people focusing on getting their debts down is the best option. You will often be paying back more in interest on your debt, than what you would earn on the interest from savings.

If you are still struggling to decide which option is right for you, you may find it useful to seek professional help. There are a lot of free advice services (e.g. Credit Counselling Singapore) that can help you to determine which option is right for you.

Note: The card information shared on this article is correct as of 28/09/2021. Some extra details are based on my personal experience so it may not be 100% accurate.

DBS LIVE

Interesting Features:

• Made from 85.5% Recycled Plastic
• Extra 5% Green Cashback
• Join Live Fresh Club in Fortnite

UOB EVOL

Interesting Features:

• 82% plant-based Polylactic Acid (PLA) card material made of non-edible corns
• 16 Digits stacked vertically in 4 rows
• Personal Accident Coverage during travel
• Formally known as YOLO

OCBC FRANK

Interesting Features:

• Choice of Obsidian / Vortex Card Design

Few Things To Take Note (Personal Views):

• If you are looking to maximize your cashback benefits, it is good to take note of the Maximum Spend on the Online and VISA / Contactless Categories. The amount stated above means that if you spend above that limit, you will not enjoy any more cashback on the differences.
• Personally, I will concentrate my first monthly spend of $600 on both Online and Contactless Payments. After which, I will do some budget planning and swap to another card. The 0.3% on Other Spend is quite miserable.
• If your average monthly expenditure is more than $600, it would be good to explore other Credit Cards with cashback rates above 6%.
• If you take public transports a lot (SimplyGo), the Cashback (extra 5%) on Sustainable from DBS Live Fresh Card is a good feature.

Few Things To Take Note (Personal Views):

• If this is the first time you are getting a Cashback Credit Card, you may want to keep track of your next few months’ expenditures in an Excel Sheet so that you know which purchases did not have Cashback or they were categorized differently from you had expected (e.g. a Contactless Purchase listed as an Online Purchase)
• Download a copy of their Terms and Conditions to know the list of excluded transactions and also to match your Transactions for the first few months.

What Are Stocks and Unit Trusts?

How To Buy Stocks And Unit Trusts?

What Are The Charges When You Buy Stocks Or Unit Trusts?

What Are The Advantages Of Owning Stocks And Unit Trusts?

What Are The Disadvantages Of Owning Stocks And Unit Trusts?

In greater details, Resale Endowment Policies are insurance plans that are still in-force (premiums are still being paid) but the previous owners have decided to surrender these plans due to various reasons and they are sold to certain parties (usually a company) and this new owner will either hold on to it till maturity or to resell it – and those plans that are being re-offered are known as Resale Endowment Policies.

If you are interested in Endowment Insurance Policies because you do not need to monitor (unlike investing or with ILPs), it “forces” you to commit to saving for a certain number of years (and you get to enjoy an average return of 3-5% per annum) but you do not like the idea of saving it for very long (especially if it’s those Policy Terms like 25 years and beyond…)… you might be interested to look into the Resale Endowment Policies!

A Little Bit More Details About The Traded & Resale Endowment Market

If you are new to these two terms… they are not some latest terms that just popped out of nowhere and these concepts have existed like over 20 years ago (some sites quoted that it existed since 1843) and it is just getting well-known in Singapore in the last few years.

About The Traded Endowment Market

In this market, if the Policy Owners of their Endowment Plans decide to give up the plans because they are unhappy with the Insurance Companies/Financial Planner, Divorce or they just want some quick cash… instead of surrendering directly back to the Insurance Companies and suffer the Early Surrendering Penalty… they can turn to these Traded Endowment Companies whereby the Endowment Plan will be evaluated and most of the time, these insurance plans can be traded in with an average of 1-5% (this value really varies) more on top of the Surrender Value.

The whole process is totally legal because both parties will have to go through the Absolute Assignment Process whereby the First Owner will give up all the rights to the benefits of the Plan and the Second or New Owner will retain the rights and in return, they will commit to pay the remaining premiums.

