How to Select a Suitable CareShield Life Supplement
From 1 Oct 2020, Singapore Citizens and Permanent Residents who were born between 1980 and 1990 are automatically covered under CareShield Life. I had an introduction on the launch of CareShield Life in my previous article here. Now the government allows people who are covered under CareShield Life to utilize up to $600 from their CPF Medisave per year to purchase a CareShield Life Supplement, to enhance the benefit of CareShield Life. Recently many clients and friends asked me how to select a proper CareShield Life Supplement. Due to the popularity, I answer the question in this article.
CareShield Life Supplement in the Market
There is an article on personal finance knowledge website Seedly to compare the CareShield Life Supplements provided by all the three eligible insurance companies in the market. You may click here to go through this part.
Benefit Payout Criteria
There are two Benefit Payout Criteria offered by CareShield Life Supplements for you to choose from. The benefit can be paid out when the life assured is unable to perform at least 3 out of 6 Activities of Daily Living (ADLs), or when the life assured is unable to perform at least 2 out of 6 ADLs. The six ADLs are: Transferring, Walking or Moving Around, Toileting, Washing, Dressing and Feeding. So here is the question: What is the difference on probability between these two criteria? I did a thorough search across the open statistics in Singapore. Unfortunately, there is no exact number on this issue. The most relevant data comes from an article 40-Year Projections of Disability and Social Isolation of Older Adults for Long-Range Policy Planning in Singapore published in International Journal of Environmental Research and Public Health in this year. Based on the data in this article, in 2014, among the population aged above 65 in Singapore, there were about 29,000 people who were unable to perform at least 3 out of 6 ADLs, and there were about 42,000 people who were unable to perform at least 1 out of 6 ADLs. If we make an estimation by doing a simple average, there should be about 35,500 people who were unable to perform at least 2 out of 6 ADLs, which is 22% more than the number of people who were unable to perform at least 3 out of 6 ADLs.
However, even for people who are unable to perform exactly 2 out of 6 ADLs, they may gradually become unable to perform 3 out of 6 ADLs, when they get older and the body degenerates. So in my personal view, for most of the people, it is proper to choose the benefit to be paid out when the life assured is unable to perform at least 3 out of 6 ADLs.
Monthly Benefit Amount
The Monthly Benefit Amount is how much CareShield Life Supplement pays out when the life assured fulfils the Benefit Payout Criteria.
If your budget is sufficient, you may select the Monthly Benefit Amount according to your estimated need on long-term care, to enhance the benefit of CareShield Life. When a person is unable to take care of oneself, there are two common options in Singapore: to engage home-based care services, or to stay in a nursing home. For the first option, the person will need to hire one normal domestic helper to take care of the daily housework, which costs $600 to $850 per month; and also to hire one live-in nurse to attend to personal and medical care, which costs $600 to $1,000 per month. It will add up to $1,200 to $1,850 per month. For the second option, the costs for staying in a nursing home is about $1,200 to $3,500 per month. Whichever option you choose, if continuous medication and treatment is required, more expenses will be added in.
If you only want to utilize the $600 budget from CPF Medisave per year to purchase CareShield Life Supplement, it will be relatively simple. You can select the Monthly Benefit Amount based on the $600 annual budget.
Benefit Payout Trend
There are two Benefit Payout Trend options under CareShield Life Supplements. One is fixed payouts, the other is increasing payouts at a fixed rate of 2% or 3% per year. Before we select from these two options, we should understand that CareShield Life itself increases the Benefit Payout Amount at certain percentage (2% initially) per year. If you think that the increasing of the Benefit Payout Amount in CareShield Life itself has taking care of your expectation on inflation, you may let your CareShield Life Supplement be fixed payouts. Otherwise, you may consider the option of increasing payouts at a fixed rate of 2% or 3% per year for your CareShield Life Supplement.
In addition, if you only want to utilize the $600 budget from CPF Medisave per year to purchase CareShield Life Supplement, you will better let your CareShield Life Supplement be fixed payouts. Because for the increasing payouts option, the premium also increases every year. It will easily exceed the $600 budget.
Premium Payment Term
There are two types of premium payment terms for CareShield Life Supplements. One is shorter term (till age 65, 67 or 69). The other is longer term (till age 80, 84 or 99). Personally, I will recommend a longer term. On one hand, under the same budget, a longer term can be exchanged for a higher Monthly Benefit Amount. On the other hand, if a person has sufficient CPF Medisave, the interest from the Medisave account every year can be used to pay all or part of the premium, even after retirement. In the worst scenario when the person can’t afford the premium after retirement, the person can choose to reduce the Monthly Benefit Amount to reduce to premium, or to reduce the Monthly Benefit Amount to immediately pay up the premiums. In contrast, if a person selects a shorter premium payment term at the beginning, the Monthly Benefit Amount is relatively lower. If the person wants to increase the Monthly Benefit Amount later, the health condition may not be as fit again for new benefit application. It is generally less flexible.
That’s all of my sharing on this topic. If you have any relevant questions, welcome contacting me directly for a discussion.