Understanding the Various Types of Health Insurance (Part 1)

Think about this question for a minute – what is health insurance for? You might be thinking about words such as “protection”, “security”, or even “risk transfer”. And you’re right on all counts. Insurance basically protects you from taking a huge financial loss in the event that you suffer an injury or illness.

Not everyone thinks this way though…

If you’re a cynic, you might think that health insurance is a “waste” of money  because: A)you already have MediShield, and B)your high premiums only go towards making the insurance company “richer” (if high premiums are what you’re worried about, why not compare health insurance policies with our Health Insurance Wizard?)

Whether you believe purchasing health insurance is a “waste” of cash or not – it’s still important to understand what health insurance is and how it can benefit you during emergencies.


What is Health Insurance?

Health insurance meant to protect from probably the biggest financial risk you’ll ever face – rising healthcare expenses. That means protection hospitalisation and medical costs, as well as expenses arising from injury, illness or disability.

Let’s talk inflation. You probably know a little bit about inflation and how it drives up the prices of goods and services by around 3% each year.

But did you know that healthcare inflation is MUCH worse?

Healthcare inflation can be 2X to 3X the national inflation rate (and will probably get worse each year) – that’s because advances in medicine, medical research and medical technology are COSTLY. In fact, those are the main factors driving up healthcare costs in Singapore today.

Here’s a brief overview of the benefits offered by the most common health insurance policies available:

  • Hospital Income Insurance: You can receive a fixed amount of cash daily (ex. $250) from the insurer for each day you’re hospitalised up to a maximum number of days (ex. 365 days) per accident or illness.
  • Critical Illness Insurance: You can receive a lump sum payment from the insurer to help with medical expenses if you’re diagnosed with a critical illness such as cancer, heart attack, kidney failure, coma, etc. (varies by insurer)
  • Medical Expense Insurance: You can receive reimbursement from the insurer for any medical treatment and hospitalisation costs. Depending on the policy, coverage can either be full or limited.
  • Long-term Care Insurance: You can receive a fixed amount of cash monthly (ex. $400) for long-term nursing care that typically includes assistance with daily activities such as bathing, dressing and feeding. This coverage is often offered by insurers in the form of ElderShield supplements.
  • Disability Income Insurance: You can receive “income replacement” of up to a certain percentage of your gross monthly income. So if you’re making $5,000 a month, your insurer might allow you to insure 80% (varies by insurer) of it, meaning your monthly payout in the event of an accident leaves you disabled would be $4,000 monthly until you’re able to perform your duties (hopefully) once again.

The bottom line is this – you’ll need health insurance to deal with the rapid rise of healthcare costs. Because all it takes is one expensive accident or illness to wipe out your savings and ruin any chances you have at retirement.


Should You Buy Additional Health Insurance Coverage?

One of the biggest reasons why more Singaporeans don’t purchase additional healthcare coverage is because think they already have enough coverage with MediShield and their employer’s insurance scheme.

That may very well be true for some people – everyone’s health insurance situation is different after all.

You might actually have some very good health insurance coverage because of MediShield and your employer’s policy. But don’t make the dangerous mistake of assuming that you’ve got “comprehensive” coverage – check your employer’s policy for gaps, limitations and exclusions.

Does your employer’s policy offer disability income coverage in the event you suffer an injury that leaves you unable to work? Are the payouts for medical expense and critical illness coverage really enough? These are the types of questions you should be asking when going through your employer’s policy.

That’s how you’ll know whether or not you need to buy additional health insurance coverage.

So keep the following factors in mind when thinking about whether or not your employer’s policy is enough:

  • Coverage Varies by Employer: Your current employer might offer a fantastic health insurance policy, but what happens if you get retrenched or take up another job? You might end up with either a worse policy at your next employer or worse – you might lack coverage during the period you’re unemployed and searching for a new job.
  • Look for Policy Coverage Limitations: Your employer’s policy might have a variety of insurance limitations such as deductible(s), sub-limits or co-insurance (just like MediShield). There might even be a limit on how long your insurer will protect you (ex. age 65) Look through your policy thoroughly so you can see just how much your employer will really cover.
  • Your Employer Might Not Cover Pre-existing Conditions: Your employer might exclude coverage for any pre-existing conditions at the inception of your policy and for a period after inceptions (ex. 12 months). That means if you change jobs and have a medical condition that requires regular treatment, you’ll have to pay more out-of-pocket until you’re covered.

So before you make assumptions about your current health insurance coverage that can have dangerous consequences, evaluate your total coverage, look for gaps, and consider purchasing additional health insurance coverage to reduce your risk!