About The Resale Endowment Market

As mentioned above, these Traded Endowment Companies can turn to the Resale Endowment Market to sell off those Endowment Policies that they have previously bought. This Market is suitable for those who are interested in the benefits behind Endowment Policies minus off having to commit to the full term of plan. You can also refer this concept like a Modified Fixed Deposit Plan whereby one gets to pay a smaller lump sum and the option to pay regular premiums… and still enjoy a slightly higher return than the usual Fixed Deposit Plans.

This whole process is also totally legal whereby both parties will have to go through the legal process of doing up the Absolute Assignment.

To read up more on Traded Life and Traded Endowment Plans, you can also check out this article by Moneysense.

For The Sellers – Why Should You Sell Instead Of Surrendering Your Endowment Plan?

If you decide to surrender your Endowment Plan back to the Insurance Company at an early stage, there is a high chance that you will incur a huge loss.

So selling your Endowment Plan to those companies will usually give you a higher value and you will also receive the payout earlier (usually at the spot, with a cash cheque, right after signing the documents). These two reasons ensure that you enjoy a higher return and a faster processing time (if you are in need of the money).

For The Buyers – Why Should You Consider Buying A Resale Endowment Plan?

There are a few good reasons for you to consider buying a Resale Endowment Plan for savings or investment purposes.

1. There is a shorter time to policy maturity.
2. There is a flexibility in choosing a plan that may suit your budget and desired time frame (provided the company has many to offer).
3. The paperwork is usually simpler as compared to buying an Endowment Plan from scratch
4. Most of the policy-related fees have been paid for by the previous owners in the early part of the plan which means your return is relatively higher.

A Few Personal Tips On How To Choose The Right Resale Endowment Plans

Choosing the right resale endowment plans can go through the same process of choosing the right property or the right car. This is because not all Insurance Companies give the same return rates for their Endowment Plans and different Endowment Plans may come from different Bonus Series which may ultimately affect the maturity value.

Do not just buy because you like the name of the Insurance Company or the different perks it offer for their Endowment Plans. You have to go for those Resale Endowment Policies that can give you a significant return in exchange of you having to invest back to become the New Owner.

Not too sure what I mean?

How To Determine The Bank Fee For Your Local Debit And Credit Cards

Go and dig out any of your credit card statements listed with your overseas purchases and refer to these two sites – Visa Purchases or MasterCard Purchases to do your calculations and check for the Bank Fee.

You should see something like this (note that you will not be able to see the rates for the current day):

Then enter the following:

• Transaction Date – The Date that you have made the purchase or the bank processed the overseas payment
• Transaction Amount – The amount you pay in the overseas currency
• Select Transaction Currency – Set the overseas currency, e.g. USD
• Select Your Card Currency – Set your local currency, e.g. SGD
• Your Card Currency Amount – This should match your billed amount
• Bank Fee – Set initially as ‘0’ and adjust up so that the “Card Currency Amount” matches the Amount stated in your Statement

Once both amount more or less match, this Bank Fee is the extra amount that your local bank is charging you!

For the above scenario, if the Bank Fee is set at 3.5%, the Card Currency Amount will be showing as $226.34, an extra of $7.65 from $218.69.

Amount like this may still be small but if you like to buy frequently, these will slowly add up and may even cover your next purchase.

So what can you do?

Recommending The YouTrip Mastercard Debit Card

I would like to recommend you the YouTrip Travel Wallet App which provide you with a free MasterCard Debit Card with no annual fee. (if you like my recommendation, please click on this link to sign up for the card. In return, I may get $10 which you will get as well, after you apply and do a successful Top Up.)

I have been using this card for all my Amazon.com purchases and Kickstarter contributions.

Benefits Of This Wallet And Card

1. Can Be Used Online And At Physical Stores

The YouTrip Travel Wallet App serves as the main source of fund (maximum of $3000) which you will need to top up first before you can use the Card to make purchases. It can be used:

• in Singapore for local currency purchases (which I may not recommend especially if your current cards come with perks like Points, Miles or Cashback)
• to tap for your Local Transports (through the MasterCard Account-Based Ticketing (ABT) function)
• on overseas Marketplace like Amazon.com which you will be paying in USD
• physical overseas stores like FamilyMart in Japan which you will be paying in Yen

Note that you will not be able to withdraw your Top-Up Funds.

