ONE hundred years ago, most people lived on farms and kampungs. Everyone knew the neighbours within 10km.

Nowadays, many of us don't even know the family who lives next door.

Back then, everyone would pitch in when tragedy struck.

If a barn burned down, all the neighbours would gather for a 'barn raising' party.

They would work all day and build a new barn in a single day. They did the same when a house was destroyed by fire or storm.

It was the humble beginnings of homeowners' insurance.

Then, everyone pooled their labour. Now, people pool their money.

When tragedy strikes, money is taken from the common pool to reimburse the victim.

WHO NEEDS INSURANCE?

It's a good concept. But contrary to what some salesmen tell you, not everyone needs insurance.

Take life insurance. You don't really need it unless you have an insurable interest. It means your income supports others.

For example, children, students, housewives and retirees don't need life insurance.

Health insurance is different. Anyone can get sick, so we all need it. A long illness can wipe out your savings.

Health insurance comes in three varieties: First is Medishield, the opt-out health insurance available through the CPF Board.

Second are private shield plans, sold by AIA, Aviva, GE Life, NTUC Income and Prudential.

Third are group health plans provided by employers.

How to choose?

Well, there is no shortage of advice. We have 13,000 insurance agents plus a few thousand more independent financial advisors and bankers.

They earn commissions from selling you choice number 2: Private shield insurance.

Yes, it offers more coverage. But it also costs more. To consider both, compare what you get to what you pay. It's called a 'claims to premiums' ratio.

The result: Group health plans are the best deal. These pay out $65 of claims for every $100 of premiums received.

Medishield takes second place, paying $50 in claims per $100 of premiums.

Private shield insurance ranks a distant third, paying out only $25 in claims for each $100 of premiums received.

Despite the low payout, private shield plans are the most popular.

The Ministry of Health tells me that of the 2.8million insured CPF members, 57 per cent have private health plans while 43 per cent are covered under basic Medishield.

Why is that? Are the private shields plans really better?

Consider the evidence:

First: Private plans advertise lifetime coverage while Medishield covers you only to age 85.

Yes, but most people don't live past age 85. Those who do will find health insurance is very expensive.

At age 90, for example, NTUC Income's annual premiums are $3,984 for a class-A ward and $5,843 if you stay at a private hospital.

In contrast, Medishield insures you until age 85 and then charges only $705 per year.

Second: Most private plans are 'as charged' with no lifetime, annual or sub-limits. It would seem to help with the big bills, but those are rare.

The most recent data comes from my August 2005 correspondence with insurers. It shows NTUC Income's largest health insurance claim was $186,000 and AIA's was $30,000.

These are below Medishield's lifetime limit of $200,000, and even further below the high lifetime limits of private insurers: $5 to $10 million for AIA and unlimited for NTUC Income.

Third: Deductibles range from $1,000 for Medishield to $3,000 for private shield insurance.

A high deductible, like $3,000, means you pay more before the insurance kicks in. It's expensive.

Fourth: Medishield pays for C and B2-class wards, which receive government subsidies of 50 to 80 per cent for Singaporeans.

The savings are passed on to policyholders in the form of lower Medishield premiums.

The premium plans of private insurance do not receive this indirect subsidy, so the costs stay high.

Fifth and sixth: Agent commissions plus company profits are embedded in the premiums that you pay for private shield insurance.

Medishield has neither of these charges, which keeps its premiums low with no loss of benefits.

There you have it: The top six reasons why Medishield is such a great buy, especially in old age when private health insurance can cost 10 times more than Medishield.

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