5 protection plans for retirement

If you’ve only got a minute:

• MediShield Life helps to cover your large hospital bills at B2/C wards at government hospitals while Critical illness insurance plans provide a lump-sum payout in the event of major illnesses.
• Long-term care insurance plans provide financial support for severe disabilities while Term Insurance Plans allow you to determine a specific period of coverage depending on your dependants, budget and lifestyle.
• Mortgage insurance plans cover outstanding mortgage in the event of death, terminal illness or total permanent disability of the homeowner..

Life is full of uncertainties. The best prepared plans can be thrown off course by unexpected illnesses and accidents.

For instance, an unexpected medical event could deplete or even drain you from your savings. According to MOH, removal of tonsils cost an average of S$1,300 for subsidized hospitals and up to S$12,098 for private hospitals.

It is prudent to take safeguards to ensure that if unexpected events do strike, you will be covered financially. One way is to transfer the risks to insurance firms which have a variety of plans that provide coverage at affordable premiums.

Here are the plans you should consider while planning for retirement:

MediShield Life

MediShield Life is a basic health insurance plan that protects all Singaporeans and Permanent Residents against large hospital bills for life, regardless of age or health condition. It is run by the Central Provident Fund (CPF) Board.

There are limits to what you can claim under MediShield Life, and hospitalisation benefits are based on B2/C class wards in public hospitals. Your MediShield Life premiums are paid from your CPF MediSave Account.

Stepping up in coverage is the Integrated Shield Plan. It incorporates the MediShield Life component, and a private insurance coverage component run by the insurance company, typically to cover private hospitals and A/B1-type wards in public hospitals.

You can pay for your Integrated Shield premiums using MediSave or cash. If you are using MediSave to pay for the additional premium required for the private insurance component, above your MediShield Life coverage, do note that the amount you can use from MediSave is subject to the Additional Withdrawal Limit (AWL). The AWLs are S$300 per year for those at age 40 years and below on their next birthday, S$600 per year for those at age 41 to 70 years on their next birthday, and S$900 per year for those at age 71 years and above on their next birthday.

Should you upgrade to an Integrated Shield Plan? Factors to consider largely revolve around your healthcare expectations. What priority do you place on staying in a private hospital and/or A/B1 wards in a public hospital, as well as the flexibility of being able to choose your own doctors?

An Integrated Shield Plan also offers an as-charged feature which removes the benefit limits on the amount that can be claimed each day for hospital stay and procedures. Furthermore, do consider the affordability factor as premiums of such plans and the optional riders increase at a higher rate compared to MediShield Life, as you age.

A question that arises quite often is whether there is a need to buy an Integrated Shield Plan if you are already covered by your employers for group hospitalization and surgical insurance.

It is important to note that as most company insurance plans are not portable, you will not be able to take the policy with you to a new employer. Even if the policy is portable, the insurer might require premiums and conditions you might not find agreeable. Thus, when you change employers, you typically end up with a new medical insurer, and there is usually a waiting period for existing conditions. It is also prudent to get hospitalisation cover early while you are still healthy as insurers will exclude cover on pre-existing illnesses.

Critical illness cover provides financial protection if you are diagnosed with an insured major illness. Standard critical illness plans are based on the definitions from the Life Insurance Association (LIA) for 37 severe-stage major illnesses, such as cancer, heart attack and stroke.

The payout is usually a lump sum to ensure that your needs and those of your family continue to be met during your recovery period. According to LIA, this is assumed to be five years until you can return to work, or to adjust to your lifestyle needs.

It was reported that in times of critical illness, economically active Singaporeans and Permanent Residents are only covered for a year of their expenses – or 20 per cent of what is needed should they be out of the workforce for five years.

Based on your needs, here are four types of critical illness plans:

Riders or plans that provide pay-out for severe-stage critical illnesses.

Early-stage plans that provide payout for critical illnesses diagnosed at the early stage.

Single-pay plans that provide only a lump sum payment upon diagnosis.

Multi-pay plans that provide multiple pay-outs upon diagnosis. This feature is especially crucial for longer-term illnesses that may recur.

Critical illness cover can be sold as a standalone critical illness plan. It can also be sold as a rider – a supplementary benefit attached to a base life insurance plan, which includes a whole life or term plan.

Long-term care insurance

ElderShield is an opt-out severe disability insurance scheme that provides basic financial protection to those who need long-term care, especially in old age. In the event of severe disability, ElderShield policyholders will receive a monthly cash payout for a period, depending on the plan.

Severe disability refers to the inability to perform at least three of the six activities of daily living (ADLs). They are eating, bathing, dressing, transferring, toileting and walking or moving around.

All Singaporeans and Permanent Residents with MediSave accounts are automatically enrolled in ElderShield at the age of 40, unless they opt out. Depending on the plan, the ElderShield scheme pays S$300 a month for up to five years or S$400 a month for up to six years. If you find the ElderShield payouts inadequate, you can opt to buy supplementary plans.

CareShield Life, is a government-run severe disability scheme. It will be compulsory, automatically getting everyone who is between the ages of 30 and 40 in 2020 to start paying premiums. Future cohorts will join at the age of 30.

For them, the scheme replaces the optional ElderShield. CareShield Life’s scope of coverage is also wider. Should disability strike and a policyholder require care, he will receive a payout of at least S$600 a month, for as long as care is needed.

Term Insurance

A term insurance plan provides coverage only for a specific period and is usually cheaper than other forms of life insurance because it provides pure protection. This means there is no cash value upon surrender or expiry of the policy. A lump sum is paid in the event of death, or total and permanent disability during the duration of cover.

An example of a term insurance cover is the Dependants' Protection Scheme (DPS), which is an opt-out plan that is automatically extended to eligible CPF members. It covers members for a maximum sum of S$46,000 up to age 60. The DPS benefit will be paid out to members and their families should the insured members pass away or suffer from terminal illness or total permanent disability. Annual premiums can be paid from the CPF Ordinary Account and/or Special Account.

The DPS cover is likely to be inadequate for the average Singaporean. As a rule of thumb, approximately nine to ten times of your annual income is required to ensure that your family’s lifestyle is maintained.

The LIA estimates that the average protection needs against death of a working adult with at least one dependant amount to approximately nine times the person’s annual salary. To estimate your desired amount of term cover, consider the needs of your dependants – such as outstanding home loans, car loans, children’s education and household expenses – over a specified period in the event of death. In addition, consider your existing life coverage, CPF savings and bank savings.

Mortgage Insurance

For many homeowners, the home is a big-ticket item, their precious nest and an asset. A mortgage insurance cover is a form of term insurance that offers protection when the homeowner is unable to service his/her mortgage payments in the event of death, terminal illness or total permanent disability. This will ensure that loved ones will be able to retain the home without worrying about the outstanding mortgage as it will be paid for.

When you take a home loan with HDB, you are automatically insured under the Home Protection Scheme (HPS). The annual premiums are deducted from your CPF Ordinary Account. This ensures that if the insured member becomes permanently disabled or dies prematurely before age 65, CPF will pay the outstanding housing loan.

For bank loans, homeowners can purchase mortgage insurance from private insurance providers.

A decreasing term insurance policy can be an affordable option because as the loan amount decreases over time, so does the sum assured. It also costs less compared to a level term policy.

With adequate protection, you can ensure that you and your loved ones are well taken care of as you journey towards your golden years.

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Disclaimers and Important Notice
This article is meant for information only and should not be relied upon as financial advice. Before making any decision to buy, sell or hold any investment or insurance product, you should seek advice from a financial adviser regarding its suitability.