Understanding Insurance Policies: Beat the fine print in insurance

Heard stories about people spending a fortune paying insurance premiums and having their claims rejected? Many could have been prevented by understanding the key terms in an insurance policy.

Help’s here as we put into plain words some of these common insurance terms.

Whether it’s Life Insurance, Critical Illness Insurance or similar, besides choosing the plan that suits your insurance needs, another factor to consider in choosing the right insurance policy is finding one with terms and conditions that work for your situation.

Misunderstanding of insurance terms and jargon is one of the most common reasons for a claim not being accepted, or for picking an insurance policy that, ultimately, is not right for your needs. While you may have tried flipping open that insurance policy booklet and started reading it line by line, it’s likely you soon met with some terms you’ve never heard of before.

With this guide, we aim to help you cut through the jargon, ensure you understand the details of your policy, and can pick the right one for you. And if you need help with making this decision, our financial consultant is here to help!

Put simply, it is the concealment of a fact. You know how it is important that we declare any health conditions we might have before getting insurance plan?

Take for instance, Eileen, a 35-year old lady, has been diagnosed with ovarian cysts. The doctor had told her that it is a common condition among women of her age and that there is nothing to worry about. Since it isn’t anything major, she did not declare the condition to her insurer when buying her health insurance.

Now, that’s material misrepresentation, and she’d probably have problems with her claims if the ovarian cysts develop into a more serious condition that requires surgery. The insurance policy will be void if the insurer finds out that the policyholder has withheld certain facts.

The term will most likely appear in a life insurance policy, where a payout is common if the assured meets with an unfortunate incident that causes him or her to be permanently disabled.

Take note that the keyword here is total, which means more than just impairment. This usually means the assured is unable to perform any work to earn a living and that the condition persists for more than 6 months.

Different insurers may define TPD differently, so do check through the insurance policy and ask your adviser to explain exactly what it means.

The Life Insurance Association of Singapore has published a list of standard definitions for 37 critical illnesses, including detailed description of each critical illness. What may complicate matters is that it is common for insurers to also offer “early-stage” critical illness policies. This means they provide different coverage from traditional critical illness policies that usually only include severe-stage illness.

Early Critical Illness insurance policies seek to bridge the gap where one has only been diagnosed at an early stage of the illness. They can sometimes allow for multiple claims following relapses or/and a lump sum payment for early diagnosis.

Again, definitions differ between the various insurance providers, so it is important to understand at which stage claims can be made.

Participating policies are insurance policies that participate or share in the profits of the company’s participating fund. Typically, part of the premiums you pay are pooled together with those of others and are used in a fund to generate investment returns. The aim of a participating policy is to provide stable returns over the long-term. The participating policy provides both guaranteed and non-guaranteed components such as bonuses or cash dividends.

By having both components, the policyholder will be able to secure guaranteed benefits with the potential of increasing returns on the non-guaranteed components. 

Bonuses are non-guaranteed benefits and some examples of bonuses are reversionary bonuses and terminal bonuses. Reversionary bonus is a bonus declared regularly (e.g. annually) and once declared, the bonus will be guaranteed and formed part of the guaranteed benefits of the policy. On the other hand, terminal bonus is only paid out upon the maturity of the policy or on a death claim. While bonuses are non-guaranteed, they are confirmed if they have been declared by the insurer.

The amount of bonus declared annually depends upon the performance of the insurer’s participating fund, which in turn is a result of returns earned on the investments.

ILP is a type of life insurance that uses a component of your premiums to purchase units in an investment-linked fund. The advantage of getting an ILP is that it allows one to combine life protection with the potential of accumulating wealth with professionally-managed funds.

For instance, Manulife’s InvestReady Wealth (II) allows you to invest 100% of your premiums into the funds from day 1 with zero sales charge, as well as enjoy free fund switching. This means you can respond to market trends and select the funds that reflect current investment sentiments.

There are those who may be more risk-averse when it comes to investments and would rather use savings as a way to accumulate wealth. This group of individuals can benefit from an endowment policy, which is essentially a long-term savings plan with life protection included. 

Before you make a hospitalisation claim, a minimum amount called the deductible will have to be paid before the insurer will approve your claims.

Take for example, if your hospitalisation bills came up to $5,000 and you are required to pay a deductible of 10%. This means you will have to fork out $500 before you can claim the remaining $4,500 from your insurer.

If you want your deductibles to be covered as well, you may want to explore add-on rider policies that may help you cover all expenses.

When you take up health insurance, most policies cover the total or part of the medical fees you’d need to pay for your hospital stays or treatments. But some policies provide an additional income benefit, which is essentially a cash amount paid on a daily or weekly basis to make up for the income lost while the policyholder is unable to work.

An annuity is a type of life insurance policy which is used mainly to finance a regular stream of income during one’s retirement. This regular income payment helps to provide financial stability during a time where you may no longer be working and to prevent outliving your savings.

Some annuity/retirement plans like RetireReady Plus (III) allow for flexibility to adjust the income payout period according to one’s changing needs. This means the policyholder can choose to either use the funds for emergencies or retirement or accumulate them for higher returns.

Disclaimer:

These insurance products are underwritten by Manulife (Singapore) Pte. Ltd. (Reg. No. 198002116D). This advertisement has not been reviewed by the Monetary Authority of Singapore. Buying a life insurance policy is a long-term commitment. There may be high costs involved if you terminate the policy early, and your policy's surrender value (if any) may be zero or less than the total premiums paid. Buying health insurance products that are unsuitable for you may affect your ability to finance your future healthcare needs. Your investments are subject to investment risks, and you may lose the principal amount invested. The performance of the ILP sub-fund is not guaranteed. The value of the units in the ILP sub-fund and the accumulated income (if any) may fall or rise. This article is for your information only and does not consider your specific investment objectives, financial situation or needs. It is not a contract of insurance and is not intended as an offer or recommendation to purchase the plan. You can find the full terms and conditions, details, and exclusions for the mentioned insurance product(s) in the policy contract.

These policies are protected under the Policy Owners’ Protection Scheme which is administered by the Singapore Deposit Insurance Corporation (SDIC). Coverage for your policy is automatic and no further action is required from you. For more information on the types of benefits that are covered under the scheme as well as the limits of coverage, where applicable, please contact us or visit the LIA or SDIC web-sites (www.lia.org.sg or www.sdic.org.sg).

We recommend that you seek advice from a Manulife Financial Consultant or its Appointed Distributors before making a commitment to purchase a policy.

Information is correct as of 16 October 2020