5 Types of Insurance You Need Before Becoming Financially Free

You are working your butt off to create multiple streams of passive income, but have you laid the foundation of not only BEING financially free but also STAYING financially free?One of the best decisions you can make is having the right insurance to prevent yourself from being derailed from your financial goals and at the same time protect your goals once you have reached them.

Assuming you have already have a decent amount of passive income flowing in, here are 5 types of insurance you need to protect your passive income and your nest egg.

Life Insurance

1. Integrated Shield Plan

We are all given MediShield Life by the government, but is it truly enough?

MediShield Life is a national health insurance scheme for all Singapore Citizens(SC) and Permanent Residents(PR) that covers our hospital bills. It’s a great initiative by our government but it has claim limits and it only covers Class B2/C wards.

For example, under MediShield Life, the Kidney Dialysis claim limit is $1000/month, if your Kidney Dialysis bill crosses the $1000 mark, you have to fork out the excess amount.

These bills will eat into your passive income and nest egg if they are not adequately covered.

Thankfully, there are 6 private insurers that offer Integrated Shield Plans(IPs), which is an upgrade of your Medishield Life and it covers Class A/B1 wards in public and private hospitals!

These plans are covered on an “As-Charged” basis too, meaning whatever the amount your bill is, you can claim the entire amount from your integrated shield plan!

As we age, the risk of us visiting a hospital will naturally increase. I’m sure you don’t want to deplete the nest egg you worked so hard for on hospital bills!

2. ElderShield 

ElderShield is a disability insurance scheme that provides monthly cash flow to those who are unable to perform 3 out of the 6 Activities of Daily Living (ADL).

Here are the 6 ADLS:

  1. Washing
  2. Dressing
  3. Feeding
  4. Toileting
  5. Mobility
  6. Transferring

CPF members will automatically be enrolled in ElderShield at 40 years old unless they opt out.

For SC and PR who joined ElderShield before September 2007, they will be under Eldershield 300. Those enrolled after September 2007 will be under ElderShield 400.

For ElderShield 300, we are paid $300 a month for 60 months (5 years).

For Eldershield 400, we are paid $400 a month for 72 months (6 years).

First of all, it’s suggested not to opt out from this scheme as you never know when you might need it! Second of all, premiums can be paid via Medisave!

If you would like more payouts and a longer period of cover, you can consider getting ElderShield Supplements offered by 3 private insurers.

The premiums of ElderShield Supplements can also be paid via Medisave up to a limit of $600 per year.

Frankly speaking, if you have passive income set in place, you actually do not have to worry about your monthly cashflow.

Thus, I would recommend a full upgrade of your ElderShield only if you do not have enough passive income and have to rely on your nest egg to supplement your expenses.           

3. Critical Illness Cover

The purpose of a Critical Illness Cover is to replace your income when you have been struck by a critical illness.

Critical Illness cover are usually offered on a standalone basis, a rider, or part of a whole life plan.
Whatever it is, make sure that you are covered from Early Stage all the way till Terminal Stage of Critical Illness.

This is so that when you contract illnesses in any of the stages and if you choose/had to leave your job, you would have a sum to replace your income.

However, if the illness is minor and you decide not to leave your job, you just earned yourself a big fat bonus to invest!

This sum of money will prevent you from withdrawing from your nest egg and passive income to fund your expenses. 

General Insurance

​Besides covering your life, you also have to cover 2 of your biggest assets, your car and your house!

4. Motor Insurance

Motor insurance is compulsory for all motor car owners in Singapore.

If you are driving a motor car, make sure you have a Comprehensive motor insurance.
It should cover the following:

  • Death or bodily injuries of third parties (including your passengers),
  • Damage to third party’s property,
  • Loss of or damage to your motor car due to fire or theft; and
  • Accidental and malicious damage to your motor car.

One accident can deplete your nest egg entirely!

5. Home Insurance 

Packaged Household Insurance policy is a type of Home insurance that covers damage to the building structure and the contents in your home.

Building Structure includes built in fixtures and fittings such as kitchen cabinets and improvements such as renovations and additions. Contents are basically all moveable items in your home.

One great news is that if you own a HDB, you will be automatically included into HDB’s Fire Insurance Scheme!

HDB’s Fire Insurance Scheme covers the cost of reinstating damaged internal structures and fixtures caused by fire, lightning and explosions, but it excludes home contents such as furniture, renovations and belongings.

While HDB does not require home owners to buy fire insurance when the HDB loan is fully paid up, it is recommended to protect your home even after the payment period.

The importance of home insurance cannot be understated. You don’t want your home to turn into ashes and being able to claim nothing for it after working a good chunk of your life financing your home!

In Summary

In summary, as you strive towards growing your passive income, make sure you protect it your hard work while you are at it! Photo Credits: goodreturns

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