Types of Insurance Policies Owned by Singaporeans

Types of Insurance
Policies Owned by
Singaporeans
MONEY 101
SEMINAR GROUP 02
LAM HUI PING | LEE TYNG TYNG, YVONNE | LUI WEI SIANG | CHEW ZHAN LUN

Overview of Today’s Presentation
Why Insurance?
What is comprehensive financial planning?
Types of Insurance Policy
Whole Life Policy
Term Policy
Endowment Policy
Investment-linked Policy
Add-Ons
Riders
Case Study
Insurance for young adults

Why Insurance? Types of Insurance Add-Ons Case Study
Comprehensive Financial Planning
Risk
Management
• Insurance
• Protections
Wealth
Accumulation
• Savings
• Investment
• RetirementComprehensive
Financial Planning
Main Goal:
• To reserve for emergency
needs
• To ensure comfortable
future for ourselves and
our loved ones
Main Goal:
• To have comprehensive
protections for ourselves
and our loved ones
• To have access to
adequate care when
needed

Five Key Considerations under Risk
Management
Risk
Management
• Insurance
• Protection
Death/
Total and Permanent Disability
Critical Illness
Disability Income
Hospitalization
Accident

Four Types of Insurance Policy
Whole Life Policy Term Policy
Endowment Policy Investment-linked Policy

Whole Life Policy
Purchase at
age 20
Premium payment
term ends
Payment of premium for 25
years
Insured for entire life
Death/
TPD
• A type of insurance policy that provides lifelong insurance protection for the policyholders and
their dependents in the event of death, total and permanent disability and terminal illness
What is Whole Life Policy

Whole Life Policy
Whole life policy usually are available in different forms:
Participating
(Par)
Non-Participating
(Non-par)
Investment-linked
(ILP)
• Pay bonuses, building up
cash values
• Upon the death of the
insured, par policies
usually pay the basic sum
assured plus any
bonuses accumulated to
date as the death benefit
• Do not pay bonuses but
will build up some cash
value over time
• These cash values are
guaranteed and are paid
out if the policy is
surrendered early
• The death benefit
comprises the sum
assured only
• Payment upon the death
of the insured may be the
higher of sum assured or
the value of the ILP units
at the time, or some
combination of sum
assured plus the value of
the ILP units
Most whole life policies in Singapore are in participating form

Whole Life Policy
• It provides a lifetime protection for
policyholders and their dependents
• IPL or par policies are not just paying for
insurance coverage, some of the premiums are
paid/ invested into a fund to grow money
• Par policies provide guaranteed (i.e. sum
assured) and non-guaranteed (i.e. bonus/ cash
dividends) benefits
• Premiums are usually fixed throughout the
policy
• There is option to withdraw cash value before
death
• Premium can be expensive because the policy
doesn't’t expire and usually includes a saving
component
• It requires long-term commitment and
affordability
• Early termination of the policy usually
involves high costs and the surrender value
may be less than total premiums paid
• Potentially may not meet short to medium
term saving goals, as there is no cash values in
the early years
Pros Cons

Whole Life Policy
• People who have stable monthly income and are able to afford
to pay a higher premium
• People who are looking to get protection and at the same time
want to grow their money on a long term basis
• People who own a family and want to ensure that their
dependents get financial protection in case of unfortunate
event happens (death, TPD etc.)
Target Audience

What is Term Policy?
Term Policy
Purchases 5
years term
insurance
Term insurance
lapsed / terminated
Insured for
5 years
Not insured
• A type of insurance policy that provides coverage for a certain period of time.

Term Policy
Purchases 5
years term
insurance
Term insurance
lapsed / terminatedDies Dies
Pros Cons
• Very affordable, low premium
o With $25,000, a 25 year old non-smoker will
be able to purchase a 60-year term policy. As
compared to life policy, this amount is
insufficient to even pay for ½ of a 20-year life
policy.
o Low penalty if policy is terminated
prematurely
• Flexible
• Covers only the period that you want to be insured
• More flexibility but lose being insured for period
after policy lapses, i.e. when you stop paying
premiums, unlike life policies
• Premium increases significantly after policy lapses,
even if it is the same policy
• Only insures up to 85 years old

Examples of Term Policies
Target Audience
Term Policy
• People with tight budget, would like to be temporarily insured until they switch to life
policy in the future
• People whose needs do not require life insurance, and a term insurance would be more
economical
• Car insurance
• Travel insurance
• Home fire insurance
• Accident plan
• Workmen compensation
• Death

What is an Endowment Policy?
Endowment Policy
Premium of $8,000 per year
$160,000 in total
Insurance Savings
Total Permanent
Disability / Death
Invested in funds
E.g. 20 year education plan
• A type of insurance policy that allows you to save and meet your financial goals.
• Also commonly known as forced savings.

