Should I downgrade my private IP plan if I can't afford the insurance premium as I age?

The top concerns of those confident of retiring by 65 include failing health and running out of money for their retirement.

Image source: Getty Images

SINGAPORE - Nine in 10 Singaporeans may be confident of retiring by the age of 65, but not everyone is convinced they can retire without worry.

In a survey by life and general insurer Etiqa Insurance Singapore released on Tuesday, 44 per cent of those who are confident of retiring by that age do not believe they can retire comfortably and happily.

Their top concerns were their failing health (42 per cent) and that they will run out of money for their retirement (23 per cent).

About 1,029 individuals between the ages of 18 and 64 took part in the online survey, which Etiqa conducted together with market research firm Kantar, in May this year.

The concerns over their health are very real because the risk that one gets a chronic disease increases with age. The elderly are also more prone to disabilities.

All these push up their medical expenses and insurance companies will charge higher premiums as one ages.

The premium increases are also more frequent when one is older.

They rise every 10 years for someone under 61, go up every five years for those in the 61-70 age group and for those over the age of 71, the premium increases every two to three years.

How can one better manage their healthcare and insurance costs to enjoy a more comfortable retirement? The Straits Times explains.

I want to reassess my coverage. What are the different options available?

MediShield Life is the basic medical insurance, covering every Singaporean and permanent resident, including those with pre-existing medical conditions.

It covers stays in B2 and C class wards in public hospitals and the premiums are fully payable by MediSave.

If you prefer to stay in a private hospital or in B1 or A class wards in a public hospital, you will have to top up your MediShield Life premiums for an Integrated Shield (IP) plan.

You can pay the additional premiums using MediSave but only up to the additional withdrawal limits - $300 a year for those under 40; $600 a year for those 41 to 70; and $900 a year for people over 71.

You will have to pay any excess premiums in cash.

Ms Lee Meng, executive financial services consultant at Gen Financial Advisory, says premiums for a private hospital IP plan are usually about 10 per cent of a retiree's monthly expenses, so they need to factor that into their retirement budget.

If I cannot afford the premiums for a private IP plan, should I downgrade my coverage?

Ms Lee says everyone should find a balance between their healthcare preferences and their budget and consider downgrading their coverage if the premiums exceed their retirement budget.

But Mr Carlos Lee, immediate past president of the Insurance and Financial Practitioners Association of Singapore, adds that people should think twice before downgrading from an IP plan to one with lower medical entitlements or to the basic coverage under MediShield Life, as it will be hard to get another IP.

He says insurers will check if the person has any pre-existing conditions. If they have, which is usually the case as we age, they will not be able to get private insurance coverage.

Mr Lee has encountered cases where elderly clients downgraded their insurance plans and ended up with cancer one or two years later.

For example, say a parent is 72 and the additional withdrawal limit is $900. The child is 45 and his additional withdrawal limit is $600.

Mr Lee says this option is still cheaper for the children than having to foot hefty hospital bills if their parent ends up with basic, or worse, no coverage.

If I want to stay on my shield plan, how can I fund it into my retirement years?

Mr Raymond Ong, chief executive of Etiqa Singapore, says one should start planning for retirement early, adding that the plan should include medical insurance premiums at old age in addition to the usual daily expenses or yearly travel expenditures.

Mr Ong also recommends that you top up your MediSave account from a young age and benefit from interest rates of 4 per cent a year, which will give you a bigger nest egg for heavy medical expenses in later years.

The BHS is the estimated amount of savings an individual needs in his MediSave Account for basic healthcare needs in old age.

This is $66,000 now and will be adjusted every year for those under 65.

Ms Lee of Gen Financial Advisory says you can also invest to generate better returns, which can offset the impact of escalating IP premiums.

But before putting money into any single investment, Mr Eddy Cheong, head of the solutions team at wealth management and advisory firm Providend, says an investor should understand what his goal is, how much resources he has and what risk level he is willing to tolerate.

If he has all that in mind, he will know what's the right investment for him, Mr Cheong says.

Repurpose from The Straits Times by Chor Khieng Yuit, Senior Business Correspondent

6 Sept 2022