Motor Insurance

I was helping my client to get a private motor insurance. As a first time car owner, he was quite new to the world of private motor insurance, and in the process of helping him get his motor insurance I shared with him a few insights which I thought might be useful to people who wants to know more about motor insurance.

A) The Type of Coverage:

Generally speaking, motor insurance comes in three basic types:

1) Third-Party only
(covers Act Liability -which means death/bodily damage to third-parties and/or passengers - plus damage to third-party's property)

2) Third-Party, Fire and Theft
(Covers (1) and loss/damage to own vehicle due to fire or theft)

3) Comprehensive
(Covers (1) and (2) and damage to the insured's vehicle plus some other additional benefits like towing etc)


Strictly speaking, although the basic requirement in Singapore is the Third-Party only, clients usually get the comprehensive coverage because the coverage is the broadest and it is the only one that covers damage to the insured's own car.

B) Excess

It is a stipulated first part of any claim amount that the insurer will NOT pay. For instance if the excess is $500, then it means that the insurer will not pay for the initial $500 of the claim. If the excess is $1500, then the insurer will only pay if the claim is greater than $1500. The thing to note is the lower the excess, the higher the premium (i.e. for plans with $0 excess, the premiums are the highest)

Also, there is an excess for young drivers (i.e. drivers whose driving license/experience is less than 2 years old). My client received a quotation from another agent whom quoted him $1,100 based on a 3 years driving experience. When my client corrected it to 2 years, the quotation shot up to $1,800. Other than that, unnamed driver can also incur higher excess.

C) No Claim Discount (NDC)

The NDC is a financial incentive for the insured for not making any claims under the policy. So as a new driver my client is not entitled to the NCD in the 1st year. He will start accumulating the NCD after the 1st year (i.e. in the 2nd year) which he will get 10%. In the the 3rd year, the NCD will be 20% and in the 4th year 30% and so on till he hits 50% in the 6th year, which is the maximum.

So my client was asking how come the quotes he received are so high, and I explained that the reason is because he does not have any NCD. He will have to wait till the 3rd year onwards to get 20% off. But the thing is this, once he makes a claim the NDC will be reduced as well, unless he insured the NDC itself at an additional cost.

D) Driver Characteristics

These characteristics will affect the quotation:

1) Age and gender (young and older drivers will get higher permiums)
2) Driving experience (less than 2 years will have higher premiums or even be declined)
3) Occupation (certain occupations like reporters will be declined)
4) Claims experience (will be declined or charged a higher premium)

The most amazing thing I found out is when he showed me a quote from another agent. Apparently the agent gave him two different quotes based on his marital status! The quote for "married" is $1,300+ while the quote for "single" is $1,500. Perhaps 'singles' are more likely to get into a accident because they are more 'care-free' and therefore 'care-less'???




All in all, as I was helping my client source for quotations, he was also going to other agents to get quotes, so in the end he managed to get a variety of quotations to choose from. The important thing to note is that the premiums for motor insurance can vary vastly simply because there are so many possible permuations. For instance the permium can be lowered just by quoting a 'Third-Party' only coverage instead of the 'Comprehensive' coverage. The agents could also choose a higher excess so as to give a more competitive price. Lastly the policy might only allow the insured to go to the 'authorised' workshops for repairs rather than any workshop. So in esscence, price is NOT everything for motor insurance, you have to see what is the VALUE to the price.




Finally, be aware of dubious quotes. If it is too good to be true, then usually it IS too good to be true. If you are comparing between quotes always check that you are comparing between apples and apples. Lastly, resist any urge to manipulate the categories. Don't claim that you are married even when you are single just to get a lower premium. When in times of claim, any initial discrepany can render the policy void from inception.

Cord Blood Insurance

Before we touch on what cord blood insurance is, it is necessary to have some background understanding of what cord blood is.

What is Cord Blood?

