Finance and health are two of the biggest problem zones for retirees. They either fail to accumulate enough financial resources or find themselves riddled with health problems that eventually affect their finances. This is where most people turn to insurance to be more financially prepared.
But insurance policies aren’t foolproof and they do come with potential pitfalls. Here are 4 common pitfalls that retirees might struggle with when it comes to insurance.
1. Failing to get insured for the rising cost of healthcare
Cost of healthcare will only go up
Healthcare is one of the largest expenditures that you will have to fork out during your retirement years. The truth is that, as you age, your body no longer functions as well as it used to. The decisions you have made in the past 40 to 50 years will now come back and haunt you. In an economic sense, this will translate to the possibility of rising healthcare costs for you.
According to Marsh & McLennan Companies’ Asia-Pacific Risk Centre, elderly healthcare costs in Singapore is projected to rise tenfold by 2030. It is expected to hit more than S$66 billion annually for Singapore! This means that an average of S$51,000 will need to be spent on elderly healthcare for every Singaporean.
Unsurprisingly, it is the highest average sum in the whole Asia Pacific region, just ahead of Australia. And it is not just the cost that is rising. The duration that Singaporeans are in ill health is also fast becoming a problem. On average, each Singaporean will spend 8 years in ill health during their retirement years.
So, how to hedge against rising healthcare costs?
One way to hedge against the risk of rising healthcare costs for retirees is to get the right health insurance. By transferring the risk of falling sick to the insurer, you can enjoy your retirement years with better peace of mind. However, not every retiree is able to do that due to two major problems: the high cost of health insurance and pre-existing conditions.
a. The high cost of health insurance
For retirees who do not have any health insurance, getting one while you are in your 50s or 60s can be expensive. Insurance companies know that your risk of falling sick will increase exponentially as you age. Thus, they will have to cover the risk of insuring you against rising healthcare costs. It can become way too expensive for you to afford health insurance.
b. Denial of coverage for pre-existing conditions
The thornier issue at hand is the existence of pre-existing conditions. As you worked hard over the years, you might have developed a health condition like diabetes or high blood pressure. What this means is that insurers might refuse coverage for you and reject your application owing to such pre-existing conditions
Some insurers might still insure you, but with an exception. They will insert an exclusion on your pre-existing condition. An exclusion works in such a way that the insurer will not allow you to claim on medical bills relating to your pre-existing condition.
Let’s say your health condition is not serious enough to warrant an exclusion, i.e. your lucky star is shining on you! In such cases, your insurer might decide to accept your application. However, it comes with some conditions. For example, if your insurer decides to accept your application, it is highly likely that your premium will be much more expensive. Else, they might impose a moratorium where you cannot claim on medical bills relating to your pre-existing condition for 1-2 years.
What should retirees do about it?
Ideally, you should get an Integrated Shield Plan (IP) to supplement your MediShield Life for insurance against potentially hefty medical bills while you are still young and in the pink of health. If you are already past that stage, it still isn’t too late to know about this now. There are IP plans like Raffles Shield that will insure you even if you have a pre-existing condition. You can also find other health insurance plans (non-IP) that will cover you for your pre-existing condition.
2. Lacking awareness about long-term care insurance
Everyone probably heard about life insurance and health insurance. But have you heard about long-term care insurance? The problem among retirees is that few have heard about long-term care insurance. It is a relatively new insurance product compared to life and health insurance.
Long-term care insurance: What’s that?
Long-term care insurance is a type of insurance that is designed to cover nursing and healthcare costs for severely disabled elderly. Severely disabled refers to anyone who is unable to independently carry out 3 out of 6 activities of daily living (ADLs). The 6 ADLs are: washing, feeding, dressing, toileting, mobility and transferring independently.
Why lack of long-term care insurance can be a problem
According to the Ministry of Health (MOH), 50% of Singaporeans who are healthy at age 65 face risks of developing a long-term disability in the later years. Marsh & McLennan even put in a bold prediction that more than 20% of retirees will need long-term care. The magnitude of this problem is so large that PM Lee made it a point to put it in his 2017 National Day Rally.
What should retirees do about it?
Despite the graveness of this issue, many retirees have not yet planned for long-term care insurance. If you happen to be one of them, you are in luck. This is because the old long-term care insurance of ElderShield is getting a revamp into CareShield Life. There will be an opportunity for you to get yourself insured if you are still lacking long-term care insurance protection.
Read more about CareShield Life: CareShield Life Replaces ElderShield in 2020: Here’s What You Should Know and How It Affects You
3. Thinking that you still need life insurance
You might have heard from experienced financial advisors that everyone needs a life insurance policy in their life. As a matter of fact, you really do. However, there is a caveat that most people do not talk about, i.e. you only need life insurance for your dependents.
Life insurance is meant for dependants’ financial protection
Life insurance pays out a sum of money on the death of the insured life. It is an insurance product that is designed to offer financial protection for your dependents in case an unfortunate event falls upon you. But as a retiree, your dependents are now probably old enough to take care of themselves financially. They would already have started earning their own keep or maybe even started their own family. Any life insurance policy that you have bought prior to retirement would have sufficed. Even if you don’t have one, there is no longer a need to buy one to put financial safeguards in place to protect them.
Avoid long-term insurance policies
So, if you are in your 60s and your financial advisors starts touting a long-term insurance policy to you, be wary. Insurance products are designed to benefit you only if you live long enough to take advantage of it. Long-term insurance policies are not meant for you.
4. Taking on too much investment risk
In the lead time towards your retirement, financial experts are in agreement that you should be dialling back on your investments. Yet, there are some retirees who end up taking on too much investment risks during their retirement years. This is partly attributed to the lack of understanding about insurance.
Excessive investment risks can affect your post-retirement lifestyle
While the name suggests that it offers protection, insurance does come with underlying investment elements as well. For some insurance plans like an investment-linked policy, the name clearly says it all. However, other insurance products like endowment plans do come with some investment elements and risks.
As a retiree, you are at a stage where you no longer need to grow your retirement savings. You are now at the stage where you need to convert your assets into cash flow for your monthly expenditure. If you take on too much investment risks, your cash flow will be affected. This can, in turn, affect the quality of your retirement life.
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