What are the disadvantages of group term insurance?
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The topic of term insurance almost always comes up. Show
A particular one is the old forgotten “paper” back in the army days… And that’s the Singlife with Aviva’s MINDEF & MHA group term insurance. Are the cheap premiums justifiable for it to represent the sole life insurance component in your financial portfolio? Let’s take an objective look and find out now. A Primer on Term InsurancePlain vanilla coverage is the essence of insurance – you pay a small amount to cover a big one. Along the way, things such as cash value are added to insurance policies, creating plans like the whole life insurance. This sparked a great debate on which is the best for life insurance coverage: term vs whole life insurance. But in recent years, term plans are the talk of the town once again – going back to old school. Term insurance strives to provide the highest coverage at the lowest premiums, which is great, because a few hundred thousands may not be adequate in today’s context. But first, it’s always good to get an estimate of how much life insurance coverage you need. The downside of a term plan is that it doesn’t accumulate any cash value and the cover ends when the policy term is up. So you’re paying for a peace of mind, and if nothing happens, that’s also fine as you would’ve enjoyed good health. SIDE NOTE When was the last time you've done proper financial planning or went through a review of your finances? In this day and age in Singapore, doing so will absolutely improve the quality of life for you and your loved ones. Here are 5 reasons why financial planning is so important. How Does Group Term Insurance Work?In term insurance, there are 2 main classifications:
They are “same same, but different”. An employer or an association (in this case, MINDEF/MHA) can purchase group insurance and provide additional coverage for its members. The major difference is how the policies are underwritten. In a personal insurance, the insurers pay greater attention to the individual’s age, medical conditions, certain financial circumstances, etc. However, for group policies, assumptions about the general health of the group are made. In addition, the insurer’s risk is spread across the group (of many participants). And that’s why it usually results in a cheaper rate of insurance. If you base your decision solely on premiums, group insurance is the way to go. But is it always the best? I’ll go more into details later. A Brief History and Introduction to the MINDEF/MHA/SAF Group TermThe SAF term is an example of a group insurance. Do you remember that one day during BMT, all recruits are seated down in an auditorium… And we’re made to listen to a Major sharing stories and in the end, pitching about insurance. We were “strongly encouraged” to apply. We recognised that it was important to provide something although we didn’t really know what insurance really was or much about financial planning. We just paid for it using our own small “allowance” we had – making it even smaller. Times have changed. There was a major overhaul on 1 Jul 2016. Together with Singlife with Aviva, the Ministry of Defence (MINDEF) and the Ministry of Home Affairs (MHA) jointly introduced the MINDEF & MHA Group Insurance, which covers members from the SAF, SPF, SCDF, and affiliate members. There were 2 schemes: Core and Voluntary 1) Core SchemeIn summary, it covers national servicemen (NSFs or NSmen) during their full time service and operationally ready duties. Regulars and volunteers are also included. The Core Scheme provides:
The premiums are paid by MINDEF and MHA respectively. 2) Voluntary SchemeIn the voluntary scheme, members can choose to further enhance their coverage and/or insure their dependants (spouse or children). The maximum coverage amount for the voluntary scheme is up to $1,000,000 for Group Term Life and $600,000 for Group Personal Accident. Even after your service (ORD, MR, ROD, etc), you can still retain the coverage on the voluntary scheme. Furthermore, you’re able to add different types of cover… The 6 Types of Coverage and Their PremiumsThere are currently 6 different types of cover that you can get with the Singlife with Aviva’s SAF Group Insurance:
They cater to different needs. To add on a rider, you need to have a main plain – either the Group Term Life or the Group Personal Accident. If you wish, you can also have all 6 types of coverage. You can also get the same coverage for your spouse or children. Let’s take a greater look at each type of cover. 1) Group Term LifeOverviewThe Group Term Life (GTL) provides coverage for Death and Total and Permanent Disability (TPD) up to 70 years old (age next birthday). Benefits
Premiums 2) Group Personal AccidentOverviewThe Group Personal Accident provides coverage in case of an accident, up to age 70 (age next birthday). Benefits
Premiums3) Living CareOverviewThe Living Care rider provides coverage if any of the 37 critical illnesses happen. Benefits
List of Critical Illnesses covered:
These critical illnesses (CI) are standardised across the insurance companies. Take a look at the definitions of these CIs here. Premiums4) Living Care PlusOverviewThe Living Care Plus rider provides coverage if any of the 10 early critical illnesses happen. Benefits
List of Early Critical Illnesses covered:
PremiumsFor Male: For Female: 5) Disability IncomeOverviewThe Disability Income rider pays out a monthly income in the event of a disability. Benefits
