Oops. I have become an "elderly" at age 40! That is according to the Eldershield insurance scheme, which automatically covers all Singaporeans and Permanent Residents from age 40 onwards if you do not opt-out. Just to introduce what is Eldershield, it is a disability insurance scheme which provides a monthly payout of $400 for a total of 72 months if you are unable to carry out any 3 of 6 daily activities, such as washing, dressing, feeding, toileting, mobility and transferring. The annual premium depends on the age of entry into the scheme. Since the scheme has been in place since 2002, most people would join the scheme at the age of 40. The annual premium is currently $174.96 for males and $217.76 for females, payable until the age of 65. The benefits would be payable at any time during the life-time of the Insured (for a maximum of 72 months).
When it comes to assessing insurance needs, the key questions to ask are: what are the risks, and can you afford to bear them? In other words, what is the probably of the risk event happening, and if it happens, what is the financial impact? If the risks are bearable, then there is no real need to buy the insurance and transfer the risks away. In the case of Eldershield, the maths are rather simple. The total premium payable is $174.96 x 25 years, or $4,374 (for males), while the total benefits work out to be $400 x 72 months, or $28,800. The benefits are actually not a lot, and should be bearable, i.e. I do not really need the insurance. Still, I took 2 months to ponder whether to join the scheme or not. This is because, underlying the statement "I do not really need the insurance" is an important caveat that I retain full control over my finances when I am in old age. If I were to become senile and lose mental capability, then even funding $400 per month can become a problem. The alternative is to pass over control of my finances to a trusted family member, but I am currently still single, so this option is not available currently.
When you or your trusted ones are not in control of your finances, there are actually additional risks, especially if you have built up a comfortable nest egg for retirement. For example, some other people with ulterior motives could come in and take control of your finances. Just imagine, you have worked, saved and invested diligently for 20 to 30 years to build up a comfortable nest egg only to see it go to someone who do not have your interests at heart. That is quite unacceptable, isn't it?
The best solution is, of course, to keep your body and mind healthy so that you are in full control of everything. The next best solution is to have a family which you can count on to take care of you when you are no longer as healthy. The last resort is to convert your lump-sum nest egg into a recurrent stream of income, i.e. use part of your nest egg to buy an annuity that pays a monthly income. That way, you would not have a large lump-sum nest egg that attracts undesirable interest and you can be assured of having sufficient recurrent income to pay for your daily expenses.
With this, you can probably guess what I would do with CPF Life when the time comes. Although Eldershield does not come close to being an annuity, the regular payouts are consistent with the above-mentioned strategy of creating recurrent income streams. So, to conclude, I signed up for Eldershield.
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As financial blogger, we know it is lousy but treat it as contributing back to the society to enlarge the social insurance pool to make it success. Both my wife and me didn't opt out.
ReplyDeleteI can understand. Had the same thoughts too, but the bigger consideration was how to guard against dementia.
DeleteWhen you receive the ElderShield letter, that's when people start calling you "uncle".
ReplyDeleteDid a quick check on CompareFirst. AXA Life's Term Lite which covers death and TPD for a sum of $50,000 has an annual premium of $140. This is for male/40yrs/non-smoker.
ReplyDeleteThanks for the info. Term life insurance tends to cover for a pre-defined period of time, say, 30 years, whereas Eldershield covers the entire life-span. Perhaps that's the reason why Eldershield is more expensive than term life insurance.
DeleteSounds like a reasonable trade-off.
DeleteBut I'd would be a bit more kiasu and get the term as well. That is if affordability is not an issue.
Yes, they are actually complementary to each other.
DeleteI wonder if the $400 quantum would be reviewed? It's gonna be worth peanuts in 15-20 year's time.
DeleteThat's true. Let's hope that we don't need to use this money.
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