ConsPros
Endowment Policy
• Flexible
o Can choose a duration of 10, 15, 20 years and
so on for the endowment policy
o Can choose how you want to pay the
premium,
 Quarterly
 Semi-annually
 Annually
• If person who purchased the endowment policy for
his dependent dies, dependent will still be able to
receive the sum of money for his education + sum
insured for death
• Although plan may be “education plan”, payout
received at period end can be used for any purpose
• Due to the small portion paid for insurance,
guaranteed amount at end period may be less than
the total premiums paid. Whether or not net
returns are positive depends on the non-
guaranteed amount invested in funds
• There is a possibility of getting paid less at the end
of the period than the total premiums paid over the
years
• Insufficient to depend on endowment policies’
insurance for protection as it is a very small portion
and coverage is minimal
• Policy would lapse if premium is not paid. All
previously paid premiums would be forfeited

Examples of Endowment Policies
Target Audience
Endowment Policy
• Any persons who has a financial goal and would like to meet it by the end of a certain
period in a systematic way
• Any persons who foresee that they will require a lump sum amount by a certain year
• Retirement plans
• Tertiary education plans for child(ren)

Investment-Linked Policy
• A type of insurance policy that provides a combination of protection and investment.
• Premiums buy life insurance protection and investment units in professionally
managed investment-linked fund(s).
What is Investment-Linked Policy?
Insurance Company
Unit Trust Investments
Deduct some fees as
costs of insurance
E.g. $200,000 sum
assured covering death,
CI and TPD

Year Premium Total
Accumulated
Premiums
Allocation
Rates
Premium
Invested Before
Subtracting Cost
of Insurance
1 $ 6,000 $ 6,000 20% $ 1,200
2 $ 6,000 $ 12,000 30% $ 1,800
3 $ 6,000 $ 18,000 55% $ 3,300
4 $ 6,000 $ 24,000 105% $ 6,300
5 $ 6,000 $ 30,000 105% $ 6,300
6 $ 6,000 $ 36,000 105% $ 6,300
7 $ 6,000 $ 42,000 105% $ 6,300
During initial few years,
only a small portion of the
premium paid is invested in
the funds
The remaining amount is
used to pay administrative
fees such as fund
management fees
This is even before the cost
of insurance is taken into
account

Investments
Cost of insurance
Investments
Cost of insurance
Investments Cost of insurance
When we are young As we grow older There will be a point
• Initially, the pie is small as
we just started paying
premiums and only a
small portion is allocated
to the funds
• Cost of insurance is low
• Pie size increases as
premiums accumulate
and investments
generates returns
• Cost of insurance also
increases
• Pie size continues to
increases
• Costs of insurance
increases much more than
pie size as we get older

Age
Value of ILP
Value of ILP across time
• As you pay more premiums
and the investments generate
returns, value of your ILP
increases
• But there will be a point
where the cost of insurance
will be so large that it eats up
your previously accumulated
amounts

Pros Cons
• Higher returns as compared to endowments
• No maturity date, can transfer policy to child
• Flexible – Can increase or decrease the sum
assured anytime
• Free fund switching – no fees charged when
you want to switch funds
• Can choose to use cash value to pay
premiums if you are unable to fork out the
cash (Premium Holiday)
• Allocation rates are extremely low at the
beginning few years
• Cost of insurance increases as you get older
and may eliminate your investment returns
• ILP value fluctuates with the market
• Sum insured is small compared to whole life
and term policies

• Young adults who just started working and are looking
to accumulate their wealth with added insurance
coverage. Furthermore, cost of insurance is low when
you are younger
• People who wants both investments and insurance
coverage but are looking more for wealth accumulation
rather than protection
Target Audience

Riders
“A rider is a provision of an insurance policy that is purchased separately from the basic
policy and that provides additional benefits at additional cost.”