2. Supports Many Currencies

The Wallet supports 10 currencies and allows you to store values for each. You can choose to convert your SGD to any of the 10 currencies at anytime and the rates are stated on the app screen. For other currencies that are not in the Wallet App but listed under the MasterCard site, your purchases will be automatically be converted according to the rate stated on the site, at no extra fees, as long as there is enough fund in your wallet.

Note: I have seen another similar wallet app which actually charges a percentage fee for non-supported currencies.

Personally, I would suggest not to convert any unless you hear of very good news that the conversion rate for the currency you are going to use is very high or that, for sure, it will drop and remain low in the long future.

3. The Conversion Rates Can Be Quite Good

I have compared the conversion rates (for e.g. USD) for my overseas purchases against PayPal, Google and local Money Changer Rates and so far the auto conversion rates on the YouTrip Wallet App have been better.

4. You Still Earn Your Credit Card Perks With Your Top-ups

I use my local Credit Card for topping up and till date, I am still earning my cashback.

5. The Sign Up Process Is Not Troublesome

Signing up for this card is not troublesome at all. You do not have to be a customer of a particular bank or to go down to any bank branches to verify your address. Another similar app requires you to go down to one of their (not conveniently located) branches to verify your address before they can process your application.

6. You Can Withdraw From Overseas ATMs

If you are in need of emergency cash, you can also use the card to withdraw from supported ATMs. Note that there will be a fee of SGD5 for each withdrawal. You may be subjected to additional fees depending on the ATM that you are withdrawing from.

Apply For The YouTrip Debit Card Today!

If you like the benefits so far and you like to save on the bank fees from your overseas purchases, then I would like to recommend you to apply for the YouTrip Debit Card.

For the full terms and conditions and other queries you may have, please check from the official website. You can get the details to sign up from there as well. Or if you want both of us to get $10 as a bonus, you may want to use my Referral Link and apply for it – thanks in advance!

My response was (and still is) a Yes and here are some of the reasons.

Reasons Why You Still Need To Consider Insurance?

#1 – Your Health May Suddenly Change In The Future

You may have some family history of certain illness or other situations (like stress, unhealthy diet) which may cause your health to gradually (or all of a sudden) worsen. By that time, if you hope to get insured (e.g. for a hospitalization plan, critical illness plan or disability insurance), you may have a hard time getting them. Getting yourself insured now while you are still in the pink of health can give you a better assurance in the future.

#2 – You Want To Leave Behind Something Good When You Are Gone

You can choose to leave behind something good (like a lump sum of money) to a good cause (e.g. charity, your favorite nephews’ education or your Business) when you are gone. Planning for this (e.g. Term Insurance) may not be costly (usually just a small percentage of your take-home pay) and it is also cheaper when you get started when you are younger and healthy.

#3 – Insurance Can Take Care Of You While You Are Still Alive

There are many different types of (Life, Health and General) Insurance that can support you financially while you are still alive.

Examples are:

• Personal Accident Plan provides you with financial support when you are recovering from an accident.
• Hospitalization Plan takes care of most Hospital Bills when you get hospitalized.
• Home Insurance takes care of your precious Home Content against the unforeseen.
• Travel Insurance gives you some form of assurance before, during and after your overseas holiday.
• Endowment Plan helps to grow your some of your savings to prepare you for your retirement.
• Annuity Plan helps to supplement your retirement lifestyle.
• Life Insurance provides lump sum financial support if you are alive but permanently disabled.
• Critical Illness Insurance provides lump sum financial support to help you to focus on your treatment and recovery.

