Insurance Awareness: Availability Heuristics in Insurance Policies

Introduction

For many, September marks the period when people often take their time to assess insurance policies, renewals, and financial plans. This is a crucial moment for many Singaporeans as insurance is essential for a variety of reasons whether that may be for health, employment, or investment reasons.

What is the Availability Heuristics?

Availability heuristics is a mental shortcut that relies on information immediately available to an individual when evaluating a topic or making a decision.

Case Study: MAS Unsuccessful Insurance Claims In 2022

Singapore Scenario

In the past three years, MAS (Monetary Authority of Singapore) has reported that about 20% of health-insurance related complaints were due to unsuccessful insurance claims as a result of concerns with treatment coverage, exceeding claim limits and duration, and failure to submit documents required by insurers to assess claim applications.

Takeaways: This demonstrates that it is important for Singaporeans to research and evaluate all available insurance options first before settling for one and not being satisfied with the package or available results.

Risk Management Strategies

The best way to mitigate the effects of the availability heuristics is to fully educate yourself on all the options available to you as well as terms concerning any insurance your insurance plan. Below are some of such insurance policies.

1. Health Insurance

Health insurance helps cover medical expenses and treatment costs. In Singapore, citizens and permanent residents have basic coverage through MediShield Life, which safeguards against substantial hospital bills in public hospitals. However, MediShield Life provides limited protection for private hospitals or higher-class wards, often requiring additional payments from MediSave or out-of-pocket. To expand coverage, individuals can opt for an Integrated Shield Plan, which offers broader protection and higher claim limits, reducing personal expenses. Optional riders are available to further customize the coverage. It’s recommended to purchase health insurance early, when young and healthy, to avoid higher premiums or coverage exclusions later on.

2. Life Insurance

Life insurance comes in two main types: term and whole life insurance, which differ in coverage duration. Term life insurance provides protection for a set period and can include critical illness riders for extra coverage, while whole life insurance offers lifelong coverage or up to a certain age, with higher premiums as it builds cash value over time. When choosing between them, consider your needs—term life insurance is ideal if you’re looking for temporary coverage at a lower cost, while whole life insurance is better for those seeking lifelong protection and wealth-building.

3. Critical Illness Insurance

Critical illness insurance complements health and life insurance by covering specific conditions like stroke, heart attack, or cancer. This is especially important, as one in four Singaporeans may face critical illnesses such as cancer during their lifetime. While health insurance helps with hospital bills, it doesn’t cover other expenses like daily living costs if you take time off work or hire help for recovery. A payout from a critical illness policy can help offset these costs.

To ensure adequate protection, the Life Insurance Association recommends that your critical illness coverage be at least 3.9 times your annual income. Additionally, consider a policy that provides coverage for recurrent illnesses or early-stage diagnoses.

4. Personal Accident Insurance

Personal accident insurance complements health and life insurance by covering costs that may be excluded, such as injuries from accidents or sports. While health insurance might cover surgery and hospitalisation, it often doesn’t include expenses for X-rays, physiotherapy, or TCM treatments—personal accident insurance does. This makes it valuable for those with active lifestyles or physically demanding jobs, though it’s generally affordable for everyone, even if you’re not involved in high-risk activities.

5. Disability Income Insurance

The types of insurance we’ve discussed provide lump-sum payouts during crises to cover recovery costs. However, if an illness or injury prevents you from working long-term, disability income insurance offers monthly payouts, making it especially useful for those in physical professions like fitness instructors. For example, Careshield Life covers all Singaporeans born in 1980 or later, though those born earlier can check for eligibility. Careshield Life pays out only if you’re unable to perform three of six Activities of Daily Living (ADLs), with monthly payouts starting at $600, which may not be enough for daily expenses. Ultimately, insurance protects you and your loved ones, but it’s important to balance coverage with your budget.

Additional Resources