Insurance Planning for Parents – How to Help Your Parents Set Up Plans Using CPF-Medisave
Me: Have your parents set up any plans for themselves?
Client: What do you mean? I’m not sure on that. We didn’t have any conversation on this.
Me: Do you know that you can use your Medisave to help set up some basic plans for your parents? It’s important to make sure that your parents are properly covered in the event anything happens so that your family’s financial position is protected.
Client: Oh, please tell me more about that.
It’s common that most people will look at setting up basic risk management for themselves once they start working. When we have children, it’s also quite instinctive for us to plan for them, given that the basic instinct of parents is to protect their children.
More often than not, ensuring that our parents are well protected is not something that comes naturally. We often make the assumption that our parents, who are more experienced in life and more senior than us, should have their personal plans set up properly. Yet, this is not the common scenario I observed after 10 years as a financial planner.
Some of my clients’ parents do not even own any personal insurance and protection plans for themselves. They were either unaware of what can be set up or they didn’t know what they have set up. As children who are concerned about the well-being of our parents, it is important to look into the relevance and validity of our parents’ insurance planning (with their permission of course, since this can be a sensitive topic!)
Here are some of the discoveries my clients made when they checked out their parents’ plans:
“Gal, I called company xxx just now. My father-in-law’s policy for hospitalization has lapsed…so need to re-apply again.” – Client A
“My father-in-law just passed away. When we checked what he has, we realized that none of his plans were valid because they had all lapsed. He had Alzheimer’s disease for many years. He forgot to make payment for his plans and we were all not aware of it.” – Client B
If this is something that concerns you, I hope the following 4 common questions (with answers of course) will help you to kick start the planning for your parents:
Question 1: Do you know that as children, we can use our Medisave to set up some basic plans for our parents?
Every Singaporean or PR who is gainfully employed, will need to contribute to CPF. Medisave (one of the accounts under CPF), can be used to enhance hospitalization plans and upgrade ElderShield (old age disability plans) for our parents.
Question 2: How much does it cost to enhance these plans?
For enhancement of hospitalization plans, the allowable Medisave withdrawal limit is as such:
a. $300 for those with age next birthday 40 years and below;
b. $600 for age next birthday of 41 to 70 years; and
c. $900 for age next birthday of 71 years and above.
For upgrade of ElderShield, the allowable Medisave withdrawal limit is $600 per individual.
Question 3: Can I afford the premiums?
Assuming you’re age 40 and earning $5,000 a month, the Medisave allocation rate will be 9% of your income. This means that every month, $450 will be allocated to your Medisave account. This will be an addition of $5,400 year growth in your Medisave account even if you don’t count the interest earned!
Refer to here for CPF allocation rates.
Let’s say you have 2 parents who are aged 60 and you would like to look into hospitalization and old age disability planning for them and yourself.
Medisave withdrawal limit for hospitalization plans:
$600 per year for 3 (parents & yourself) = $1,800
Medisave withdrawal limit for old age disability plans:
$600 per year for 3 (parents & yourself) = $1,800
Total: $1,800 + $1,800 = $3,600 a year
That is still within the yearly growth in your Medisave.
Question 4: Should I preserve my Medisave savings instead of using it to buy insurance plans?
Medisave can only be used to pay for hospitalization or certain outpatient bills (Refer to here).
By using part of your Medisave to purchase insurance that can enhance your coverage, you are using insurance plans as a leverage to potentially pay for bigger bills than what your Medisave balance can cover.
Furthermore, these are the following potential problems you may encounter in purely using Medisave savings for medical bills:
a. There may be insufficient Medisave balance to pay for the bills.
b. Due to the allowable Medisave limits for bill payment, a person may not be able to use all his Medisave to pay for the bills even if there’s sufficient funds.
c. In the event of old age disability where there’s a need for caregiver, Medisave cannot be withdrawn to pay for the necessary costs involved. In this case, a disability payout from enhanced plans may provide more liquidity for the family.
Setting up comprehensive insurance plans for our parents is not easy and straightforward. The premiums can be high due to age and even if premiums are not an issue, there could be health problems that prevent the successful implementation of the plans. As with many meaningful endeavors, starting early is key when it comes to planning well for our parent’s financial well-being.
(NOTE: Get our Guide to Insurance Planning for Parents using CPF-Medisave to help you understand more when selecting insurance plan for your parents. Get it by clicking Here )
My final piece of advice, remember to have fun in the process and get the parents involved!
Article by Tay Siew Ling, ChFC