#4 – Insurance Takes Care Of Many Outstanding Issues When You Are Gone

Life can be really unpredictable and by planning for insurance early, it can take care of many issues like Outstanding Debts and Liabilities like Taxes, (School, Mortgage, Car, Joint) Loans, Funeral Expenses or Medical (or Credit Card) Bills. You can read up more from this MyLegacy (a Government-related Site). Let your Closed Friends and Family Members remember you and mourn for you instead of having to have these financial concerns to worry about.

Single or not, chances are that you may identify with at least one of the reasons or scenarios. Take some time and talk yourself through (or with a Financial Planner) to see how financially prepared you are should anything happen. If there’s any shortfalls, you should always plan while you are still young and healthy.

My Personal Opinion: This is a good move and good in the long run.

But before I share my views on why this is good move… let’s review the why the change and features of these two riders…

Why The Change? Over-Consumption, Over-Servicing and Over-Charging!

If you have read the news, the reasons for this change are due to Over-Consumption, Over-Servicing and Over-Charging which I do agree.

For Example:

On Over-Consumption… in my current line of work, I get to work with Hospitals on the Patient Admission Process (IT portion) and there were many cases whereby the staffs shared that patients chose to go for the highest ward because of their entitlement (i.e. they have a plan and rider that covers 100% of the bill) even though they don’t really need it. You can refer to this link to see an example of the different ward charges (Standard Ward Class A is at $466.52 per day versus Standard Ward Class B1 at $251.45 per day).

On Over-Service and Over-Charging… which I believe (not 100% sure) is more applicable to the Private Hospitals side where most of the resident doctors there work and operate on their own basis (i.e. the Private Hospital is merely a platform for them to utilize the equipment and space). Control may not be as strict as Restructured Hospitals in terms of a standard list of procedures, medicines and prices… so when a doctor recommends a package of this, this and that for an admission and the patient agrees (because bill is 100% covered and as a layman we are not too sure if the recommendations are necessary). This can result in Over-Service and Over-Charging.

So I believe a change of rider type has to be introduced to take care of these issues and to pass back a little responsibility to the patients (they have to start asking on the charges and if treatments are necessary). Additionally, I also understand that MOH is working to release a standard list of treatments and charges for public references.

Now We Come To The Features Of The Riders

Deductible & Co-Insurance

If one (he) did not buy a rider (payable by cash only) to go along with the As-Charged Private Shield Plan (payable by Medisave and up to a cap), happened to be hospitalized and had a Inpatient bill of $10,000 (assuming $10,000 is the actual claimable amount), he would have to take care of the deductible (e.g. $3,500 for a Ward A) and co-insurance (usually at 10%) first before the rest is taken care of by the Insurer.

So this patient would have to pay $3,500 + 10% of ($10,000 – $3,500) = $4,150 out of his own pocket (and Medisave Account) whereas the remaining bill of $5,850 will be taken care by the Insurer.

Full Payment Rider – Basic Feature

But if he decides to buy a Full Payment Rider, the Deductible and Co-Insurance portion are basically taken care (which means $10,000 bill is 100% covered by the Insurer) of and he will be covered right from the $1 dollar onward (meaning even if the bill is below the deductible of the ward, e.g. $3,500, insurer will still cover 100%). If this guy happens to be hospitalized again within the same policy year, the new bill will still be 100% covered by the Insurer.

Co-Payment Rider – Basic Feature

If he goes with a Co-Payment Rider (assuming it’s the proposed rider by MOH) versus the Full Payment Rider, he would have to pay 5% of the $10,000 bill (= $500, Remaining Cap = $3,000 – $500 = $2,500). Depending on the nature of the treatments and such, most of the bill payment can be settled by the Medisave Account else it will be cash payment. If this guy still happen to be hospitalized again (e.g. 2nd bill is $20,000, his co-payment will be $1,000 but if it is a bill of $70,000, his co-payment will be just $2,500 instead of $3,500). Any hospitalization after that will be covered 100% by the Insurer. This will be reset when it comes to the next Policy Year.

So Why Is A Co-Payment Rider Good In The Long Run? My Personal Views…

Now that you know the basic difference between a Full Payment and Co-Payment Rider, I will like to share my personal views why a Co-Payment Rider is good in the long run… You may or may not choose to agree to my views.

