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Your insurance protection gap – How different insurance policies bridge the gaps in your insurance needs

2022 dot 10 min read
(Photo by Rui Xu on Unsplash)
In Singapore, the mortality and critical illness protection gap stands at a combined total of $893 billion.
 
While this startlingly large number may not mean much to individuals, what it really tells us is that people in Singapore are underinsured. Termed as your insurance protection gap, this refers to the shortfall in insurance coverage required for you and your dependents to continue a similar standard of living you enjoy today

How do you solve this problem?

First, you have to understand the areas in your life that most requires insurance protection. Typically, this would be against death (or mortality), ill-health and critical illnesses as well as disability.
 
You then have to calculate your insurance protection gap – which is the insurance cover you already have versus what you actually need, after taking into consideration your assets such as savings and investments.
 
To do this, you can use online calculators from the Life Insurance Association Singapore and CPF. Do note that these are predominantly for life insurance (which provides information relating to your mortality gap).
 
For other insurance gaps, you can either use Xplore with Ally, AIA Singapore's multi-needs financial calculator, find relevant online calculators or try to crunch a reasonable number for yourself. These figures should include the amount you would realistically need in the event you are no longer able to earn an income from working, either for a period of time or from that moment onwards.

Using the right insurance to plug your protection gaps

Health insurance

For most people, you need to consider health insurance for both you and your dependents. This is because a serious illness can leave you hospitalised and/or requiring costly treatments, which may in turn wipe out a substantial portion of your savings.
 
You already have basic healthcare coverage in the form of MediShield Life, a government-administered universal health insurance plan for Singaporeans and Singapore Permanent Residents (PRs).
 
However, MediShield Life coverage is pegged to expected treatment costs in Class B2 or C wards in public hospitals. This means if you prefer to opt for private healthcare treatments, your coverage will only pay for a fraction of your bill. This is where a private integrated shield plan (IP) can plug the gap. AIA HealthShield Gold Max is one such IP that gives you the flexibility to receive private healthcare without a bill scare.

Life insurance

A life insurance policy protects your loved ones when you are gone. The payout will go towards paying off your debt left behind as well as enabling your dependents to continue a similar standard of living.
 
AIA Guaranteed Protect Plus (IV) covers your bases with an all-in-one life protection plan aimed towards keeping up with your changing protection needs. At the end of the day, having sufficient coverage lets you sleep better at night – knowing that your family's future is secured regardless of what happens to you. This plan also accumulates stable cash value over time.

Critical Illness

Critical illness policies should not be confused with health insurance policies. A critical illness plan pays out a lump sum when you are diagnosed with a covered illness, regardless of whether you are hospitalised or require costly treatment.
 
This should be put towards replacing your income and sustaining the family's living standard for approximately five years. The set figure of five years isn't random either, this is usually how long it takes to recover or succumb to a critical illness. After which, you would either continue working or your family will receive your life insurance payout.
 
You can either opt for standalone policies such as AIA Absolute Critical Cover (ASCC) or purchase additional critical illness coverage via riders on other insurance policies such as the above-mentioned AIA Guaranteed Protect Plus (IV). Doing either is fine. You need to decide which is best for you to achieve critical illness coverage.

Disability

 Given the recent publicity on CareShield Life, many might mistake it as the policy that will take care of your disability insurance needs, when it isn't the case.
 
In short, CareShield Life provides long-term care support for Singaporeans and PRs in cases where they are severely disabled. This should not be confused with a disability insurance from private insurers, which is meant to complement CareShield Life, rather than be treated as a similar or additional insurance policy.
 
If you find yourself with a disability that prevents you from working, you will require a source of income to continue sustaining yourself and your family at a similar standard of living. This income will come in the form of payouts from your disability income insurance, such as AIA Premier Disability Cover.
 
Such policies cover you even in cases where you can continue working with your disability by providing top-ups if your earning power is reduced. You also stand to receive lump sum payouts in instances of severe disability rendering you unable to work, which may also be supplemented by payouts from CareShield Life, as well as rehabilitation benefits and premium waiver with continued protection.

Get covered today!

As you can see, there are diverse insurance policies you can use to plug your insurance protection gaps. They are meant to complement one another to cover different components of your total insurance protection gap. It's not really a matter of choosing which insurance policies you want, but finding a holistic solution that caters to your specific needs.

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