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Sunday, September 4, 2005

4 Reasons to opt out of ElderShield

Jan 27, 2004

REMEMBER ElderShield? 

It pays you $300 per month for up to five years if you have three of the six serious disabilities required to make a claim.

The scheme was launched in Oct 2002.

A huge number of people have enrolled so far - 740,000 - probably because it is an opt-out scheme.

In an opt-out scheme, you automatically purchase ElderShield using funds from your Medisave account unless you specifically tell the insurer, 'No, I don't want it'.

Promoting it are Ministry of Health (MOH) and insurance providers GreatEastern Life and NTUC Income.

It is the CPF Board's only opt-out scheme that benefits private companies.


ElderShield has jumped back into the news. New data shows that fewer people are opting out when they reach the sign-up age of 40.

An MOH spokesperson says this is because people understand ElderShield better.


But it all comes down to a choice between putting your money in Medisave or ElderShield.

I choose Medisave and advise you to opt out of ElderShield.

Here's why:


First, the chances of your needing ElderShield are small until you reach your 70s.

By then, the Medisave used to pay ElderShield premiums would have grown to about as much as an average ElderShield payout.

The other posibility is you will never make an ElderShield claim. In that case too, Medisave is the best choice.


Second, ElderShield doesn't decrease your financial risk. It increases it.

The reason is simple: If you put your money in ElderShield, you must take it out of Medisave or use cash.

And if you take it out of Medisave, it won't be there should you need it.

Buying ElderShield means you will have extreme disabilities covered. That's good.

But you will have less money for the more common medical bills that can be paid through Medisave.


Third, it may be incorrect to call ElderShield 'insurance'.

Most insurance pays you a large sum of money when a disaster strikes.

ElderShield pays a small amount.

This makes it more like a savings policy, but an unusual one. You get back your savings only if you make a claim.

But the chances of a successful claim are small.

How small? Just-released data shows that after one year, only 400 people have received ElderShield payouts.

That's 400 out of 740,000 policyholders, which comes to just one out of every 1,850.

The number of claims will increase as the population ages.

But here is the biggest shocker: Even people making a successful claim are unlikely to get back more than their premiums plus interest.


Fourth, being an opt-out scheme for all CPF members makes ElderShield a sure-win for insurers NTUC Income and GreatEastern Life.

Should ElderShield meet a higher standard of transparency than other insurance?

For instance, it is useful to know the actuarial estimate of expected payouts over a person's lifetime.

So far, MOH has declined to provide this data.


All about mobility 

TO make an ElderShield claim, you must be unable to perform three of six daily activities like mobility, bathing, feeding, getting out of bed, dressing and toileting.

How likely is a successful claim?

The Ministry of Health and the two insurers won't say, but consider this: If you are paralyzed from the waist down and confined to a wheelchair, you would think that would give you one disability, lack of mobility.

Sorry, that's wrong.

Because you can't move around in your wheelchair, you do not lack mobility, according to ElderShield.

You don't qualify for even one of the three disabilities needed for a successful claim.


Safer to leave money in Medisave 

TO receive an ElderShield payout, the disability must be so severe that many policyholders will not live long enough to collect the maximum payout of $300 per month for five years.

Most will collect payouts for less than three years (36 months).

For payouts of 36 months x $300 per month = $10,800 total payout.

Imagine a woman named Mrs Tan.

She turns 40, does not opt out of ElderShield and chooses a one-time payment of $3,000 for lifetime ElderShield coverage.

If left in Medisave earning 4 per cent per year, $3,000 would have grown to $10,800 - matching her ElderShield payout - by age 72.

Most severe disabilities occur after age 72.

After 72, she will receive more money by simply leaving her money in Medisave, even if she later makes a successful ElderShield claim.

This shows that even when an ElderShield payout occurs, it will likely pay less than simply leaving the money in Medisave earning 4 per cent interest.