MAS announced a slew of reliefs and support for individuals on 31 Mar 2020. You can read the full information here. This is unprecedented, and the purpose of setting this is that in the event where policyholders are affected by the current COVID-19 situation, at least we will still have our coverage. Initially it sounds like a good idea, and the principle behind it is admirable. However, as we dive deeper into it, we know that this is for those who are hanging on the cliff at this time, instead of those who can still afford it, and thinking of deferring premium payment to increase their cash flow for now.
To summarise, for most insurers, you’ll be eligible if you meet the following criteria:
- Loss of job
- Self-employed in affected industries (e.g. aviation and tourism)
- Sustained income drop (e.g. small business owners, private hire drivers)
- Families whose livelihoods were affected by Covid-19
Sounds good so far. But what is the caveat? After the deferment period of 6 months, you will have to repay the total outstanding premium in one lump sum, which could further take a toll on your finances if you’re not mindful about saving enough during these 6 months to pay for it.
On top of that, different insurers have their own set of terms and conditions to fulfill; during and after the deferment period. You might wish to check with your insurers for more detailed information.
What are the alternatives out there?
To explore the alternatives, we will need to know which categories of plans do you have. If you’re confused about the differences between the 4 types of insurance, you can watch a short video of me explaining them here:
- Plans without cash value
This refers to health, accident and term insurance. If you defer this type of plans and after that you’re unable to pay back the full outstanding premium, your policy will lapse.
- Participating plans with cash value
This refers to life insurance or endowment with coverage component. If you have a plan that is long enough to accumulate cash value, even if you’re unable to pay back the outstanding premium after the deferment period, it will go into Automatic Premium Loan (APL), whereby it deducts the premium from your cash value. There will be interests charged to the amount deducted, but at least your plan will not lapse.
This refers to investment-linked plans (ILP) with coverage component. If you have an ILP for some time now, you can choose to defer your premium, and after the deferment period if you’re unable to pay back, the policy will deduct from your investment account value. In fact, I’d suggest to go on Premium Holiday straightaway if your cash flow is really tight. However in this case, you may be missing out on the investing opportunity that this current volatile environment provides.
In addition to the above, if you have plans with cash value that have been around for some time, you may wish to explore other features such as:
- Converting to a Paid-Up policy,
- Reduce sum assured,
- Take out a policy loan (that’s way better than taking a personal loan) at prevailing rate of 5% – 6.5% depending on insurer., to tide yourself through this difficult period of time,
- Partial withdrawal of ILP (may incur additional charge) in lump sum.
For your convenience, I’ve put the terms & conditions of the major insurers here:
- Great Eastern LIfe
- HSBC Life
- NTUC Income (In addition to premium deferment, Income have a few other support schemes available)
- Raffles Health Insurance (There is no public notice, but you can approach me or your advisor to find out more)
- Tokio Marine Life
In this difficult time where the “Circuit Breaker” is in place, and more uncertainties lying around, having a support is better than having nothing at all. However, we wouldn’t want it to come at the expense of our insurability, which could be affected when our policy lapsed if we make the wrong judgement. Judging by how things go, this economic crisis is different from the one in 2008 where the recovery was fast. We will most likely experience a slow recovery in time to come. What could be worse if our income is impacted, and we are strike with an illness or disability, it will be a double-whammy.
I hope with this article, you will be able to understand more about the options available to you, to make the right choice for yourself.
Disclaimer: Information written is to my best knowledge as per the date posted and has no legal rights. It represents my personal opinion, which may be different from yours, and that’s totally cool. It is important to read the policy contract and documents for the full terms and conditions. This post does not constitute a recommendation. Please seek professional advice before committing to a plan as it is a long term commitment.