Premium6) Outpatient MedicareOverviewThe Outpatient Medicare rider provides coverage for consultation and treatment expenses. CoveragePremiumHow to Apply for the MINDEF/MHA Group InsuranceEliminate the hassle of hard-copy application forms. You don’t even need to meet anyone to apply. Simply apply online through Singlife with Aviva’s website… Steps:
How to ClaimAs there is no agent tagged to you, claims have to be made by yourself or your family members. Claim forms can be downloaded, filled and submitted online via email along with the relevant documents. At the moment, there seems to be no indication on whether you can submit a hard-copy claim. If you have any questions, you’re still able to email or contact them. Singlife with Aviva’s MINDEF/MHA Group Term Insurance vs Personal Term InsuranceWe’ve come to the most important question, “should I go for the Singlife with Aviva’s SAF group term or a personal term insurance?” Can the group insurance be too good to be true? Let’s be objective and look at the pros and cons. We’ll only look at the Group Term Life, Living Care (critical illness) and Living Care Plus (early critical illness) as they represent the core elements in insurance planning. The Good1) Premiums are cheapAt the top of the list, what makes the MINDEF group term so irresistible is the affordable premiums. Scratch that. The premiums are extremely cheap. If you’re looking for the cheapest term plan, then you don’t have to read further because there’s nothing else that can beat it. 2) Able to get high coverage at levelled premiumsIf you’ve just entered the workforce, a sum of $1,000,000 coverage can be a good amount to be insured with because of the concept of income protection. But that’s the maximum you can get with the Group Term Life. And whether it’s $100,000 or $1,000,000, the premiums are proportionate – $4.10/mth vs $41/mth. There’s no discrimination with smaller sum assured amounts. The Group Term Life makes sense if you only wish to get coverage till 65 years old. Beyond that, the increase in premiums can be too heavy. Although for the critical illness coverage – living care and living care plus – the premiums are increasing with age. 3) Able to apply for your spouse and childrenYou’re able to take advantage of the affordable premiums and get the same coverage (all 6 types) for your spouse and children. It’s something that you can start with. At least in the meantime, they are protected. 4) Get coverage even if you have pre-existing conditionsFor those who have pre-existing conditions, it can be a challenge to get any form of life insurance coverage especially if they are severe. Even if you manage to, there may be loadings (increase in premiums) on those private plans. As stated in the product documents, Group Term Life allows you to get up to $250,000 coverage – for death and TPD – without medical underwriting or checkups. However, take note that if a claim were to be made because of those existing conditions, there will not be a pay out. Even so, it still makes sense as other events can be covered. 5) It should last for a long timeThe SAF term is not like the typical group insurance from employers whereby if you were to switch companies, you’ll lose that coverage. The MINDEF group insurance can still be active even if you’re out of service. But make sure you apply for it when you’re eligible. As there are many participants in this group insurance, it is also unlikely that Singlife with Aviva or MINDEF/MHA would discontinue it completely. The Not-So-Good1) The Young may be “paying more” for the OldIf you realised that for the GTL, the premiums are the same for Age Next Birthday (ANB) 65 and below. This means that no matter whether you’re 23 years old or you’re 59 years old, you’re paying the same premium. Based on statistics, the probability of a claim is higher when you’re older. So if you’re older, you can take advantage of this. But if you’re younger, the pool of monies gathered favour the older folks more. And just as a side note, if those same people were to buy private insurance, the premiums will never ever be the same. So technically, you’re paying a “higher premium” to benefit the older folks more. 2) Premiums are not guaranteedThe premiums you see in the MINDEF group term insurance are not guaranteed. These premiums can change over time depending on the insurer or if MINDEF/MHA want to revise it. Same for CI coverage, the premiums are usually not guaranteed be it group insurance or private insurance. What this means is that if in the future, there’s an “epidemic”, the insurance company may revise the premiums to make it sustainable. However, for private term plans, Death and TPD premiums are usually guaranteed – they won’t change. 3) Critical illness coverage can be more expensiveWhether it’s for the standard critical illness or early critical illness coverage, the premiums are increasing for the group insurance. While it’s true that at younger ages, the premiums are much more affordable, it goes up a steep curve at 46 years old – tripled; keep increasing at a steeper rate. Now, statistics have shown that most claims usually happen from 40 to 70 years old. So that’s usually the “critical” period. If nothing happens and you add all the CI premiums for the SAF term, the total premiums could be more expensive than a private term. In a private term, the premiums for CI are usually levelled. So although the premiums can be slightly higher than the SAF group CI cover at the start, but over time, the total premiums could be lower. 