Insurance for Kids (english Version)
Published May 2021
This issue of "Financial Management Tips" asks three financial planning experts to help us figure it out all at once.
When a baby is born, the parents are full of joy, and more responsibilities are on their shoulders. Regardless of whether the child is sick or injured, parents must take care of them. In addition to coping with various expenses, they may lose their source of income. Therefore, children, like adults, need insurance to provide protection. However, children are different from adults. They don't make money, and all expenses including insurance premiums are paid by adults. Therefore, the insurance purchased for the child actually protects the family’s finances. Which insurance is important? Which ones may not be so important?
Children need to consider the same protection as adults, covering hospitalization, illness and accidents. This column asks three financial planning experts. If there is a budget constraint, which insurance is the most important, they all agree that it is best to handle hospitalization insurance as soon as possible.
Zheng Yongping, Director of Financial Advisory at Financial Alliance, said: "Hospital protection is the top priority, because hospitalization may be possible regardless of illness or accident."
Ye Kunrui (Shawn), Financial Advisory Director at SingCapital, a financial planning company, said: “When my daughter was born, I didn’t have time to buy it. She had a high fever in the second month and was hospitalized. According to official data, the probability of hospitalisation between the ages of zero and four is particularly high."
Ding Huijun, director of MoneyOwl's financial planning department, said that the financial risk of hospitalization expenses is the greatest, because illness or other unexpected conditions may occur at any time. Moreover, parents generally do their best to ensure that their children receive the best medical care, which may have a negative impact on future finances. These risks can be avoided through appropriate hospitalization insurance.
Experts emphasize that all newborns are automatically covered by MediShield Life as long as they are citizens, and insurance premiums can also be paid with the government's $4,000 MediShield Life subsidy for newborns. Moreover, MediShield Life automatically covers all congenital diseases at birth, which can give parents a peace of mind. The question is whether or not to purchase an additional private provider’s Integrated Shield Plan (IP), which covers up to 90% of the cost of the B2 & above wards in government and private hospitals?
IP premiums have risen significantly in recent years, and recently it has caused controversy between medical and insurance companies. However, interviewed experts pointed out that children’s IP premiums have actually not increased much.
Zheng Yongping pointed out that the significant increase in IP premiums in recent years is for people over the age of 30. For those aged between 0 and 30 who purchase IP, overall premiums are still affordable. CPF MediSave can be used to pay for the main portion of the insurance policies. Only the riders require cash.
Ding Huijun said that most insurance companies price the IP premiums for people between the ages of zero and 20 at a constant, and only increase year by year from the age of 20. The biggest jump is when they enter the age of 30. For those under the age of 20, the annual premium of the plan covering private hospitals is less than $200, and the annual premium for those covering higher-level wards of government hospitals is less than $100, and can use up to $300 of CPF MediSave to pay. If you have a tight budget, she recommends buying from insurers that give family discounts or protect your children for free for a period of time, that is, both parents and children buy from the same company to get some discounts.
Ye Kunrui (Shawn) reminded that medical insurance has the most demanding health requirement in all policy application procedures. Even minor health or medical history may lead to exclusion, so it should be purchased as soon as possible when the child is still young and in the best health condition.
A child with a low probability of being seriously ill is the best time to insure
Both Zheng Yongping and Ding Huijun believe that after hospitalization protection, parents should consider insuring their children with critical illness insurance. They pointed out that the biggest use of critical illness insurance is in case parents have to stop working and take care of their children. The payout from the insurance policy can help to replace the parents’ income loss.
Ding Huijun said: "When parents are forced to decide between their children and work, they often feel guilty because they are not able to achieve both, causing a psychological burden. If there is a fund that allows them to take care of their children for three to five years, it will be a very big help."
Zheng Yongping said: "The probability of a child getting a serious illness is definitely lower than that of an adult, but this is also the best time to apply for insurance. The premium is the lowest and the insurance company is most likely to accept it."
