Should I bother switching from ElderShield to CareShield Life?

Time flies, and it’s been more than a year since we examined CareShield Life and the various supplements offered by private insurers (see here). Since then, CareShield Life has been launched, and made mandatory for those aged between 30 to 40 years of age. But more recently, the above 40’s have received a letter from the CareShield Life team, informing them that they can switch from ElderShield to CareShield Life. So, should we bother switching from ElderShield to CareShield Life? Or should we stay put with ElderShield? Or should we consider opting out of both?

As expected, the letter from the CareShield Life makes it look very attractive to switch, extolling the various improved payouts:

CareShield Life vs ElderShield400

	CareShield Life [NEW!]	ElderShield400
Payout Amount	$612/month and increases annually until age 67, or when a successful claim is made, whichever is earlier	Fixed at $400/month
Payout Duration	Lifetime	Up to 6 years
Government Subsidies	Yes	No

Of course these added benefits do not come free, and the ElderShield folks who are thinking of switching will have to pay higher premiums, as the website indicates:

Let’s take the case of the people who are currently on ElderShield400 and work out the pros and cons of either switching or not switching, and also some decision rules which can be handy. By default, everybody on ElderShield has already been migrated to CareShield Life as of 1 Dec 2021, and the relevant premiums will be deducted from their Medisave in March 2022. However, they have until 31 Dec 2022 to decide if they would prefer to remain on CareShield Life, or opt back to ElderShield, or even opt out altogether!

What do we know about CareShield Life?

Before we start, let’s recap a little on what we do know about CareShield Life. While we don’t need to dive deep into the statistics of disability rates and life expectancy of the disabled (which are all found here), we can summarise our previous findings as follows:

• CareShield Life pays a monthly payout (which can be for life) if we are unable to perform 3 out of the 6 Activities of Daily Living (ADLs)

• When we assessed the expected net present value of someone covered from the age of 30 by CareShield Life, based on what we know about the likelihood of being disabled, and the length of the payouts, we found that CareShield Life is an actuarially fair insurance contract, and even even leaves a bit of value on the table for the insured
• What is even better, the structure of CareShield Life premiums actually fits our life cycle well, having lower premiums earlier on (when we are younger and earning less), higher later in life when we earn more, and ending all premium payments at the age of 67 (when we retire)
• Also, the structure of CareShield Life payouts increases over time (until we make a successful claim), which helps to keep the value fo the payouts constant against inflation (as most people become disabled only when they are much older, in their 70’s for example)

Conversely, while the CareShield Supplements from private insurance companies to increase the amount of coverage are on the whole also actuarially fair (especially with the discounts to boost the take up rates), the structure of these supplements is less practical:

• The CareShield Supplements generally charge flat premiums, which are payable for life until a successful claim. Since most people earn less at the start of their careers, but tend to make successful claims later in life, this amounts to a front-loading of premiums payable, which does not fit well with our life cycle in terms of earnings power
• CareShield Supplements generally offer a flat coverage amount, and is not protected against inflation. Hence, while the additional coverage look useful at the point of inception, say when one is 30 years old, when the payouts are really needed later in life, their value will be greatly eroded by inflation.
• For example, the CareShield Life payouts start at $600 a month when we are 30 years old, but will double to more than $1,200 by the time we are 67 years old, maintaining its real purchasing power. Over the same period, the payouts of the CareShield Supplements will essentially be eaten by inflation.

Hence from a pure insurance coverage perspective, CareShield Supplements are much less useful in comparison to the core CareShield Life coverage. They still can be useful, for example as short term disability insurance cover over a period of 10 years (from the age of 30 to 40), when we have less savings and reserves put aside for a rainy day. However, they are not quite so useful as a form of long term disability insurance cover for the reasons noted above.

CareShield Life, just like CPF Life, is a good, value-for-money insurance plan. But the private CareShield Supplement Plans with level premiums & payouts offer less value-for-money

How does CareShield Life compare to ElderShield?

So far, what we know is that Careshield Life is a pretty good deal, especially for the women, for whom the likelihood of disability in their lifetimes is significantly higher than for the men. But that mainly covers those aged 40 and younger. What about those aged 40 and above, who are on ElderShield, and who now have to consider switching from ElderShield to CareShield Life? Is this a good choice for them?

Figuring this out, as with all the other CPF schemes now, is a little more complex. This is because for whatever reasons, the pricing of the premiums for CareShield Life are no longer transparent for everyone, and you’ll have to log in with your own Singpass account to see only the premiums relevant to yourself. This of course makes comparison across different age groups much harder. Perhaps that is the end objective? To make sure that the valuable intellectual property of developing and pricing a decent healthcare plan is kept away from others, who may wish to learn from it?

Let’s see what we can work with. We’ll look at the case of people aged in their late 40s and early 50s, both men and women, who have been enrolled in ElderShield400 since they turned 40. Based on the information provided to them from the CareShield Team, the premiums they need to pay are as follows:

Premiums for ElderShield400 and Careshield Life for those considering switching

	Men	Women
ElderShield 400	$174.96 until age 65	$217.76 until age 65
Late 40s, switching to CareShield	$430 rising by 2% every year, until age 67	$529 rising by 2% every year, until age 67
Early 50s, switching to CareShield	$468 rising by 2% every year, until age 67	$579 rising by 2% every year, until age 67

Note that in addition to the stated CareShield Life premiums payable, citizens in this age group also benefit from a $100 transitional subsidy per year for 10 years. This will be accounted for in our comparisons below.

