Last month I received a letter from an Insurance company informed me S$174.96 has been deducted from my CPF account for one year premium of ElderShield insurance. It is stated that all CPF members (Singaporeans and Permanent Residents) with Medisave accounts are automatically covered under ElderShield when he/she enters 40 years old. The yearly premium is fixed over 26 years till age 65 with coverage extended only till age 85. It covers "severe disability" that refers to the inability to perform at least 3 of the following activities of Daily Living, even with the aid of special equipment, and to always require the physical assistance of another person throughout the entire activity. These activities are washing, dressing, feeding, toileting, mobility and transferring.
ElderShield provides a monthly cash payout of max. S$400 for a maximum of 72 months to help pay the out-of-pocket expenses for the care of severely disabled person. It is estimated that as many as one in 12 elderly persons suffer from disabilities as a result of ageing or illnes which render them incapable of doing simple daily activities.
After simple calculation I found the $ premium is considered too high. Please look into the following calculation and decide yourself if it is fair or not.
Annual premium is S$174.96 over 26 years --> total = S$4,548.96. That is not yet take into account their interests and their compounded interest over the years.
Starting pay premium at age of 40. At 4% interest (CPF-Medisave), an annuity of S$174.96/year over 26 years will become how much at age of 65? Simply by using this annuity-due formula S = R[((1+i)^n+1 - 1)/i] - R
It will become, S = 174.96[((1+4%)^26+1 - 1)/4%] - 174.96 = S$8,062.89
It is estimated that as many as one in 12 elderly persons will suffer from severe disability. So we are 12 persons (please regard us as a family of 12) will have paid
= 12 x S$8,062.89 = S$96,754.68 when we reach 65 year-old.
Then say one of the twelve become disable at age of 70. At age 70, the S$96,754.68 above (with 4% interest) will become = 96,754.68(1+4%)^5 = S$117,716.86
Insurance Company will get S$117,716.86 when our (the twelve elderly persons) ages reach 70 year-old.
Say one of the twelve will get the MAXIMUM i.e. S$400/month over 72 months (from age 70 to age 76). So total will get S$400 x 72 = S$28,800.00 which is ended at age 76.
The present value (at age 70) of S$28,800.00 = 28,800.00/(1+4%)^6 = S$22,761.06
*** Insurance Company will SURELY COLLECT S$117,716.86 and SPEND MAXIMUM only S$22,761.06 ***
It could be that none of those 12 elderly suffers from severe dissabilities; or he suffers but less than 3 kinds of daily living activities so that not eligible to claim).
According to my opinion, as long as INSURANCE is given to PROFIT ORIENTED organizations to manage, it will be based on ACTUARY calculation. So the end goal is to make PROFIT as high as possible. INSURANCE is GOOD if and only if it is managed by a state body which is NON-PROFIT ORIENTED. So there is a COOPERATIVE and COLLECTIVE SPIRITS. Thus the premium definitely would become much lower.
People would be very much obliged if her Highness Singapore Government is willing to manage insurances in non-profitably way especially the ones that are targeted for elderly.
I know the importance of insurance and I fully support its existence. Only I don't agree the way it is managed. That's the reason why I decided to opt-out from ElderShield.