The Singapore Life Insurance Association has formulated the diseases and definitions covered for critical illness insurance. In addition to covering 37 diseases for adults, children’s policies can also insure up to 25 common childhood diseases, including bacterial meningitis, Kawasaki Disease, leukaemia, severe asthma and epilepsy, etc.
Ding Huijun pointed out that additional children's critical illness protection is generally added to the main insurance policy in the form of riders. If the child reaches adulthood and does not make a claim, some insurance companies will give a premium rebate of up to 80%. If parents want more peace of mind, they can consider buying it.
Children often have small accidents, personal accident insurance must be considered
Ye Kunrui (Shawn) ranked the priority of critical illness insurance after personal accident insurance. However, he emphasized that the premiums for critical illness insurance for children are not as high as what adults think. For a one-year-old child's term insurance coverage of $500,000, the monthly premium is between $50 and $70. Children's critical illness will have a greater impact on single parents.
Ye Kunrui (Shawn) ranked personal accident insurance in second place. He said that young children often have a variety of small accidents, such as spraining hands and feet during sports or physical education classes, falling at home or outside, and so on. If you are not hospitalized, you will not be covered by MediShield Life. If you have accident insurance, you can claim for outpatient treatment. He pointed out that some companies also cover infectious diseases such as dengue fever, food poisoning and hand-foot-mouth disease.
(Note: This interview was done through email. Shawn’s train of thought is based on the probability of claim, not the severity of claim. He always uses a portfolio approach to ensure a comprehensive coverage.)
Ding Huijun also said that the child's infection with hand-foot-mouth disease, dengue fever, and various accidents causing skin and flesh injuries are all matters of concern to parents, and the probability of occurrence is also quite high. However, she pointed out that the cost of treating these conditions is affordable for most families and should not cause a significant financial impact. From this point of view, the importance of personal accident insurance is the last.
Is it necessary for children to buy life insurance?
Many people buy critical illness insurance in the form of additional insurance and buy it along with life insurance. After the child is born, when the parents sit down with the insurance consultant to discuss what protection should be given to the child, they will often discuss whether to buy life insurance for them.
The purpose of insurance is to protect the financial situation of the entire family and ensure that in the event of an incident, the impact can be minimized. Life insurance pays compensation when the insured person dies or becomes disabled. The primary purpose of life insurance should be to make up for the family's financial resources. Therefore, the first thing that must be adequately protected is the adult who earns money to support the family. Since children do not make money, from this point of view, Ding Huijun said that life insurance cannot play its due role.
Zheng Yongping pointed out that if the child is uninsured, the parents can still find a way to borrow money to cope with it. Conversely, underage children cannot do without parents. He said: "For children, pure life insurance without critical illness insurance is less necessary."
Ye Kunrui (Shawn) used the analogy of encountering an emergency when taking an airplane. "If the cabin loses pressure, you must wear an oxygen mask. Should the parents wear it first to ensure safety and take care of the child, or to help the child wear it first? Of course, take care of yourself first."
But on the other hand, both Ye Kunrui (Shawn) and Ding Huijun pointed out that some parents often consider purchasing life insurance for their children when they are young and healthy, so as to ensure that they will continue to be insured in the future.
Ye Kunrui (Shawn) said that he has encountered some young people facing difficulties in getting insurance because of their medical history. At present, the term life insurance plans of some insurers can allow children to switch to another insurance policy without needing to prove their health in the future. Parents who insure now can provide a certain degree of protection for the child's future insurance. "It might be a bit kiasu, but it's worth it."
Ding Huijun said that some whole life insurances on the market can be designed to pay the premiums in 20-25 years, and some parents will insure their children, and in the future will give the children the lifetime protection that has been paid off as a gift. However, she still recommends that parents should first insure themselves for the wellbeing of their children in case of an incident, and at the same time plan for their own retirement needs.
By taking care of ourselves, our children will have the ability to choose between love and responsibility to bear the needs of our old age. This is also a gift for children.
The original article in the Chinese Language first appeared in the Newspaper Lianhe Zaobao on 9th May 2021. https://www.zaobao.com.sg/finance/singapore/story20210509-1145380