Do you need a million dollar of coverage?

There was a period of time when a million dollar was a unreachable figure. I’m not saying that it is an amount that is easy to accumulate today but it is more realistic. Afterall, an average HDB flat can cost close to half a million and some flats were sold above the $1mil mark in some area.

So, do you need a million dollar cover and how much do one really need as a coverage amount? Here are some methods you can use to estimate your coverage required.

1) Multipliers of  Income Approach

download (1)This is a very traditional method of calculation is taking your annual income multiply it by 5 or 10.  That is to assume if premature death occurred now, your love ones will have 5 to 10 years of your income replacement to let them adjust to the lifestyle prior to the death. This method is the easiest but it has it flaws because in practical sense, the dependents may never have the same earning power as the sole breadwinner. For e.g. I have a client who is in management and earns nearly $20,000 per month. His wife have not been working since the birth of the first child more than 10 years ago. Will it be easy or possible for the housewife to get back to employment and earn $20,000 in the next 5-10 years? It can be tricky to decide how long the family will adjust to the lifestyle without the sole breadwinner’s income.

 

2) Need-based Approach

CaptureAn more commonsensical method is the need-based approach. It can be very comprehensive but because of the comprehensiveness, it can be a complicated process. This method takes into account the financial obligation an individual have for each dependent and the assumed inflation rate till that dependent becomes financially dependent. The individual’s assets will be categorised into cash, near-cash assets such as shares and unit trust which can be converted to cash within days assuming market valuations are not an issue. However, assets such as properties will take months to be convert into cash. The properties can be further categorised into stay-in or investment property. For e.g. if an individual own only a property which the family is staying currently, it is unlikely the dependents will sell it else they will lose the roof over their heads. But if the dependent have another property, the dependent can consider selling it to have more cash on hand if needed.

As mentioned, this method is very commonsensical and we can see it using this simple case study.

An individual has a wife, a son age 5 and a daughter age 4. The wife is financially independent on him and he provides $500/mth to each child. He wants to provide the children till they are age 21. We can use the following to calculate the amount of coverage he need.

(Age of child’s financial independence  – current age of child) x $500 x 12

For the son, it will be 

(21 – 5) x $500 x 12 =$96,000

For the daughter, it will be

(21 – 4) x $500 x 12 = $102,000

The total amount of coverage required for him will be $198,000. 

Do note in an actual planning, a financial advisor will take into consider that inflation rate to ensure the $500/mth is in line with the cost of living.

3) Income Protection Approach

 c95b3987f397973cd66558ff419555dc--make-money-today-make-more-money (1)One of the easiest is to look at the potential income a person can earn till his retirement. The retirement age can be 50,55,60,65 or even beyond that. This method is similar to how workman compensation or a court decide on a disability or death compensation.  The disadvantage is it is difficult to assume the increment rate. The amount can be derived using the following

(Retirement age – Current Age) x Current Income

However, in a real life, a person’s income will increase over the years because of his experience or promotion and we have to take into account the salary increment over the years. The amount after taking into account the increment can be compute using a financial calculator

PMT= Annual income

Ir= Assumed increment annually 

np = No. of  working years (i.e. Retirement age –  Current age)

Click “FV”. The figure shown on FV is the potential income one stands to earn.

Assuming the retirement age is 55, a person with the below income at different age will generate $1,000,000 of income assuming there is a 3% increment annually.

income

What the chart above means is if a person is age 25 years and earns a minimum of $21,020 annually, he should protect his loss of income of $1,000,000 that is potentially in the bank if nothing goes wrong.

Please note the 3 methods of calculation are meant to be informative only. For a proper assessment, please speak to a financial adviser.

 

 

 

 

 

Love, Hate feeling in cheque.

Many people reject a career as a financial adviser because they think it is a difficult sales job. Unlike someone who is selling a dress which a consumer can immediately see how good she looks in it or someone selling a weight reduction pills which a consumer can see the effect in week or months, financial products can be very intangible.