According to the Singapore Cord Blood Bank, cord blood refers to

"the blood that circulates through the umbilical cord from the foetus to the placenta. A short time after delivery, the umbilical cord is clamped and cut, and the remaining cord and its associated placenta are usually thrown away. The umbilical cord that remains attached to the placenta, has blood cells within it which has been found to be rich in blood stem cells. These cord blood cells have the potential to save lives. Blood stem cells are the young or immature cells that can transform into other forms of essential blood cell types, such as red blood cells, white blood cells and platelets."

So there are two points to note:

1) cord blood is of great medical value as one can use it to treat a variety of diseases.
(refer to this list - http://www.stemcord.com/whybank_current.html)

2) Once there is another available alternative for treatment, it means that there is another area which requires medical insurance coverage.

What is Cord Blood Insurance?

This is how the cord blood insurance comes into picture. Cord blood insurance does not insure the cord blood per se, but it aims to provide medical coverage for a stem cell transplant using cord blood, should the child or immediate family require it. Currently, there is one insurer which provide this specialised insurance. (NB: NTUC INCOME used to have its own version of cordblood insurance known as Medicord, but it ceased in 2008.)

MANULIFE "Stemshield" (since 28/07/2008, for StemCord customers)

Is Cord Blood Insurance Necessary?

If you decide to bank your child's cord blood in the anticipation of any need, then this insurance would be appropriate because it will cover the medical costs of utilizing the cord blood for treatment. Moreover, the costs involved would be substantial as cord blood is used to treat serious illness such as cancers.

If you can afford the cost of storing the cord blood - which varies between S$1,280-S$1,400 for a one-time enrollment fee and subsequently charge an annual storage fee of S$250 - then the premiums for the cord blood insurance are comparatively affordable at S$50-S$180 per year. Therefore it would make sense to get this insurance to complement the package as a whole. Ultimately, what is the use of saving the blood if you cannot afford to use it?

The concept of Insurance

What is Insurance?

Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for a premium, and can be thought of as a guaranteed small loss to prevent a large, possibly devastating loss.

What are the alternatives to insurance?

The only alternative to insurance is self-insurance. Either you absorb your own risk, or you pay somebody else to absorb the risk for you. If you choose to shoulder the risk yourself, then you should at least try to manage it.

How to save on insurance?

Here are a few suggestions on how you can cheat on insurance
(DISCLAIMER: follow this at your own risk. By the way, there is no insurance for cheating on insurance.)

1) Eat right, exercise regularly and maintain your health so you might not need health insurance.

2) Keep your eyes peel when crossing the road. Avoid accidents (as much as you can) to cut down on personal accident/total permanent disability insurance.

3) Don't die. (Or at least choose to die at a time when you have no dependents. If not, just heck the responsibility.)

4) Have LOTS of savings. At least if the worst-case scenario STILL happens, you can bail yourself out.

5) Talk to me. Maybe I can source out a few good deals for you.

The "Sandwich Generation"

In the course of my work I've met with people from various walks of life, and what draws my attention is this particular phenomenon of the "Sandwich Generation".

What is the "Sandwich Generation"?

It is "a generation of people who are caring for their aging parents while supporting their own children"(merriam-webster dictionary). What are the possible reasons behind this? Firstly, the longevity of people are increasing, which means that children will have to take care of their elderly parents well into their 80s or even 90s. Secondly, these children cannot wait too long to have their own kids - they need to start their own family say in their late 20s or early 30s. And there you have it, the perfect recipe for the "sandwich". Imagine the squeeze on the stuffing. Woah.


Why is financial planning important for the sandwich generation?

These people are in a financially precarious situation because the demand on financial resources on them are three-fold as they have to look after:

1) Themselves

2) Their children

3) Their aging parents

In fact, to put it simply, it'll just be two people taking care of - 8 people!
(Father, mother, father-in-law, mother-in-law, you, your spouse, your son, your daughter)

What are the pitfalls to look out for?

The pitfalls to look out for are:

1) Parental planning: if you find that you aren't spending much on your parents' maintenance now doesn't mean that you won't have to splurge on them in the future. The sobering fact is that the medical costs usually set in when they are getting older, and once it starts it can be VERY HEFTY. So to lighten your burden in the future, do ensure that all the necessary medical plans are in place. Eventually, can you afford to hire a helper to look after you parents when necessary, or are you going to DIY?


