Is early critical illness insurance necessary?

I have blogged about the importance of having critical illness insurance before and because I get questions from readers now and then on whether early critical illness insurance is essential, I decided I should blog about it.

Please bear in mind that this is just my opinion and some might disagree.

Reader:
I've started my investing journey and I am quite amazed I've learnt quite a lot ever since I started reading your blog last year. 

I would like to seek your talking to yourself opinion. 

Is it essential to get an early critical illness term insurance? 

The premium is really high.





AK:
When we buy insurance to cover ourselves against critical illnesses, it is so that we get paid a lump sum of money if we should be diagnosed with one of the dread illnesses.

The difference between regular and early forms is that the latter will pay the insured once diagnosed with a dread illness even if it should be at an early stage. 

The regular form would only pay if the illness is at an intermediate stage.

I am of the opinion that we need regular critical illness coverage because it could be that we must stop working to undergo treatment. 

We could be too ill to work. 





Critical illness coverage gives us a lump sum payment. 

Now you know why this is necessary. 

We need this in case we have to stop working. 

It provides us with money to continue living our life as if we were still working (for a long while, hopefully) until we get better.

At the early stages of an illness, it is conceivable that we would still be well enough to work and would not have to give up our regular income. 




So, it is my opinion that it is not essential to have early critical illness insurance. 

We don't need it.


Any medical treatment required if we should be diagnosed with a critical illness in the early stage should be covered to a large extent by our H&S insurance. 

Think Medishield Life, for example. 

We don't need early critical illness coverage to pay for our medical treatment.


The early variant of critical illness insurance is also unattractive because it is very pricey. 

How much more does it cost?







For example, 

A 30 year old male might have to pay almost $800 per year for a $200,000 death with regular critical illness benefit till age 65 but he might have to pay more than $2,000 per year if he were to opt for early critical illness benefit.

That is 150% more! 

If it were 10% or 20% more, maybe, but 150% more? 

Mind boggling.

I have blogged about what I feel is the best insurance in life and I feel that the extra money used to pay for early critical illness insurance could be better used towards this project.






If you don't know what I am talking about, see related post #2 at the end of this blog.

Insurance is absolutely necessary against events which we will not be able to recover from easily without financial help.

For all other events, insurance is probably a "nice to have" and not a "must have".

Buy what we know we need and not what sales people want us to think we need.




Related posts:
1. Without CI coverage?
2. Best insurance to have in life.

Avoiding the instant gratification of yield (SingTel, Starhub and REITs).

My blog has pretty useful content in the comments section but many do not read the comments section, I found out a long time ago. 

So, there was a time when I would share the comments in a blog post so that they reach more people. I stop doing that after I found out that Google didn't like it and it affected my blog's page ranking. 

However, I have decided that it really should not matter to me and that making sure that the content reaches more people is more important. 

This was a recent conversation:

redponza said...
Hi AK,
There is a 4th telco getting into Singapore, don't you worry about the intensified competition?

Also, unlike REIT where there is minimum capital expenditure, telco needs to upgrade their network consistently to maintain competitiveness. With the lower yield, and meh growth potential, not sure why it is better than REIT.

In the telco space, isn't Starhub better with a much higher dividend yield?

Thanks.



AK said...
Hi redponza,

SingTel derives less than 20% of its revenue from Singapore. It is truly an MNC.

(Added on 21 Aug 17. Reader:
I look at Singtel's annual report. I can't derive the 20%. It is 40+ % to my calculation. How did u derive it? 

AK:
Well spotted. I meant to say its Singapore mobile business which is, of course, what would probably be impacted by the entry of a 4th Telco next year. That business segment accounts for 13% of SingTel's total revenue.)

As for CAPEX, selling away most of its stake in Netlink NBN passed a heavy baby to other investors. SingTel retains only a 25% stake in the newly listed entity.

If you are worried about the 4th Telco and increased competition in Singapore, you should be more worried about Starhub.

This is also probably why Mr. Market demands a higher dividend yield from Starhub which incidentally also has a higher payout ratio compared to SingTel.

One more thing, we really shouldn't be comparing Telcos with REITs. The yields are not comparable.

SingTel pays out a percentage of its earnings as dividends while REITs pay out from their operational cash flow.

If we were to use the same yardstick for both, we would worry about REITs since their DPU is usually higher than their EPU.





redponza said...
Is telco attractive?

From my point of view, return = dividend yield + dividend growth, taking debt into consideration.
There is lower growth and lower yield in telco, thus I am puzzled why telco is even considered in the first place.

And from a price to book standpoint, they can never beats a REIT =.=

But on the other hand, I saw famous investors grabbing telco companies, hence I must be missing sth here?





AK said...
Hi redponza,

Like I said, they are different animals.

It depends on how we look at investments and how value is created.

Most REITs pay out more than they earn. They do not retain any earnings.

SingTel pay a percentage of their earnings and they retain some earnings so that they become more valuable over time.

I like some REITs and my portfolio is rather heavy in REITs. So, it is sensible to become less dependent on REITs especially when conditions have become less benign for them.

It is about having a more holistic approach.

Frankly, not all REITs are good investments.

We should wonder at the sustainability of distributions.

A REIT could have high CAPEX down the road:

http://singaporeanstocksinvestor.blogspot.sg/2015/08/is-keppel-dc-reit-attractive-investment.html

A REIT could see their assets disappear in the not too distant future:

http://singaporeanstocksinvestor.blogspot.sg/2017/03/viva-industrial-trust-more-attractive.html

So, we must be careful when we lump REITs together to say that REITs can never be beaten in terms of return on investment. The quality of returns and the sustainability are pertinent considerations.

To new readers of ASSI, please read related post #1 below.

Related posts:
1. Instant gratification of yield.
2. SingTel and Netlink NBN Trust.