Thursday, May 1, 2008


Welcome to my blog! I’m very excited as this is the first posting on my newly created blog. I hope to share the knowledge that I learned on investment on this blog.

I recently read an article on Invest magazine (Apr/May 2008) on how to make a proper insurance plan. I must confess that I share the same sentiment like many people who still clueless about what they are covered for despite having bought numerous policies. Thank God I can rely on the expert to help me in finding the right protection and I believe I’m in a better situation now.

Here are some of key points from the article.

A well known classification of financial planning known as the 4Ws, is often used as a guide to achieve financial well-being. The 4Ws are:
Wealth Protection
Wealth Accumulation
Wealth Preservation
Wealth Distribution

The first step of a proper financial planning process is known as Wealth Protection or Protection Planning. This involves the concept of transferring financial risks to an insurance company through a contract.

Protection Planning can be represented as:
1. Identify Current Financial Status
2. Define Financial Needs and Aspirations
3. Evaluate and Select Strategy and Solution
4. Apply and Monitor Selected Strategy

One shouldn’t stop just after going through one cycle but should be continuous. Periodic review should be done to cater to the changes in a person’s life cycle. What is enough now may not be adequate in the future.

An Assets and Liabilities and Cash Flow Analysis should be carried out to identify your current financial status. Assets and Liabilities would deduct all liabilities including mortgages, loans, bills, etc, and deduct from the assets including property, stock, CPF savings etc. The result is the Net Worth.

Cash Flow measures the monthly/yearly spending/saving habits and shows a positive or negative result. Positive indicates there is excess income/savings while a negative points to overspending.

To help in define his/her financial needs and aspirations in Step 2 of a Proper Protection Planning, the article has listed the following main areas as the personal views of author.

Hospitalization Expenses
Protection against hospitalization expenses is the most basic coverage one should get, for both children and adults. Hospitalization expenses could cause a great outflow of financial resources which could be crippling to one’s financial health. (In the Sunday Times article “40 years of his Medisave wiped out in the savings in Mr Mohammad’s Medisave account, which took him over 40 years to build up, was used up in 3 months after his daughter was diagnosed with ovarian cancer.

The main reason for getting Death coverage is to provide for one’s liabilities – dependents, debts, funeral expenses etc. The death payout would enable the dependents e.g. spouse, children and parents to continue their current lifestyle and continue their various plans like funding education.

Total Permanent Disability (TPD)
Similar to Death coverage, when the insured suffers from TPD, the payout can cover for needs of dependents and debts. However, unlike Death, TPD care can be prolong and no one knows for sure how long the insured will suffer before passing away. Additional expenses like paying for a domestic helper and miscellaneous medical apparatus are also needed. Disability Income (DI) can be used to meet the needs of such recurring expenses.

Critical Illness (CI)
CI coverage provides a payout if the life assured is diagnosed with a pre-defined illness. Similar to TPD, CI care can also be prolonged with miscellaneous expenses needed. Although a good Hospitalization and Surgical (H&S) plan will cover a big portion of the hospitalization expenses, it is important to know that not all cancer drugs are covered by the MediShield plan. Such cancer drugs can be very costly.

Disability Income (DI)
For those who rely on a source of income for living expenses, losing the ability to generate this income stream due to disability or illness would be financially disastrous. Having a DI coverage would help to protect against such a scenario and offer the insured a chance to continue his/her life plans. It also offers a source of regular income to offset the regular expenses such as employing a domestic helper if such need arise.

Personal Accident (PA)
Accidents can result in Disability, Death or Partial Dismemberment. Such coverage only extends to the above scenarios due to accidents only. Partial Dismemberment should be the main consideration for getting coverage for PA as Death and Disability coverage should not be limited to accidental causes only. The premium for PA coverage is much lower than others due to the low probability of claim.

Long Term Care (LTC)
LTC coverage means getting a monthly payout if one is disabled and is unable to perform a certain number of Activities of Daily Living (ADL). ADL includes washing, dressing, feeding, toileting, mobility and transferring. Disability coverage post age 65 would be the most useful aspect of this coverage as TPD and DI coverage normally ends at age 65.