Case Study
• Name: Mr Lui Wei Siang
• Age: 24
• More about Mr Lui:
o Fresh graduate, all ready to climb the corporate ladder!
o Auditor at KPMG
o Starting salary of $3000
Profile

Case Study
• To be a senior partner in his firm
• To retire by the age of 55
• To travel around the world
• To see his children going through university
His Dreams

Case Study
• Who will take care of him if he cannot work?
• Who will take care of his family if he is no
longer around?
• Will he have enough money for retirement?
• Will his children be able to start their lives
with the right foundations?
His Worries

And so, he starts to ponder…

His Cash Flow
Current Income: $
Basic Income 3000
Less: CPF Contribution (600)
Take-home Income 2400
Expenses:
Family Expenses 400
School Loans 500
Insurance Premiums 0
Personal Savings 300
Transportation Expenses 100
Personal Expenses 500
Other Expenses 200
Total Cash Outflow 2000
Surplus 400

His Current Needs
Hospitalization Coverage
was paid by his parents

Recommendation (Sample Policy)

At a Glance
Policy Name Policy Type Main Coverage Details Annual Premiums
FlexiLife Multiplier 20 Whole Life 3 times of $60,000 for Death &
TPD for up to 65 old.
$1,527.60
Critical Illness
Protector Multiplier
20
Whole Life 3 times of $60,000 for 37 Critical
Illnesses for up to 65 years old.
$462.60
Essential Protector
Plus – Plan B
Term Personal Accident Plan $298.30
PayAssure Rider 65 Term Monthly Disability Income of
$2,400
$189.60

All ready to conquer the world!

References:
Monetary Authority Singapore. (2014, July 17). Particiapting Policies. Retrieved April 7, 2016, from MoneySense:
http://www.moneysense.gov.sg/Understanding-Financial-Products/Insurance/Types-of-Insurance/Life-
insurance/Types-of-Life-Insurance/Participating-Policies.aspx
Monetary Authority of Singapore. (2014, July 17). Whole Life Insurance. Retrieved April 7, 2016, from MoneySense:
insurance/Types-of-Life-Insurance/Whole-Life-Insurance.aspx
Universal Life Singapore. (n.d.). Universal Life - Advantages . Retrieved April 10, 2016, from Universal Life:
http://universallife.com.sg/advantages
Mok, F. F. (2015, January 27). Universal life insurance popular among the rich. Retrieved April 10, 2016, from AsiaOne
Business: http://business.asiaone.com/news/universal-life-insurance-popular-among-the-rich
Aviva Singapore. (2016). Term life Vs. Whole life plans. Retrieved April 7, 2016, from Aviva Singapore:
https://www.aviva.com.sg/life-and-health/for-individuals/protection_101/term-life-plan-vs-whole-life-plans.html
Higgins, B. (n.d.). What is term insurance? Retrieved April 3, 2016, from Investopedia:
http://www.investopedia.com/ask/answers/08/term-life-insurance.asp
Money Smart. (n.d.). Term Life vs Whole Life Insurance – What’s the Difference? Retrieved April 2, 2016, from
MoneySmart.sg: http://learn.moneysmart.sg/insurance/understanding-insurance-products/term-life-vs-whole-life-
insurance-whats-the-difference/
Monetary Authority Singapore. (2014, July 14). Term Insurance. Retrieved April 8, 2016, from MoneySense:
insurance/Types-of-Life-Insurance/Term-Insurance.aspx
Fontinelle, A. (n.d.). The Pros Of An Endowment Life Insurance Policy. Retrieved April 5, 2016, from Investopedia:
http://www.investopedia.com/articles/pf/12/endowment_life_insurance.asp
Monetary Authority Singapore. (2014, July 17). Endowment Insurance. Retrieved April 8, 2016, from MoneySense:
insurance/Types-of-Life-Insurance/Endowment-Insurance.aspx
Monetary Authority Singapore. (2015, November 26). Your Guide to Investment-Linked Insurance Plans. Retrieved April
7, 2016, from Guides and Articles:
http://www.moneysense.gov.sg/~/media/Moneysense/Guides%20and%20Articles/Guides/Investment-
linked%20Policies_English.pdf

Types of Insurance Policies Owned by Singaporeans

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