In the discussions following the ruling on a court case against Prudential on a payout after surgery, I saw many comments that reflect a lack of understanding on insurance.

Insurance is broad. Within health insurance there are different policies to cover different things. It is important to establish the woman is trying to claim from her critical care policy. It is important for any discussion on insurance to recognize the different types of policies out there. I don’t expect people to understand different forms of brain surgery, or every single detail of their insurance policy. But the least they should recognize the different types of policies out there, and what they cover.

I’ll use this post to discuss the 2 main types of health insurance people will usually buy: critical illness and hospitalization. There are other types of health insurance out there, and I recommend people to read this article that briefly explains what they do.

Critical illness

From the CPF website

>A Critical Illness (CI) insurance plan pays out a predetermined lump sum upon diagnosis of a covered severe illness specified in the policy. This can include conditions such as cancer, heart attack, stroke, or other major illnesses listed in the coverage.

> Unlike other types of insurance, which typically reimburse medical expenses and hospitalisation costs, the payout from a CI plan gives flexibility in how you can use the money.

>Some uses of the payout include coverage for living expenses, caregiver costs, experimental treatments not covered by regular health insurance, or any other financial needs that arise from your diagnosis.

Hospitalization insurance

Hospitalization insurance covers hospitalization costs. Every Singaporean will have Medishield Life, a national hospitalization plan meant to cover expenses up to C class ward. Most Singaporeans buy Integrated Shield Plans from private insurers that cover healthcare expenses in government hospitals as an unsubsidized patient, or expenses at private hospitals.

Exclusions

It is worth noting hospitalization insurance in Singapore is tightly regulated, as ISPs are an add on Medishield Life. MediShield Life does not exclude pre-existing conditions. For ISPs insurers generally do not cover treatment that treats a pre-existing condition. E.g a heart surgery to treat a heart issue that is considered pre-existing is not covered by ISP but is covered by Medishield Life.

ISPs usually follow what Medishield Life covers. If you review the policy contract that the insurer sends you every year when you renew the plan (for mine it is less than 40 pages), you’ll realize hospitalization insurance pretty much covers any treatment the doctor provides or deems necessary. Medishield Life now covers Proton Beam surgery, and ISPs have followed suit

Critical illness policies are a lot less regulated. Insurers can set whatever exclusions they want. In the case against Prudential, payouts on brain surgery only applies to surgical craniotomy, which is a more invasive form of surgery.

Hospitalization insurance is updated consistently to reflect new, modern forms of treatment. This is why insurance premiums are revised, and you receive a new contract every year.

Critical Illness usually follows the contract as written when the policy is bought, and are not updated consistently. A policy bought today might cover a something not covered previously. This is how critical illness premiums stay constant, unlike hospitalization insurance.

People are right to have a discussion on whether an exclusion based on a specific treatment for a critical illness policy is acceptable. However, we should not mix critical illness with hospitalization insurance. Hospitalization insurance will cover the hospitalization and treatment costs of her treatment.

We should also discuss whether critical illness, a policy with many policy exclusions, is really necessary. For someone with ample savings to cover expenses for a period without work, it might not be necessary.

Last month, Ben Felix released a video covering myths in personal finance. It is worth a watch as it covers many common myths on in-vesting. There is one myth that covers spending and saving: whether one should save as much as they can when they are young to benefit from compounding. 

In a recent episode of Rational Reminder, he mentioned this was the most controversial myth based on the comments in the video. Many of his viewers, like many who frequent this sub, are more financially well-versed than the average person who is unfamiliar with in-vesting and personal finance. The idea that young people could be saving too much could be controversial to us too. 

I feel spending is a topic that remains highly under-discussed beyond the occasional post on what to buy. It could be that how we spend our money reflects who we are, and people can be quick to judge people based on how we spend our money. 

Personally, many Singaporeans are too Kiasu about money. They only look at the dollar value of something and do not consider non-tangible attributes. However, a more contemplative way of spending can allow us to consider the non-tangible attributes, and allow us to live more fulfilling and enjoyable lives. 

Here are some things I took away from the discussion: 

It is alright to spend more

>That stage of life, early on in life, the marginal utility, the amount of additional satisfaction you can generate from each dollar that you spend on improving your standard of living is at its highest.

An example is renting outside. When it is the norm for young adults to live with their parents in Singapore, it is common for people to comment that renting outside is a waste of one’s money. But moving out’s from one’s family home is an exercise of independence, and the experience can be valuable when one is young. 

Saving too much now is stealing from your poorer self

>So even if you had invested that $5,000 at age 25, at age 45, it's going to yield a much smaller increase to your standard of living. If you're saving as much as you possibly can when you're young, when your income and standard of living are comparatively low to later in your life, you're sacrificing more of what matters when you can least afford it.

>you're effectively robbing from the poor, which is your current lower income self and giving to the rich, which is your higher income future self.

An additional dollar today will be more valuable for your younger self who is starting out with a lower standard of living. Your older self, because of the saving habits of your younger self and compounding, will have more money and will find that dollar less valuable. 

Extremes will lead to regrets

>People who have spent their lives saving can't go back and have experiences. And people who have spent their money on experiences can't go back and save.

>So you're talking to people at a point in time who have made irreversible decisions, and then they look back, and it's like, if I'm saying, well, you should have spent more, if someone's saying, well, you should have saved more, you can take that very personally, because it's something that you have decided to do that you cannot now undo.

>Like so many things in personal finance, it's about finding the right balance, and the right balance is different for different people. Your decisions just have to be thoughtful. But it's not really helpful for people to be judgmental about other people's choices.

I’ll extend the idea of stealing from your older self to stealing from your retired self when you have limited human capital. Nobody wants to find themselves in their 60s with little money and needing to find a job, because of poor financial decisions when one is young. 

Spending too little or too much will lead to regrets. You could regret spending recklessly on one extreme, or not living a life well lived and meaningful on the other. We should aim for somewhere in between. 

The process of being thoughtful with spending and saving starts with understanding one’s short term and long term financial goals, and what one values. Your financial goal might be different from others, and what you value will be different from others. Chasing a goal that is meaningless to you will no doubt lead to regret. 

If spending a little more today on something meaningful means delaying retirement slightly, it may be worth it. If taking a break from work to travel means delaying the purchase of a BTO, it may be worth it. From a quote from an article I read: 

>But you choose the life you want to live and deal with the consequences.