Supplementing your CareShield Life

Straits Times Article 17 April 2020

CareShield Life is still a new product. We talk more about it here, and looked at some misconceptions about disability as well as CareShield Life. Some clients have asked us to share more of what we feel about the supplements. We believe supplements are a critical part of our financial planning portfolio, as the CareShield Life coverage is sufficient only for the most basic of care. The logical extension of that question is which supplement is ideal. We intend to discuss what are some traits to look at, how to assess the plans and what we feel makes up a good plan[i]. Currently there are three providers and the summary table is provided for by MOH. Our assessment revolves around the following: 1 a. Coverage b. Level or Escalating 2. Payment term

3. Additional benefits

4. Premium

1a. Coverage

Coverage for CareShield Life starts when insured is unable to perform 3 ADLs (ADLs: transferring, walking or moving around, toileting, washing, dressing, feeding; see here for more information.). As CareShield Life criteria for claims is inability to perform 3 out of 6 ADLs, private supplementary plans will tend to be match or be less stringent. A less stringent criteria (2 ADL for example) means that insured gets covered in more scenarios. The question is can you actually get 2 ADLs?

Rather than debate the probability of 2 ADLs, it will be worth to consider, what would happen if you did get 2 ADLs, what would happen? Would your needs change sufficiently as to require financial support? In such a scenario, would you feel upset that you did not spare a bit more expense earlier? Admittedly it is a rare situation but the truth is when you are in such a position, you can’t hit reset. Outcomes are binomial in nature; you are either unable to do 2 ADLs or not.

We say: A coverage of 2ADLs would have a broader scope. Given the nature of this insurance coverage, a wider scope of protection is important. Better to have what we don’t need than to need what we don’t have.

1b. Level or Escalating

CareShield Life is an escalating payout plan; each year the coverage increases (likewise the premiums). For the first 5 years, it will increase at 2% per year; subsequent increases will depend on MOH[ii]. So should your supplement follow?

We feel that this is a good benefit. You are mitigating inflation risk and ensuring that the real value of your protection plan does not drop. However, it will be wise to compare premiums on this, and it is best to speak to an advisor to do that specific comparison.

On a important point, how does payout work with CareShield Life? Is it on top of, or is it including careshield life. This is important; as we see above CareShield Life is an increasing payout to protect against the inflation risk. If your supplement pays out a benefit that includes the Careshield payout, your overall payout remains flat. At point of writing, two of the insurers provides payout ON TOP of CareShield life while one of the insurer provides payout INCLUDING CareShield.

We say: good to have escalating, though premium differences may tilt the balance one way or another. Because this is age and gender dependent, it is best to have an advisor do a proper analysis on your needs. .

2. Payment term.

In the main, there are two types of premium terms available: Limited (for a given period of time) and life (to age 99). Logically, the limited pay will see higher annual premiums (for equal coverage) while the life pay will see higher total annual premiums (pay less, for longer). Or is that logic true?

In considering lifetime premiums, its important to note that

i. You stop paying premiums when you receive the payouts

ii. You stop paying premiums when you die.

In other words, a lifetime premium may not be true lifetime. For many of us, disability will occur when we are older. This is when a simple fall can lead to fractures necessitating operation. A fall can also traumatise a person enough to scare him from walking. As someone who had to relearn how to walk after a long bout of illness, there is a genuine and debilitating terror associated with walking. (I was scared of walking when I started physiotherapy).

Furthermore, we may not live to 99 (if we do, yay!) and premium terms will lessen. Hence, the lifetime total premium amount is not necessarily accurate, and you should account for such deviations.

Absolute difference in premiums? A good test would be how much would the additional lifetime premium cost. Looking at this table constructed by MOH , the premium difference between over a life time is ranges from 22% to 6%. If we include the likelihood most of us won't live beyond 85 (average age of Singaporeans hovers around 85 according to SingStat) , that makes lifetime premiums a potentially more palatable choice.

We say: Life time premium makes better cents (pun intended), if the premiums work out for you. And if you end up paying more, it is simply because you lived longer and better. Isn’t that reason to celebrate?

3. Additional Benefits

This is the icing on the cake. It is not the main aim of the plan, but there are some nice benefits provided by the plans. These additional benefits of the plan are priced into the plan, so it is not 'free'. What we need to look at is really to consider what is critical protection needs, and what is less critical. The decision should hinge not on the additional benefit but the key reason why you get Careshield Supplement.

We say: Forms part of the reason to select one provider over the other, but should not be the focus of the decision.

4. Premiums.

Now this is interesting. Why is it the last thing? A plan like this has many permutations and combinations. What makes it complicated is that each insurer designs their plans differently. And our thinking bias kicks in; we end up focusing on what we know. In this case, premiums will almost certainly take centre stage. It is very hard to focus on what matters; especially when many things matter. While premiums and benefits must correspond, it can be difficult to determine the relative value of the various offerings.

It is critical to note that premiums affect your budget. And that budget should be seen not just on long term care but on all your financial planning needs. Ultimately, the budgets key focus is on its impact on your overall financial health. A good financial advisor will be able to work with you on your overall financial health and not just on one plan.

We say: Premiums matter only when planning a budget in the context of holistic financial planning. On the note of premiums, do remember that $600 a year from medisave can be used to pay off the premiums.

So, which company do we recommend?

We recommend you understand what are your needs and look at the various companies to decide which meets your needs the best. More importantly, we need to look at every insurance plan from a holistic financial planning perspective, which includes other insurance planning needs, other financial needs including retirement, education etc etc. The plans must complement each individual’s unique situation.

Footnotes: [i] Our data is sourced from https://www.careshieldlife.gov.sg/supplements.html., accessed 15 Jun 2021.

[ii] https://www.careshieldlife.gov.sg/careshield-life/benefits.html accessed 16 jun 2021