4) Fewer conditions covered for early critical illnessesIn terms of claim definitions… For the standard 37 CI, these are standardised across the board. So it’s the same even with the private term. However, if you’re interested to get early critical illness cover, then these definitions do change. While definitions across private insurers for early CI may differ, they tend to cover much more conditions. In the Living Care Plus, it only covers 10 conditions. 5) There are claim limitsWhile still a minor point, the group term has limited caps for certain claims. For acts of terrorism or in the event of a war, claims are heavily limited. Although Singapore is relatively safe, it’s a point for you to note. 6) You’re not the policy ownerMINDEF and MHA are the policy owners. You’re just the insured person. So there are restrictions in what you can and cannot do. If in the future, they wish to change insurers from Singlife with Aviva to another company, they can do so. Although drastic changes may not be likely, they’re able to revise terms and conditions. 7) Unable to do nominationsAs it’s a group insurance, you’re unable to do nominations. If you don’t have a will, claim proceeds will be distributed by the intestate law:
In an individual insurance policy, you’re able to nominate who and how much percentage a nominee can receive if you were to pass away. And you’re still able to change these nominations in the future. The process of claiming will be easier too as the company have records of who should be receiving what. But to be fair, you can still decide how these proceeds are to be distributed even without a nomination by writing a Will. 8) No agent is able to service youWhat’s the purpose of buying insurance? It’s simple: just in case you need to make a claim. The MINDEF group term can be applied online but there’s no agent tagged to you. Any questions have to be directed to their email or hotline. Another thing is that you need to ensure your premiums are paid on time if not the policy will lapse. But more importantly, when claims arise, no one else can assist you other than yourself or your family members. When such crisis happens, it can be overwhelming for all parties. In a personal term insurance, an agent is not there to just “sell” you the policy, but to ensure that everything else in your financial portfolio is sound. The policy is kept in-forced throughout. And most importantly, to be there when an unfortunate event happens. 25 May 2021 Update: Over the past year, I’ve received two calls from Singlife with Aviva representatives regarding the group term policies. They seem pretty legit as they have access to personal details. I’ve checked my online Singlife with Aviva account but I don’t see any agent being tagged to the policy. The main mode of contact is still the hotline, WhatsApp, and email. 9) Lack of flexibilityDo you want other options? Do you want to have a longer period of coverage? More critical illness cover? The group term is structured to be rigid. It’s “take it or leave it”. But for personal term plans, you can do longer terms till 75 , 85 or even till 99 years old. With an increasing life expectancy in Singapore, a coverage beyond 65 might be something to think about. You can get more than $1,000,000 coverage. And more than $350,000 of CI cover. There is greater flexibility so that it suits your needs rather than the other way around. Summary of the Pros and Cons
Wrapping UpIf you decision is based solely on premiums, the SAF term is hard to beat. But insurance companies know this. That’s why it’s not a simple decision to just go for the cheapest. There are many features and benefits that come with getting your own personal insurance. Group insurance need not be an all or nothing thing either. It can complement your overall financial protection strategy along with a private term. What’s next? Learn more about personal term insurance plans. … or you may consider combining a group term life (just the death/TPD coverage) with a standalone early critical illness plan (which also covers the intermediate and late stages; able to claim multiple times). Disclaimer: The statements or opinions expressed on this site are of my own. The information is meant purely for informational purposes and should not be relied upon as financial advice. Is group term life insurance a good idea?Group term life insurance is a good benefit to have, but there are some limitations to keep in mind. As mentioned above, because group coverage is linked to employment, if you change jobs, stop working for a period of time, leave to open a business, or retire, then the coverage will stop.
What is the biggest disadvantage of term life insurance?No cash value component: No cash value component associated with the term insurance policy. In pure term insurance,, the insured will not get any cash benefits or returns after the policy term if the insured survives. All the premiums paid will be forfeited by the insurance company in case of survival of the insured.
What are the advantages and disadvantages of group plans?Pros and Cons of Group Insurance Scheme for Employees. Free Coverage. The premium for a Group Mediclaim Policy is paid by the company on behalf of the employees. ... . No Waiting Period. ... . Cover for Family Members. ... . Maternity and New-born Baby Coverage. ... . Cashless Hospitals. ... . OPD Coverage. ... . Preventive Healthcare and Extra Benefits.. What is the disadvantage of term plan?Costly if Unhealthy or Old: Premiums payable towards a term insurance plan can be on the higher end in case you are unhealthy or old. This is because of the logic that younger the individual, the lower would be the associated death risk.
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