Obviously, with differing premiums payable, flat vs rising, ending at different ages, and with different amounts payable/claimable, rising vs flat, and for life vs for 6 years, it is never going to be easy to do a straightforward comparison. So we’ll try to simplify the comparison by looking at the potential payouts and net value of the premiums paid between the two schemes at various ages, starting with age 67 (when the CareShield Life premiums end), and age 75, when the chance of disability rises above 1% per year.

Likelihood of Death and Disability by age per year

	Men	Women
Age 67, chance of death	1.21%	0.65%
Age 67, chance of disability	0.48%	0.39%
Age 75, chance of death	2.87%	1.57%
Age 75, chance of disability	1.15%	0.94%

For the net present value of the premiums, we assume in the example used that the people have been continually paying for ElderShield400 since they turned 40, and then pay for CareShield Life until age 67. Further, we accrete these premiums to the comparison date using a 4% rate of interest, which is what the premiums will earn if they had not been paid as premiums, but had been left in the CPF Medisave Account instead.

For the payouts or benefits at each comparison age, we will use the expected value, assuming a claim is made successfully, and the disability persists for the rest of their life. Future payouts will be discounted, again at a 4% discount rate, to be consistent with the accreting rate above. the length of time for which the payout will be made, if for life, will be based on the life expectancy of the disabled person, which is assumed to be the same as a person who is 12 years older than the disabled person in question (see here for the basis of the assumptions made and academic sources for justification).

Switching from ElderShield400 to CareShield Life: Men, late 40s

	Premiums Paid	Potential Payouts
Age 67, remain on ElderShield400	$8,385	$26,169
Age 67, switch to CareShield Life	$16,942	$79,549
Age 75, remain on ElderShield400	$11,476	$26,169
Age 75, switch to CareShield Life	$23,186	$53,583

Switching from ElderShield400 to CareShield Life: Men, early 50s

	Premiums Paid	Potential Payouts
Age 67, remain on ElderShield400	$8,385	$26,169
Age 67, switch to CareShield Life	$15,832	$74,961
Age 75, remain on ElderShield400	$11,476	$24,040
Age 75, switch to CareShield Life	$21,667	$50,492

A couple of things can be observed from these 2 tables:

• Potential payouts from ElderShield400 do not change much, since it is limited to a maximum of 6 years only. The potential payouts from CareShield Life are much higher, since they are for life
• The potential payouts from CareShield Life decrease with age, since life expectancy decreases with age
• Premiums paid go up with time in both cases, since the monies paid would have accrued interest over time if they had not been used

Now, let’s look at the case for the women, who have both longer lifespans, and a higher chance of being disabled.

Switching from ElderShield400 to CareShield Life: Women, late 40s

	Premiums Paid	Potential Payouts
Age 67, remain on ElderShield400	$10,437	$26,169
Age 67, switch to CareShield Life	$21,271	$94,407
Age 75, remain on ElderShield400	$14,283	$26,169
Age 75, switch to CareShield Life	$29,111	$63,416

Switching from ElderShield400 to CareShield Life: Women, early 50s

	Premiums Paid	Potential Payouts
Age 67, remain on ElderShield400	$10,437	$26,169
Age 67, switch to CareShield Life	$19,880	$88,962
Age 75, remain on ElderShield400	$14,283	$26,169
Age 75, switch to CareShield Life	$27,207	$59,758

Comparing the women with the men, we see the following:

• Women will always pay more in premiums, simply because they live longer and have a higher chance of disability
• But under ElderShield400, women are essentially paying more than the men for a similar level of payouts (but they have higher chance of claiming)
• The ratio of potential payouts to premiums paid is better for the women than for the men. And this is even before considering that women have a higher chance for claiming successfully

So, should we bother switching from ElderShield to CareShield Life? The answer is a “YES“, if you are concerned with getting covered for disability. Note that with the transitional subsidies for the premiums over 10 years, the Net Present Value of switching to CareShield Life is strongly positive. You are still more likely to pass away before getting disabled, that is for sure, but you’d be better off when you do make a successful claim. And for non-citizen residents, even without the transitional subsidies for premiums, switching to CareShield Life is still actuarially fair. That is, no private insurer is trying to make a profit off you.

If you are concerned about being covered for disability risk, then switching from ElderShield to CareShield Life is a good decision. This is especially so for the women, who live longer, and have a higher chance of disability.

Is there any benefit to opting out of disability insurance?

Now that we have established that it is better to switch from ElderShield to CareShield Life, the question remains as to whether we should all get disability insurance n the first place. Is there a possible benefit from opting out altogether?

Again the answer is “YES“, although it is a qualified one. For a start, you have higher chance of dying than being disabled, especially for the men. So it is more important to get covered for life risk (i.e. term life insurance) than for disability. There are also considerations where the potential payouts from ElderShield or CareShield Life may not be so imnportant:

• You are already covered for life using term life insurance at least until the age of 70. Virtually all term life insurance is sold with a mandatory Total and Permanent Disability (TPD) rider. If you read the fine print, you’ll note that it covers you for disability (i.e. unable to perform 3 ADLs) as well. So if you have term life insurance, you’ll have disability insurance too. Of course, you’ll only get one payout from the term life insurance, either disability or death, so think of the TPD coverage as an acceleration of the death benefits.

• You are well prepared for retirement, with a reliable source of income plus additional buffers and reserves This will leave you with enough money to pay for disability care costs as well, should the need arise. In this case, you do not need the additional coverage from ElderShield or CareShield Life. An example of this may be, having term life and TPD cover until the age of 70, you also opt to delay the CPF LIFE payouts until the age of 70, to get a 35% increase in the monthly payouts, which will be a reliable source of retirement and long term care income for life.

Now that CareShield Life has been launched and we have a year to decide whether switching from ElderShield to CareShield Life is a good idea, this analysis and comparison will hopefully make the choice an easier one!

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