The effect of a financial adviser’s proposal will be felt by the client only in years to come when the client manage to retire comfortably. In some cases, a financial adviser’s proposal may be tested much earlier than he wished…. that’s when a claim arises.

20170804_172735_mh1501838966531(One of the cheques made out to a client.)

As usual, mixed feeling when we deliver cheques to clients. On one hand, I know what I have been doing really help the client. To know the client can have a peace of mind and not to worry about their medical cost as well as loss of income due to sickness is fulfilling. On the other hand, we are sad that clients have suffered.

To all the financial advisers out there, keep up the noble work despite the rejections that you may had faced.

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How long does it take to process a critical illness claim?

How long does it take to receive a cheque from an insurance payout for critical illness? To the skeptics, do insurance companies actually pay out or will they screen through the contract wordings and make it hard to claim?

Those who have been following this blog will know that I had made a critical illness claim for Major Cancer on 31st May 2017. The definition for Major Cancer is as follow:-

A malignant tumour characterised by the uncontrolled growth and spread of malignant cells with invasion and destruction of normal tissue. This diagnosis must be supported by histological evidence of malignancy and confirmed by an oncologist or pathologist. The following are excluded:
• Tumours showing the malignant changes of carcinoma-in-situ and tumours which are histologically described as pre-malignant or
non-invasive, including, but not limited to: Carcinoma-in-Situ of the Breasts, Cervical Dysplasia CIN-1, CIN-2 and CIN-3;
• Hyperkeratoses, basal cell and squamous skin cancers, and melanomas of less than 1.5mm Breslow thickness, or less than Clark
Level 3, unless there is evidence of metastases;
• Prostate cancers histologically described as TNM Classification T1a or T1b or Prostate cancers of another equivalent or lesser
classification, T1N0M0 Papillary micro-carcinoma of the Thyroid less than 1 cm in diameter, Papillary micro-carcinoma of the
Bladder, and Chronic Lymphocytic Leukaemia less than RAI Stage 3; and
• All tumours in the presence of HIV infection.

A Major Cancer claim needs to be supported by the pathology or histology report. It states a few things such as the size, type of the cancerous cells and the diagnosis. The pathology report was received on the 20th Jun 2017 and submitted to the insurer on the 21st Jun 2017.

The payout was made on 20th Jul 2017. 20170731_171416

In most cancer claims that were rejected were due mainly to the first and third points of the exclusion list stated above which in layman terms means stage 1 or 2 cancer.  That is also the reason some financial advisers encourage taking up Early Stage Critical Illness policy instead or in additional to the usual Advance Stage Critical Illness policy.

Cashless Service with Sompo PA Star

Sompo PA Star Policyholders will be able to visit any clinics in the medical panel and enjoy cashless outpatient treatments subject to the medical expenses limit specified in the policy with effect from 3rd July 2017.

All you need to do is to download the free APP using the QR Codes below, register and simply flash the ecard in the APP when you visit the clinic for consultation.

  For iPhone users

ip

 For Android users

ap

 

Professional Profile

Professional Profiles of some of the advisors in my team & myself.

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Click here for enlarged photos of the profiles

 

Selemat Hari Raya

Wishing all my Muslim friends, clients and business partners 

Selamat Hari Raya Aidilfitri

hari raya

Peace Be Upon You.

The importance of staying as an independent financial advisor.

I submitted an application to an insurance company and this client have a chronic medical condition. The insurer asked my client to go for a medical check up & despite all the test, the application was rejected.
 
I told my client,” Let’s try another insurer. This plan is slightly lower in benefits compared to the initial given the same amount of premiums paid but I told my client that lower payout is better than NO payout & not necessarily will accept the case. We put in the application and see what’s the response than you decide to go ahead or not.”
 
And so the application with the same medical declaration was submitted.
 
Insurer didn’t asked for test of any kind and sent my client a letter ” Application approved”. No extra loading, No exclusion…etc

This is one of the many situation as an independent financial advisors can do more for our clients where we can fight for a better deal because we can work with different partners.