2) Children planning: you will find that spending a lot on your children is inevitable. But the point is this - if you do spend a lot, make sure that you are spending on the worthwhile things. One of the best thing you can buy for your child is his education fund. Unless you want to instill an entrepreneurial streak in Junior by having him/her work his/her way through University by flipping patties.

3) Self planning: Plan ahead for yourself so that you won't have to pass on the responsibility to the next generation. You'll rather them inherit money than debts right? Even if you don't want to leave them an inheritance - just don't deplete their savings. This can be a vicious cycle, so if you have the option to stop it, please do - and spare your child.

Is there ever a way to avoid this?

There are 4 possible ways I can think of:

1) Don't have a next generation.

2) Due to the filial piety clause this is being censored.

3) Share the responsibility of caring for the elderly parents among your siblings
(not applicable if you are an only child or prodigal son/daughter)

4) Chart your family course well so that you have kids when your parents are still young. Then you can focus more on you kids. When your kids are slightly grown up, then it'll be your parents turn to clamor for your attention.

What is "Retrenchment Insurance"?

This is the idea - you don't have to work to get money, you get money when you have no work. Ideal idea? Sure, that's why it doesn't exist in reality.
So what is "Retrenchment Insurance"?

What exist currently is a misnomer - it don't promise a payout to the retrenched per se - but it does promise to give them the flexibility to restructure their insurance policies in the event of retrenchment. They can either choose to maintain their policies or to surrender it and get a premium refund. This is known as the "unemployment benefit programme" or "premiums waiver benefit".


Who is it best suited for?

It is best suited for individuals who are retrenched and have not done ample planning on their finances. These people are the ones who do not have enough "emergency cash" to cover their essential expense during the period of unemployment and will face the pressure to let their insurance policies lapsed due to the non-payment of premiums.

What are the pitfalls to look out for?

There are generally 5 points to look out for:

1) whether the premiums are being waivered or deferred. The former means that the policy holders need not pay back the premiums that were waivered as part of the benefit, the the latter means that they still have to pay back the premiums sans the interest.

2) whether there is any waiting period - some insurers only allow policy holders to file a claim after they have been involuntarily unemployed for 3 months.

3) whether this benefit is only valid for policies incepted during a certain period as well as how many times you can utilised this benefit.

4) whether there is an option for a total refund or do you have to keep the policy.

5) the narrow definition of "retrenched". It can be as specific as referring to those "employees who have been made unemployed for reason of redundancy or retrenchment by the employer and excludes employment terminated by reason of voluntary redundancy or disciplinary action". In other words, if you resigned or get fired - the benefit will not be applicable.

What differentiates policies offered by various vendors?

The main difference is that for some insurers, such a benefit has been an integral part of the policy while for others it is a 'new' additional feature that was concocted to serve the current needs of the market. It means that for the latter, this feature might only be applicable for a limited period of time, like within the first policy year. If you should get retrenched after that, you might not be able to utilize the benefit.

Another difference is the duration of the premiums waiver and deferment - the former allow for a maximum of 6 months while the latter can extend up to 1 year.

How applicable is the "Retrenchment Insurance"?

Essentially the important thing to note is this: life insurance is meant to be a long-term commitment, while retrenchment is a short-term event. So with proper planning such an issue of not having enough money to fund the premiums can be avoided in the first place.

Welcome to Financial Literati!

First and foremost I welcome all to the inauguration address of Financial Literati. This blog is dedicated to those who yearn for financial literacy and to learn about the argot, jargons, lingo and mumbo jumbo of the financial universe. There are many ways to achieve financial knowledge, and in this era of financial turmoil it can be deadly not to know about what is going on. What is the about the financial meltdown? How did the world suddenly became broke (did the Martians rob our banks and zap away the money)? And why, after working fine all these while - did employees become redundant? Mostly importantly, why are some people still broke even when they've been working for ages and weren't cleaned out by robbers? For answers and more, stay stuck to the screen.