Start Inflation-Proofing Your Ip Premiums Now
While this may look like a bleak scenario, there are options financial planning wise on what you can do.
Here are 3 options to consider in managing the future IP premiums:
1. Give up IP at age 70 or whichever age at which premiums become unaffordable. This would not usually be a preferred option as an IP becomes more critical as we age, given the much higher likelihood of incurring medical expenses (and potentially some very large ones).
2. Downgrade to a lower-tier plan (from Private Hospital to Restructured Hospital Entitlement). While this has its merits in terms of a lower premium burden after age 70, the premiums will still be higher than what the 45-year old is paying now.
3. Continue to stay on the Private Hospital Entitlement with the increasing premiums to be funded from somewhere.
Table 3: Premium Table of A Sample IP Plan With Inflation Projected at 3% p.a. – Restructured Hospital Entitlement
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Let’s examine Option 2 as it appears appealing. Referring to Table 3, the 45-year old may be paying $1,873 – $3,756 annually in his 70s should he downgrade to Restructured Hospital Entitlement. The premium on the downgraded tier then accelerates to more than $5,000 in his late 80s. This is clearly a more affordable option compared to staying on the Private Hospital Entitlement, with some trade off in the coverage. Even then, the premiums still need to come from somewhere. How then, do we fund these increase in premiums with some sort of certainty, given that an IP is pretty much a necessity rather than a luxury?
For Option 3, the need to fund premiums at age 70 and above is even more pressing, given the huge increase in premiums which we have already discussed.
One way to do so may be to participate in an insurance income plan, with a payout over either a 10 or 20-year period, during the latter stages of life. For example, one can set up a plan to pay out from age 70 onwards, for a period of 10 years (refer to Table 4). The planned payout can be pegged to the out-of-pocket IP premium at the higher end of the age category. So, this person can target a payout amount equivalent to what his IP premium is estimated to be at age 80 ($9,684), leaving him with some buffer the previous few years, which he can use for his rider and deductible/co-insurance. The lump-sum premium, for such a plan with one of the major insurers in the market, is $30,000. He takes care of 10 years of IP premium in one swoop!
Table 4: Sample of an Insurance Payout Plan vs Private Hospital Entitlement at 3% Inflation Projected
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The issue of healthcare cost is a hot topic here in many countries across the world. In Singapore, many people recognise the importance of additional private healthcare coverage beyond Medishield Life, but few have prepared well for escalating IP premiums. This issue needs to be addressed, as we have demonstrated, IP premiums tend to be very expensive at an age when we will no longer be drawing a work income. Even if we decide to downgrade to a lower-tier IP, premiums in our golden years will still be substantially higher than now. We do not know how the landscape for healthcare cost and medical coverage will look like in the next few decades, but it will be foolish not to assume IP premiums will increase.