If I was tied to that particular company that decided to reject my client’s application then there will be nothing else I can do.

My client tried to offer cash to me…

I went to a client’s place to collect a claim form for Critical Illness. He is a client I took over from in 2006 from a colleague who had left the industry. Since then, I had provided financial advisory service to his wife who had bought some products from a bank during the financial crisis and his children’s hospital claims.

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He handed over an envelope to me when I reach his place. I took the envelope because I thought it was his claims documents. Then he said,” Kim Heng, before I forget, this is for you.” I felt the envelope & know it is a little stack of notes. He said the money is a token to thank me for my service & help offered to him over the years. I rejected his gifts and told him I am just doing my job but he insisted that I take it.

After numerous failed attempts to reject his kind gesture, I guess the only way is to accept it. I think rejecting it is also not giving him “face”. So I decided to take his cash offer and then donate the money to Singapore Cancer Society to return his kind gesture back to those who might need it.

Screenshot_20170530-161554

 

There are many rejections and down time in our business. It is these appreciation from our clients that keep us going and knowing what we have been doing is right.

Protecting your company against Cyber Security breaches with Cyber Insurance to minimise the financial damage.

PwC did a study for UK Department for Business, Innovation and Skills and according to PwC, the small businesses, the worst breaches cost between £65,000 and £115,000 on average; for large firms, the damage is between £600,000 and £1.15m. While that study was done in UK, the financial damage is estimated to be around that locally.

The financial damages on the company arises from the business loss during the downtime in a Denial-of-service attack, legal suits because of data leak or a more serious ones such as competition information are stolen in a Direct-access attack.

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An MNC will most probably have the financial resources to beef up their IT teams and security system but a SME may not have the luxury of funds. The cyber criminals took advantage of  this and viewed SMEs as a softer target and a route to bigger business partners. According to Stephen Ridley, companies can follow several simple steps to reduce cyber-risks. He suggests using secure passwords such as three random words, installing antivirus and malware software on all company devices, instigating regular software updates that contain vital security upgrades and educating staff on cyber-risks.

Just like preventing ourselves from a virus attack, we can have all the vaccination jabs and precaution taken but still hit by the virus. You may want to consider having a Cyber Liability & Data Protection Insurance to mitigate the financial loss in an event of cyber security breach. There are a few such plans in the market and they typically covers

  • Third-party claims
  • Remediation costs
  • Cyber extortion costs
  • Business interruption

To share a claim experience, a company with a turnover of SGD 2M and 8 staff had their server and client’s record locked by a Ransomware software. The company had to pay SGD50,000 to the hackers in order to get their files back.

SGD150,000 was paid to the company for the loss of income, the ransom demand including consultant cost and cost to restore the network as the hackers refused to release the files after receiving the ransom payment. The premium paid by the company was about SGD 3,000 a year.

You  can make enquiries with Mohd. Faizal to attend a workshop on Cyber Security and Risk Management to know more about your company’s exposure to cyber security risk.

Do note this cyber insurance is mainly for SMEs and if you are having a business that is bigger in size, another package of cyber insurance may be more suitable. If you need more information on how cyber insurance can reduce the financial damage to your company, please submit the form below.

By submitting this form, you agree to be contacted in relation to this enquiry.

 

 

Pre-existing conditions in Travel Insurance

Ms Cheong wrote that her dad’s travel insurers MSIG informed her family that they were “unlikely to have a successful claim as his collapse was attributable to a pre-existing heart condition”.  Click for full story on Singapore man in coma returning from Tokyo after daughter raises $250k online.

Do note that it is a general exclusion in a travel insurance policy to exclude incidents arising directly or indirectly from pre-existing medical conditions. However, NTUC Income offer a travel insurance that cover for pre-existing medical condition. A comparison of the 3 plans offered is as followed.

preex

 

Please read the brochure  for plan details or drop me a message.

By submitting this form, you agree to be contacted in relation to this enquiry.