ElderShield – Opt out, Upgrade or Do Nothing?
What is ElderShield?
From the Ministry of Health Website, ElderShield is introduced as:
“ElderShield is an affordable severe disability insurance scheme which provides basic financial protection to those who need long-term care, especially during old age. It provides a monthly cash payout to help pay the out-of-pocket expenses for the care of a severely-disabled person.”
The details of the ElderShield scheme including FAQs are on the MOH website and from there, you can get a good understanding of the scheme.
How does ElderShield fit in with my financial plan?
ElderShield is an insurance plan and it’s made auto-enrollment when a CPF member (i.e. Singaporeans and Permanent Residents) reaches the grand young age of 40 or about “half way there” as the average Singaporean lives until age 82. In SMRT (i.e. “Singapore Mortality Terms”) language, when we reach City Hall if we are travelling on the East-West line from Pasir Ris to Joo Koon. Right in the middle, no longer young but not too old.
One way to think about the scheme is that it’s a plan to help you prepare for the possibility where sometime in the future, due to aging, illness, accidents or whatever personal “black swan” that might happen, you are unable to take care of yourself by yourself. Thus, the plan provides a cash payout every month to help you buy “assistance”. It may come in the form of an extra helper at home, daily 9 to 5 caregiver service, enrolment into assisted living facilities or any other support structure to maintain a sense of dignity and self-independence.
However, it is just a possibility and there is currently no clear data to indicate that it is a big risk for us. As long as it remains an unclear possibility, you may consider the option of opting out which brings me to the next point.
You can Opt-Out of ElderShield
ElderShield is not a compulsory, mandatory and no-option scheme. Even though you are enrolled automatically, you can complete the opt-out form in the ElderShield package and exit yourself from the scheme. There are a couple of obvious disadvantages such as higher premiums rates should you change your mind in the future and health underwriting for reapplication.
However, these disadvantages are not show stoppers if you do not feel the need to have the insurance.
Let me just add that there is nothing wrong with opting out if we look at it strictly from a financial planning point of view. It’s basically a decision to not transfer this particular risk because either it’s viewed as not essential or the impact is something you can absorb financially.
Typically, when clients choose to “opt-out”, the payout of $400 a month for a total of 6 years or the total payout of $28,800 is one of the main reason because it is not “attractive” enough. However, having something is better than having nothing so instead of opting out, you can do the next best thing – nothing.
You can do Nothing
I suspect most people will fall into this category. Get auto-enrolled, leave it there and sort this out with the financial planner at the next review and then totally forgot about it. Sometimes, you get “upgrade offers” from insurance companies and either you sign up because the premiums seems affordable or you ignore first and plan to sort the offer out with the financial planner at the new review and then totally forgot about it.
I hope you get the drift. At age 40, it is of very little interest and excitement to imagine a future where you need help to get dressed, someone to help you “toilet yourself” and put food in your mouth at mealtimes. Intellectually, you can understand it but emotionally, it’s totally on another planet unless you had to be a caregiver to feed, dress and bath someone else in the past.
Furthermore, there are so many letters on all types of insurance and national schemes that well, ElderShield really doesn’t stand out as an urgent and important matter to take a decision on.
And yes, the next time you sit down to have a comprehensive financial planning review, this will be discussed and you will probably be advised to do upgrade which brings me to the next point.
You can do Something – Upgrade
It is true that on a monthly payout of $400 a month, you can barely afford to hire a helper. It is also true that based on a total payout of $28,800, it is probably an amount you already have in savings or investments so it makes little sense to buy an insurance when you already can self-insure.
What is not true, however, is that you should opt-out or do nothing with the ElderShield scheme because the monthly or total payout is not attractive. The reason – you can make it attractive.
However, this only makes sense if you believe that suffering from some form of disability in the future is a possibility and it is something you want to plan for in advance.
A recent report states that the average Singaporean will have about 6 unhealthy years of being “saddled with disabilities” in our lifetime. For specific situations like Alzheimer’s disease, the length of disability can vary greatly and it is not unreasonable to expect periods of disability exceeding more than 10 years. The frightening thing about the risk is that it is unknown.
Some insurers have options where you can enhance your ElderShield program to a higher payout every month and for longer periods. I have personally helped a client to upgrade to a higher payout of $2,000 a month for life. The reason the client is so willing to do it – she is looking after a family member with end-stage Alzheimer’s.
My Personal, Biased and Concerned View
I’ve only ever helped a client made an ElderShield claim once. It was a client’s father. He had cancer, underwent a major surgery to remove a part of the hip area (if I recall correctly) and post surgery, required assistance to perform many of the everyday activities you and I take for granted. The claim was successful and the family received the payout for a short period until unfortunately, he passed away.
I cannot claim to say that I’ve seen long term care insurance preventing financial tragedies. Yet, my gut tells me that as a society, old age disability is going to be a huge problem in the future. Whether it’s the rise of single households, the rising rates of diseases such as Alzheimer’s or just the realities of an aging population, I’ve accepted that the odds of me and the people I know suffering from some form of disability in the future is too great to ignore.
That has translated into how I advise clients and I admit that I spend a bit more effort than usual to educate them on the value of enhancing their ElderShield. It does not always work but at the very least, I have prevented quite a few from “opting out” after I educated them on the merits of having a long term care insurance plan like ElderShield.
A Basic Starting Point – Do a Bit (Upgrade based on Premium of $600 a year from Medisave)
Perhaps, all things being equal, there is a starting point which balances insuring the risk but not spending too much into an insurance that you may never claim from and you cannot get the premiums back.
We are allowed to use $600 a year from our CPF Medisave savings to upgrade and enhance the ElderShield. As you consider an upgrade, there are 2 main features that I find worth considering more than others:
1. Choose a limited premium option
This means the premium payment is limited only to a certain number of years (typically till age 66 or 20 years whichever is later) while the insurance protection will continue after you no longer have to pay premiums. This will ensure there is one less fixed cost to worry about in old age when you no longer have a working income.
2. Choose a lifetime payout option
The biggest difficulty in selecting the right upgrade plan is we do not know how long the disability is. If we know in advance that we will suffer from a disability of 10 years, it’s easy to plan. If we know we won’t suffer from any disability, we will not buy. What we do know is that there is a chance, and the odds of it happening are increasing over time, that we will suffer from a disability and it can vary from a few months to decades.
The logical and rational thing to do – choose a lifetime payout to completely eliminate the risk of outliving the insurance payouts.
There are still quite a few other features such as rehabilitation benefits, lump sum benefit, and dependent care benefit as well as selecting the amount of monthly cash payouts to decide on. That planning should be done with the assistance of a licensed financial planner (hopefully someone from GEN of course!) but in my opinion if the upgrade have the 2 features mentioned above, you can’t go far wrong.
A Resource to Help You Get Started
I’ve spent a lunchtime to write this article which I hope can help you understand a bit better what this “ElderShield thing” is all about. If you would like to find out if you can qualify (based on your age) to upgrade your ElderShield program to one which has a limited premium and lifetime payout option without using cash, click here to download this resource which I’ve invested a tea break doing.
(NOTE: Get our ElderShield Upgrade Checklist to help you discover how much lifetime monthly cash payout you can upgrade based on a Medisave limit of $600. Get your checklist here)
Once disability strikes, it’s akin to a living death. Yet, death is something we cannot avoid, disabled or not. I think by having the financial planning done in advance, life can still be worth living. In SMRT language, we must still be able to enjoy and continue the journey to Joo Koon even when there is a train fault at Boon Lay.
Article by Lee Meng Choe
The writer is the Executive Director (Distribution) of GEN Financial Advisory