– Co-Payment Rider Is Not Something New (And You May Not Be Worse Off When It Is Released)

A Co-Payment Rider is not something new in the Singapore Insurance Market. One other Insurer has a few variations of this Rider (existing one covers Co-Insurance only and they used to have another one that covers just the Deductible). Another Insurer offers this Rider (which I am covered) and on top of that there is a Hospital Cash Benefit when you decide to get admitted to a lower Ward Class. This Hospital Cash Benefit can be used to offset the Co-Payment Portion (not directly and you get to decide if you want to do so) which means I may not have to pay anything at the end of the day.

Insurers may differentiate themselves by adding different new features on top of the basic ones and at the end of the day, you may still enjoy the same features as a Full Payment Rider but enjoying a lower annual premium rate.

– Cheaper Premium & Lower Premium Increment As Compared To A Full Payment Rider

If you look at the existing annual premiums between a Co-Payment and a Full Payment Rider, the former is usually 40% – 50% cheaper in the long run. When it comes to Premium Increment (rate is never guaranteed and may increase due to claim experiences), the increment is generally lower as compared to a Full Payment Rider as well. The premium for my rider had just increased for this year and it is still not that ‘scary’ as compared to my counterparts who are having the Full Payment riders and have gone through a few increment cycles.

– It Can Be A Financial Burden Relief For Some

I knew of a few clients back in my old days of a Financial Planner whereby they had to take on the annual cash payments of the Full Payment Riders for themselves, their parents, spouse and children. The amount was huge and was quite a financial burden but they were still holding on because of the fear that one day something bad may happen to any of the family members and they had something on standby. Therefore the introduction of this Co-Payment Rider can be a financial relief for some especially when the premiums are lower. The differences in the premiums mean that they may save it for other areas or for any standby situations.

– Passing A Little Responsibility Back To The Patient

The Co-Payment Rider may introduce a different mindset for the patient when it comes to Admission. If he decides to go for a Higher Ward (when not required), he has to be willing to bear the differences in cost. Likewise for treatments, the patient (or Next-Of-Kin) may need to probe the doctor and start asking if the recommended treatments are necessary since the patient has to bear a small part of the bill now.

So Should I Switch To A Co-Payment Rider If I Am On A Full Payment Rider?

My current understanding is that if you are already on a Full Payment Rider, you may still hold onto it but you are given the option to switch over to enjoy the lower annual premium.

My view is that whether to switch over will depend on your Financial Ability to handle the premium increments and higher premium rate in the older age band. On top of that, you may have to ask yourself if there’s really an admission, will you be able to handle at least 5% of the bill (and the Payment Cap) in the short and long term.

What Should You Do Now?

If you are thinking of getting a Rider now, you should just get it (the Co-Payment Rider) and don’t wait because with a sudden change in Health would mean not being able to get a Rider at all.

You may not be worse off with this Rider since you will still be enjoying a lower premium rate and I believe Insurers may still introduce new features to the Co-Payment Rider in the future. For now, you can always use the Premium Difference to get other insurance plans if you are still worried or save up/invest in an account which you will not touch at all.

If the answer is no… my personal advice is that you need to take some time out, take out your policies and flip through pages and make sure that you understand them. Still confused or shocked after reading them? It’s time to date your Financial Planner out!

There are a few reasons why I am suggesting this:

— The Insurance Policy’s Terms And Conditions

#1 – The Marketing Brochure Is Never Not The Full Terms And Conditions

I have seen customers who bought insurance policies based on the content of the marketing brochure.

So what’s wrong with that? A marketing brochure is usually just a summary of the list (full or partial) of benefits that come with the insurance policy. Most of the time, a marketing brochure only states the good things that you can expect (e.g. the maturity benefits or the lump sum payout upon a diagnosed condition).

But if you refer to the Terms and Conditions that come with the policy contract, you will definitely not get the same positive experience. You will still get the same list of benefits (or even more) but you get to read on how you get to enjoy these benefits and what are the limitations.

