Many people bought supplement to Eldershield, which is a long term disability insurance. Eldershield pays them a monthly income of $400 if they are severely disabled and need to stay in a nursing home or have a full time care giver. As the monthly benefit is inadequate, they buy the supplement to provide an additional benefit.
They ask me, "Mr. Tan, is it worth while to buy the Eldershield supplement? This is offered by many insurance companies under different product names".
A good way to determine if the insurance is worth buying is to look at the ratio between the claims and the premium. If you pay a premium of $1,000 a year and you get back $100 (on average) in claims, is it worth buying? Of course, insurance covers the extreme cases, so you may have a 1% chance of claiming for $10,000. If the claim payout is only 10%, surely it is a bad product?
What is a fair payout rate that makes the policy worth buying? The answer is 50% to 70%. If the total claim payout is 50% to 70% of the premium, the insurance product is worth buying.
How do you find out the claim payout under an insurance product? Fortunately, this information is provided in the website of the Monetary Authority of Singapore. I have extracted the data and put them in this website for your easy reference.
www.tklcloud.com/mas
The Eldershield supplement is classified as "Disability - Individual". You can view the results in this webpage:
http://tklcloud.com/MAS/publicview.aspx?class=20
The top four insurance companies are Great Eastern, NTUC Income, Aviva and AIA. They have an average claim payout of only 7%. However, as this product collects a premium for a limited period (usually up to 65 years) and provides cover for the whole of life, we have to look at the profit ratio.
The average profit ratio is 50%. Allowing for expense ratio of 20%, the long term claim ratio is only 30%. This is extremely high.
Conclusion - the payout for the Eldershield supplement is too low. Consumers are paying too a high premium for a small return. It is better for them to keep the premium as a "self insurance" plan.
They ask me, "Mr. Tan, is it worth while to buy the Eldershield supplement? This is offered by many insurance companies under different product names".
A good way to determine if the insurance is worth buying is to look at the ratio between the claims and the premium. If you pay a premium of $1,000 a year and you get back $100 (on average) in claims, is it worth buying? Of course, insurance covers the extreme cases, so you may have a 1% chance of claiming for $10,000. If the claim payout is only 10%, surely it is a bad product?
What is a fair payout rate that makes the policy worth buying? The answer is 50% to 70%. If the total claim payout is 50% to 70% of the premium, the insurance product is worth buying.
How do you find out the claim payout under an insurance product? Fortunately, this information is provided in the website of the Monetary Authority of Singapore. I have extracted the data and put them in this website for your easy reference.
www.tklcloud.com/mas
The Eldershield supplement is classified as "Disability - Individual". You can view the results in this webpage:
http://tklcloud.com/MAS/publicview.aspx?class=20
The top four insurance companies are Great Eastern, NTUC Income, Aviva and AIA. They have an average claim payout of only 7%. However, as this product collects a premium for a limited period (usually up to 65 years) and provides cover for the whole of life, we have to look at the profit ratio.
The average profit ratio is 50%. Allowing for expense ratio of 20%, the long term claim ratio is only 30%. This is extremely high.
Conclusion - the payout for the Eldershield supplement is too low. Consumers are paying too a high premium for a small return. It is better for them to keep the premium as a "self insurance" plan.
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