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Eldershield: What does it shield us from?

Sunday, September 7, 2014

Often, we meet really nice people in life. Sometimes, we meet really nice people who might even influence the way we think. One such person for me is a fellow blogger, LP, and he is the blog master of Bully the Bear. A few years ago, I was wondering whether to opt out of Eldershield but he persuaded me not to.

How did he persuade me?

To save anyone who might be interested from having to scroll through the many comments generated by that blog post written in 2011 (yup, when I turned 40), here it is:

"Hi Ak,

"My opinion is that u should buy. Firstly, it doesn't cost much, so 400 per month (should be claim out) is sufficient to hire help to take care of u. Of course u can argue that your passive income is more than sufficient to create your own elder shield, but this is just extra protection at low cost. Secondly, I wish to appeal to your sense of public charity - help contribute to the pool of money so that those poor elders can insure against this risk at lower premiums. These people do not have passive income at all, most likely.

"So how? :)"

I decided not to opt out of Eldershield after that.

Recently, he had an exchange of comments in another blog on the matter with my more recent blog post on Eldershield in mind (see related post #2) and I would like to share it here:

With your first hand experience in eldershield, would you advice a person with say a passive income stream of 7k per month to get a plan that pays 300 per month only upon hitting certain set conditions?

Regardless of the amount of passive income, eldershield is a form of hedging or insurance to insured against the unexpected. So instead of taking up the basic of $400 per month, one should top it up to $1k per month simply using cpf, w/o forking out of pocket, cash. So, yes, eldershield is still applicable, but a higher payout amount, with a higher premium should be the plan.

Regardless of amt of passive income? Are u sure?

The pt of having eldershield is to provide a supplement to the financial needs to take care of an elderly with the conditions laid out in the plan. If there's already a stream or a sum of money to cover this possibility, the need is no longer present. So why buy something that you no longer need?

Buying an eldershield plan doesn't shield you from getting hit by the 6 activities of daily living as laid out in the plan. It shields you from the financial cost of caring for such a person. If you can cover that cost, there's no need to buy the plan. That's what I think.

LP makes so much sense. I have always thought of him as a strong voice of reason in the world of investment and personal finance bloggers (whenever he decides to blog).

Hmmmm... OK, maybe, I should terminate my Eldershield policy on Monday.


Related post:
1. Eldershield. Opinions, anyone? 
(Great comments!)
2. Eldershield: Is it really necessary?


la papillion said...

Hi ak,

Sounds schizophrenic lol! In one hand, I'm telling you to buy eldershield even though you don't need it. On the other hand, I'm tell you not to buy eldershield since the financial cost is coveted by your passive income :)

Told u I'm chaotic, and no longer that lawful hehe

AK71 said...

Hi LP,

I am beginning to wonder if you are one person or whether you have an evil twin hiding somewhere. Spooky! -.-"

la papillion said...

I find M's reply worth sharing to everyone:

Hi LP,

He does not need an emergency fund in case of loss of employment, but he keeps one, probably due to:

a. preference, but not need.

b. his passive income though is large, but it is not "certain", so it is preferable to keep some emergency fund, just to be more certain and play safe.

c. In case when the passive income is required, e.g. when he loses his jobs, uncontrollable and unexpected situations (or he makes an unexpected big mistake in the market) unfortunately affect his passive income, it is good to keep some fund - just in case. Similarly, when elder-shield payout is required, and passive income is affected at the same time, elder-shield will come in handy.

d. The opportunity cost of having an emergency fund is low, just like the price of elder shield is low and value for money. Does not cost much to him based on its wealth, but it provides some assurance, when his passive income fails.

e. When he grows old, due to age and unexpected circumstances (e.g. dementia or other illness), he may lose big chunk of his passive income, and the emergency fund and elder-shield may come in handy.

In short, his past investment success may not guarantee his future success (e.g. wilmar, yongnam vs successful reits investment), and his current passive income is not certain and guaranteed. But some emergency fund and eldershield will provide some help when he needs them, and both are relatively low cost. It is worth it. Not optimized decision, but one that is rational.



N's reply is also more sensible and reasonable when the reasons behind his thoughts are written out:

I believe the points I would like to make have already been made below by Anonymous M in points (b), (c) and (e).

As I have highlighted before and would highlight again, insurance or hedging against the unexpected is to cover those events or situations which cannot be foreseen. But if and when the situation happens, the income is certain, and can also be certain for life for the higher premium and coverage.

Whereas, passive income is to provide income when little or no work is done, but it is no guarantee or certain for life. There is always a need to revise and relook every now and then, to ensure the conditions and expectations are still the same. But this assumes one is able to do that when 3 or 4 daily living criteria are no longer available, and still able to function as per normal. Maybe, maybe not. Maybe it may take longer for normalization to happen again?

The eldershield is a low cost insurance that can provide a certain form of income (although not very high) for life, till one's life is expired. This is a certainty.

Weigh, and understand the difference. Just as it is not a must to buy insurance or have insurance if one strongly believe he/she will not be hit by the unexpected. It is all about probability, and that is where the actuaries come in.


I'm glad the exchange took place. It brings to light several key pointers that we might have missed out because we're looking in one direction and not the other.

AK71 said...

Hi LP,

Oh, I like this very much. Thank you so much for bringing this to my attention and for sharing the exchange here.

Definitely, we should look left and right before crossing the road. In some instances, we should look back as well to make sure we are not in the way of some speeding motorised bicycles. -.-"

Risks have to be managed and having insurance helps to manage risks.

Since we are talking about possibilities, actually, insurance companies could go bust too. What then? OK, I am being a little perverse. ;p

The point that I might not be of sound mind one day is a valid one and whether I would be able to continue making sound investment decisions is also pertinent.

This is also one reason why it is so important to have a meaningful emergency fund and I do maintain a very large emergency fund well beyond the 12 to 24 months recurring expenses that I usually suggest.

The need for certain insurance products in life diminishes if we have a large enough emergency fund as well and we would appreciate this if we are unable to perform 2 out of the stipulated 6 everyday functions instead of the required 3 before we could make a claim from Eldershield.

I am going to end by saying that insurance is most relevant when we want to transfer risks which could result in catastrophic financial losses or hardship.

So, we have to insure ourselves against events which we or our loved ones might find hard to cope with on our own.
The financial ability to cope will, of course, differ from person to person and from family to family. It is all relative.

Eldershield is a good product but whether it is a necessary product remains a pertinent question. :)

la papillion said...

Good reply :)

I think it's a Impt to know that everything we do runs a risk. Even if we buy insurance, it's also possible for the company to close down, as u had mentioned. (that's why don't buy all your policies from one single company).

That's not the only risk of buying insurance. These days, even if u bought a plan, u might not be able to claim because of some disclaimers laid out but u didn't know about. So I agree that we should progressively take the risk ourselves as our financial situation improves. When we just started working, the insurer should bear a big part of the risk because we don't have the means to shoulder the risk. It shld be inverted when our situation improves.

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