For example, a brochure may states that one can get a lump sum payout if diagnosed with Total and Permanent Disability (seems like it is easy to make a claim) but when you refer to the contract, the definition of this Total and Permanent Disability gets expanded on and in order to be eligible for a claim, one has to meet certain conditions like the condition must be before the age of 65 or 70 and it must be persistent for at least 6 months and there must be no indications that there’s still earned income.

So if you have the thinking that a marketing brochure is all you need to understand what your insurance policy is about… I would suggest that you think otherwise and start reading up on those actual fine prints.

#2 – The Fine Prints May Differentiate One Insurance Company From Another

If you have gone through some of the brochures from different insurance companies, you may notice that almost all the companies offer the same list of benefits but they differentiate each other in terms of pricing.

So does it mean being the cheapest is the best? That may not be the case until you refer to the actual terms and conditions. For example, I have seen an insurance company offering the cheapest premium for a hospitalization plan with almost the same list of main benefits as the rest of the market but when you refer to the full definitions of the benefits, a few of the benefits come with stricter conditions or they are not as comprehensive as compared to the others.

Insurance Policy is a long term commitment unlike any consumer products so you have to take this into consideration and determine if a lower premium plan is better as compared to paying a bit more but you get a much more comprehensive coverage in the long term.

#3 – Understanding The Fine Prints Makes Any Claim Processes Easier And Smoother

Making an effort to understand the terms and conditions that come with your insurance policies will also make it easier to process any claims.

For example, a plan that receives many claims is the Travel Insurance Plan and it is always good to check out and read up on the details like how and when you can make a claim for medical reimbursements (e.g for food poisoning) as well as for flight delays (e.g. more than 6 hours) and trip cancellation refunds.

If you know what is required to fulfill a claim, you can get all the necessary paperwork done (e.g. getting a doctor’s memo or report, a note from the airport or photographs) before you go down to file your claim.

— The Advisor’s Recommendations

Understand Why The Insurance Policy Is Recommended And Sold To You

Besides the Terms and Conditions Page, the Advisor’s Recommendation Section is also a must for you to check out and understand. Most people do not read this because they know the Financial Planner personally and they “trust” whatever is recommended and sold to them.

With a growing trend of insurance policy being recommended off the counter (e.g. when you visit the bank), it is a good practice to read through because it contains valuable information like why that particular insurance policy is recommended to you and how did you arrive at the type, policy and policy term and the premium.

This section should also contain a summary of your concerns (e.g. risk appetite) and anything that is of significance (insurance or budget related).

So if you want to be on the safe side and get a peace of mind that you have bought the right kind of insurance policy and that the Financial Planner is not selling you a policy to enjoy bigger commission or simply to hit his/her monthly quota… you will want to read through what your Financial Planner has written down. It is also advisable that you read through during the “free-look” period which is a 14-Day period upon receiving your insurance policy contract and you get the choice to accept without changes, terminate or make changes.

If there’s any situations whereby you are mis-sold by the Financial Planner, the planner may still be protected if the advisor’s recommendation states that you have literally agree to it (especially when your signatures are on pages and on the disclaimer section that you have gone though the policy contract, recommendation and you agree to all the terms and conditions).

Protect Yourself And Give A Peace Of Mind

Buying an insurance policy can be a long term financial and emotional commitment and you will definitely want a plan that suits you.

If you have decided to commit to one, please make sure you make some efforts in going though and understand the Product Summary Page where the terms and conditions are as well as the Advisor’s Recommendation Page. Please also do so during the “free-look” period which is the 14-Day period upon receiving your policy contract.

And the more the people are aware of this and doing their part of keeping themselves healthy… the better it is in the long run!

But before you think that I am talking nonsense and you are saying that this method beats the purpose of buying (or maintaining) a health insurance plan… let me share with you why I made that above statement and see if you can agree with me!

