Frequently Asked Questions Regarding CareShield Life
1. How is TPD insurance different from CareShield life in terms of coverage and payout? Is there an overlap?
Total and Permanent Disability (TPD) is defined as loss of both arms, or both legs or both eyes or alternate of them. Or when a person cannot work anymore due to disability. TPD insurance provides a lump sum benefit for medium to long term financial assistance, in the event of total and permanent disability which stops the policyholder from working.
CareShield Life, on the other hand, covers severe disability which is defined as when one cannot perform 3 out of 6 of the activities of daily living (ADLs). It pays a monthly amount for life and it is meant to pay for part of the cost needed for long term care (LTC).
2. What are the other insurance policies out there that are most common amongst Singaporeans? What is the coverage like?
The most common would be TPD Insurance which usually comes bundled with death coverage, as well as Disability Income (DI) Insurance. DI protection insurance replaces a portion of the policyholder’s missing income and provides some financial stability in an event of disability which prevents the policyholder from working temporarily or permanently.
For TPD, the payout is lump sum, depending on how much coverage you buy. The coverage term is usually up to age 70.
For DI, it covers up to 75% of one’s salary. The coverage term is usually up to age 70.
As one can see, there is a protection gap from age 71 onwards. This is where ElderShield and the future CareShield Life comes in.
3. We have so many policies (life, PA, critical illness, hospitalisation etc), on top of MediShield Life and ElderShield/CareShield Life. How should we actually decide on what sort of insurance we need and which to buy? What are your recommendations?
There are a few principles about insurance that one has to remember:
- The primary purpose of insurance is for protection, not savings or investment.
- First buy those insurance one will most likely affect your financial situation now.
- Buy as much as you need, pay as little as you can.
With these 3 principles, this is the priority of needs:
- Hospitalization Plan for the whole family – First with MediShield Life, and upgrade to IP, if you have the budget.
- Buy death coverage (comes with TPD usually), for all income earners at home – This is for replacement of income upon death of the income earner.
- Buy critical illness coverage for all income earners at home – This is for replacement of income upon diagnosis of CI and the income earner cannot work.
- Have at least CareShield Life, and upgrade to the supplement if you have the budget.
- Buy Disability Income Insurance if you have the budget.
But how does one pay as little as you can? At Providend, we have always advocated the use of term insurance for coverage against loss of income due to death, disability or a critical illness. The premiums for term insurances are a lot lower as compared to whole life.
4. Compared to ElderShield, CareShield Life’s payouts will be increased from $400 to $600. How should one comprehend this increase in terms of its sufficiency and adequacy? Would a permanently severely disabled individual be able to cope with daily living with $600?
First of all, there is a need to understand the thinking behind this. CareShield Life is meant to provide the most basic LTC coverage that is sufficient for the lower-middle income group, which is defined as the 30th percentile ($1100 Per Capita Household Income). For this group of people, if they ever become severely disabled, they can:
(A) Opt for nursing home care. The costs per month would be:
Nursing Home – $2,400
60% Govt Subsidy – $1400
CareShield – $600
They would need to co-pay $400 through personal savings/family support
Or, (B) Opt for home and community care:
Home and community care – $3100
Govt Subsidy up to 75% – $2,300
CareShield – $600
Need to co-pay $200 through savings and family support
I think for this group of individuals, CareShield would adequately provide for LTC. For the higher income group, they can opt to buy the additional supplement to improve their coverage.
5. Some say that given that the government has now taken over the scheme and that it is not for profit, CareShield Life should not be gender-differentiated as on average, women earn less than men but expected to pay more premium. Is there really a need to gender differentiate the premiums?
It is important that the scheme is sustainable in the long run. Given that CareShield Life premiums are paid by men and women for the same number of years, but provides lifetime coverage, women would need to pay higher premiums to reflect their longer life expectancy (which means they benefit more than the men). In addition, the risk of severe disability differs between men and women, especially beyond age 65, when premium payment has stopped. As such, CareShield Life premiums are gender-differentiated to reflect the difference in risks.
For MediShield Life, the premium payment goes on as long as the policyholder is alive. As such, because women are likely to live longer and therefore pay more premiums but the benefits are similar to the men’s, MediShield Life premiums are not gender-differentiated.
6. What are the greatest improvements and enhancements from ElderShield to CareShield Life?
- 50% increase in payout from $400 to $600 and the payout is for life instead of just 6 years
- Universal coverage from age 30 – even those who suffer severe disability can be covered
- Claims and reassessment process made simpler
7. What are some limitations of CareShield Life?
- The payout is flat and not adjusted for inflation once you have claimed. But this cannot be helped, otherwise, premiums will have to be higher.
- After age 67, payouts do not increase anymore. If one suffers disability after age 67, the payout of $1200 may not be sufficient. Again, this cannot be helped, otherwise, premiums will have to be higher.
8. There’ll be explicit consideration of the impact on cognitive impairments on functional ability in the assessment framework. What are the thoughts on that?
Cognitive Impairment is defined as a decline in an individual’s ability to remember, think, judge and learn. The decline can range from mild to severe. Severe cognitive impairment could affect a person’s ability to carry out day-to-day activities. Dementia, for example, can cause severe cognitive impairment.
For the new enhancement, the assessment framework would be modified to provide explicit guidance for ElderShield assessors to consider policyholders’ ability to initiate a task, plan, and finally complete an ADL effectively and safely. This will allow cognitively impaired policyholders with higher care needs to consistently qualify for claims.
This is a good change to the current ElderShield. In the past, it is not clear how an assessor decides if someone with cognitive impairment can claim ElderShield. Hopefully, with this framework, more people who really need this payout can claim CareShield Life.
9. For the current cohort who are already enrolled under ElderShield, should they join CareShield Life when it is implemented in 2021? What do they need to consider?
While the enhanced CareShield Life is a better plan than ElderShield, whether the current cohort should join this enhanced scheme will depend on a few things:
- Their age – If they are older, the number of premiums payable will be very high, In addition, because they have a shorter duration (from their current age to age 67) to pay their premiums, premium affordability is an issue to consider.
- Whether they are still eligible. Some may have opted out and currently have pre-existing disabilities.
- Whether they have already bought their ElderShield Supplement and would already be sufficiently covered.
The current ElderShield + Supplement Package is better than CareShield Life on its own. However, when private insurers launch their supplement for CareShield Life, the current cohort can take a look at the premiums vs benefits then, to make a decision whether it makes sense for them to switch over to CareShield Life + Supplement.
Summary
The details on CareShield Life for the existing cohort who are enrolled with ElderShield are not out yet. Over the next few months, the government will release premium amounts and the kind of premium support available. In addition, insurers will also launch the supplements for CareShield Life and give details of the premiums. One should only make a decision based on the following key considerations:
- Is your current ElderShield + Supplement better than CareShield Life in terms of premiums vs benefits?
- Is CareShield Life + Supplement better than your current ElderShield + Supplement in terms of premiums vs benefits?
- What kind of premium support will you be getting from the government to make it affordable for you?
The writer, Christopher Tan, is Chief Executive Officer of Providend, a Fee-only Wealth Advisory Firm. Besides being financially trained, he is also an Associate Certified Coach with the International Coach Federation.
We do not charge a fee at the first consultation meeting. If you would like an honest second opinion on your current investment portfolio, financial and/or retirement plan, make an appointment with us today.
