JUST ASK: 'Should I buy SAF term insurance for my wife and I?'

In this occasional series titled JUST ASK, we invite readers to send in questions on stock investing, and personal finance. We will ask an expert (or experts) to provide answers. Below is a series of questions on insurance coverage, and it is answered by Leong Sze Hian, the President of the Society of Financial Service Professionals.


Reader: Currently I am keen to take up an insurance which is good for my wife (2 months pregnant) and myself. Would you recommend the AVIVA SAF term insurance? 

We are keen to be insured for the following quantums and prices: 

1) SAF Group Term Life Insurance (till age 70 years max): Coverage of $400,000 each for my spouse and I – or about $90/month for both of us in total. 

2) Supplementary major illnesses Insurance (till age 65 years max): Coverage of $300,000 each for my spouse and I - about $60 /month for both of us in total. 

3) Group Personal Accident Insurance (till age 65 years max): Coverage of $100,000 each for both my spouse and I - about $10/month for both of us in total. 

We are keen to put the rest of our money into shares with a buy-and-hold approach till we retire. Taking that into account, we should have a good sum in shares by the time we retire, a good sum of savings, a fully paid flat and CPF LIFE when we retire.

Do you think the above insurance is adequate for us currently? 

We have both also signed up for Income Shield preferred - thus we would only need to pay 10% of our hospitalization fees - we bought a rider too, thus hospitalization is covered. 

Given the above information, would you think getting the AVIVA term insurance is the right insurance to get or would there be another alternative you could recommend?  

Thanks again for assisting people like us who don't have that good financial literacy.  I studied commerce but I am currently doing social assistance as I find it a very meaningful job. 

* As the term insurance expires at 65/70 years of age, would there be any other insurance policies which you could recommend for us from then on, based on the current plans available in the market?

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Leong Sze Hian, president, Society of Financial Services Professionals

Leong Sze Hian: Dear reader, group term insurance policies are generally good value for money, as their premiums are generally lower than for individual insurance policies. However, do note that historically, various group insurance schemes have changed insurers over the years.

For example, I understand that the SAF group insurance schemes have been managed under different insurers. 

I myself was under a military services group insurance scheme which changed insurers quite a few times, and I ended up with a group scheme which charged much higher premiums than another group scheme through the same organisation which had much lower premiums. 

In fact, two group insurance schemes ran concurrently, and as the members got older under the older scheme, premiums for older members increased quite a lot, on a relative basis. 

From my experience with group insurance schemes, one may like to note several considerations.

Premiums generally increase with age, and may become quite high at older ages. 

As the scheme is a contract between the insurer and the organisation, it is subject to termination or changes that are not within the control of the individual insured members. 

If for any reason, premiums are not paid, the cover lapses, and reinstatement is subject to evidence of insurability, unlike insurance polices with cash value (could be combination of traditional life insurance/investment-linked insurance with term insurance, critical illness, etc).

For policies with cash values, typically the premium will be advanced as a cash advance with interest to keep the cover in force, when the first premiums are overdue. 

When a member leaves the group, cover is typically terminated. When I completed my reservist with one military service group, I was terminated from the group insurance scheme. 

The terms and conditions of the group scheme, such as the premiums, age bands, sums insured, are subject to change depending on the claims and demographic experience of the scheme.

There have been schemes in the past that were terminated, or had premiums increased.

An example is that for taxis and taxi drivers that historically have gone through many scheme changes.

One must be aware that a group insurance scheme must be commercially viable. So if claims increase or members in proportion get older, premiums may increase, which may become a vicious cycle as less new members join because they can get cheaper or better cover elsewhere.

In other words, the group insurance market has been and is subject to competitive market forces. 

I came across a group home mortgage insurance scheme which was terminated between the insurer and the bank after a few years. When a widow tried to claim, she was told that the policy had lapsed (which was technically correct as the group policy had been discontinued).

It was only after much investigation and the furnishing of documentary proof that the widow claimant was able to establish that the group insurance premium paid by her deceased husband was a single premium that covered the entire tenure of the mortgage.  

As there are different types of cover in the market, the terms and conditions of the critical illness and accident cover may also differ. For example, the definitions and scope of cover may vary. 

Term insurance expires at a certain age. For example the CPF Dependents'  Protection Scheme expires at age 60 and thus, in a way, assumes that one will not need such cover after age 60. 

Buy and hold shares till you retire?

With regards to your statement "We are keen to put the rest of our money into shares with a buy-and-hold approach till we retire", you may like to consider a globally diversified portfolio of equities, bonds, commodities/natural resources and  property, instead of just shares in one country.

For example, in the case of one country, Japan - the stock market is still down by more than 70 per cent after 21 years!

As to a "buy-and-hold shares" approach, only 17 of the largest 100 listed companies in the United States at the beginning of the last century are still in existence today! 

As to your question "Dould you think the above insurance is adequate for us currently?", you may like to do a Survivors Financial Needs Analysis to calculate whether your total cover and net worth available for survivors' needs, are adequate to meet your financial goals and concerns. 

You may also like to do an analysis of your risk exposure for appropriateness of the type cover, adequacy of the amount, etc.

For example, do you have appropriate and adequate cover for legal liability, accidental medical reimbursement, overseas medical expenses (CPF approved Shield medical plans generally do not cover overseas medical treatment. So, now that one can use Medisave in approved Malaysian hospitals for a start, one should be aware of this exclusion), property, etc?