First… Let’s Understand Why Health Insurance Premium Increases

If you do not know how insurance works, here’s the general concept (note that I may have left out certain factors):

1. Insurance Company sets aside a pool of money meant for insurance claim payouts only (let’s call this a Risk Pool).

2. Healthy people buy insurance(s) from the Insurance Company and they pay premiums. Unhealthy people may also buy insurance(s) but most of the time they will pay higher premiums (or have restricted benefits while paying the same) while those who pose higher risk (equals higher chance of claiming) will not be able to buy.

3. The amount of premium that a person pays usually depends on the age group that he is in and the overall claim experiences that the insurance company has within the age group. You will notice that premiums for the younger age group tends to be lower whereas premiums can go very higher for the older age group.

A simple explanation is that if a younger person and an older person are to fall sick with the same kind of illnesses, the older person may tend to take a longer time to recover (e.g. more visits to the doctor, professional treatment is required and/or stronger and expensive medication types) which will lead to more and higher claim payouts.

So to factor in such circumstances, older age group tends to pay higher premiums (and this is calculated based on the insurance company’s claim statistics and experiences).

4. Premiums collected will be used to maintain the business (inclusive of making profits) as well as to maintain the Risk Pool. That is why people say that insurance is of which people come together to buy policies, pay premiums and share the risk.

5. When people start to make claim (because of issues like hospitalization due to major issues like long term illnesses or small issue like observations for suspected dengue), payouts are being drawn out from the Risk Pool.

6. If the drawn out rate is higher and faster than the premiums they can receive along with the company’s profits (inclusive of other accounting, reinsurance fees and management factors) and is affecting the overall company’s cash flow…

Premium will tend to increase across a certain age group or across the board!

Side Note:

Premiums for Private Health Insurance Plans include the premium for CPF Medishield. So if the Health Ministry decides to increase the premium for CPF Medishield (for example, the upcoming Medishield Life Plans), the premiums for Private Health Insurance Plans will follow suit.

That’s Why Keeping Yourself Healthy Will Play A Small Part In Helping To Keep Your Health Insurance Premiums Low Or Unchanged

So if you have read through the points that I have listed above, you may agree with me that by not making any health claims (which requires you to do your part in staying healthy) although unavoidable because of the current majority… you will help to prevent the drawn out rate from going high and provide less reasons for insurance companies to increase the premiums (e.g. to maximize profits).

For this to work to your advantage also requires fellow policyholders to keep themselves healthy. It may be tough but if you and I can do our part in making this move first and slowly influence the people around us… we will eventually enjoy from it!

Meanwhile Insurance Companies (and the Planners) need to get out there and have more people covered by their health insurance plans (not for profit reasons but more for keeping the drawn out rate in balance).

So Do I Still Need A Health Insurance Plan If I Can Keep Myself Healthy?

The hard truth is that nobody buys a (e.g. term / health ) insurance plan with great hopes of making a claim other than those Savings and Whole Life plans which you get to enjoy benefit returns (upon maturity).

Insurance Plan, or in this case, a Health Insurance Plan, is always a form of assurance to yourself and your family that if any unforeseen circumstances (e.g. a long term sickness or unexpected accident) happen… you have the financial means to depend on and not make you worse off!

For example, you may have paid $1000 in health insurance premiums over the last few years but a sudden and really unexpected illness that involves hospitalization and surgery (e.g. choking on a fish bone) cost you around $5,000. Without a health insurance plan, you may have to pay the full $5,000 from your personal savings (which may have been intended for holiday use) or partially from your CPF Medisave Account. But because you are covered with it, your Insurance Plan gets to take care of everything and you still get to enjoy your intended holiday!

The other good thing is that if you have started claiming for a long term illness, your insurance plan will still take care of the hospital bills as long as you are alive but suffering.

Therefore if you are not too sure if you can always stay healthy in the future (especially if you know of some family history), you are definitely better off by getting yourself covered.

But if you are sure of your health in the long run or have the external means to take care of any hospital bills (e.g. a very comprehensive company medical benefits plan)… you can definitely choose not to take up or to continue with any health insurance plan!