The Singapore government, often affectionately referred to as ‘Government Daddy’ is renowned for meticulously planning the lives of its citizens and providing a safety net for them always. From the globally well-known HDB housing policy that ensures every Singaporean has a roof over their heads, to the continually improved CPF policies that offer basic housing, medical and retirement security. There’s also one aspect that often goes unnoticed: insurance coverage. It’s worth studying how the Singaporean government ensures insurance coverage for every citizen; I believe it serves as a good example of insurance portfolio construction for the general population.

The Singapore government automatically provides citizens with four types of insurance, two of which are mandatory, while the others are withdrawable:

• MediShield Life: Basic medical hospitalization insurance.
• CareShield Life: Long-term care insurance.
• Dependents Protection Scheme (DPS): Term life insurance.
• CPF Life: Lifelong retirement annuity.

MediShield Life: Basic medical hospitalization insurance

Singaporean citizens are automatically enrolled in MediShield Life from birth, providing coverage for the most basic medical expenses throughout their lives. This is the most fundamental insurance and one that has a very high likelihood of being used. Since MediShield Life only covers government hospital B2 Ward and below, it is recommended that individuals, within their means, consider upgrading through the purchase of an Integrated Shield Plan (ISP) to access better medical resources when necessary.

CareShield Life: Long-term care insurance

Citizens and PRs automatically join CareShield Life at the age of thirty. This insurance is designed to provide lifelong cash flow to cover the cost of care after the insured person loses their ability to live independently. Citizens and PRs born after 1980 are mandatorily enrolled and cannot opt out of this scheme. I believe this is the government’s strategy to cope with the challenges posed by an aging population. For the average person, this is one solution to address the risk of longevity. It can be upgraded using CPF, similar to hospitalization insurance. In this video (Chinese), the blogger discusses the high expenses associated with long-term care in the US and explores long-term care insurance in the U.S. One takeaway is that in US society, long-term care insurance is crucial but often difficult to afford. We should be grateful for the universal mandatory program implemented by the Singapore government.

Dependents Protection Schema (DPS): Term life insurance

The Dependents Protection Scheme (DPS) automatically covers citizens and PRs between the ages of 21 and 65 after they make their first CPF contribution from employment. Essentially, it is a term life insurance policy with a coverage amount of $70,000. DPS allows individuals to choose whether to opt in or out, and this choice highlights the use of life insurance: it protects the income replacement for family breadwinners. If someone has no income before the age of 21 or is a full-time homemaker or househusband with no income, they do not need to enroll. Similarly, after the age of 65, when children have reached adulthood and there are no family responsibilities, this coverage is no longer necessary either. Likewise, when we are planning our life insurance coverages, we shall know that it does not necessarily need to be lifelong - meaning you don’t really need a Whole Life plan; individuals can reasonably purchase term life insurance based on their income, debt-to-income ratio, family structure, retirement planning, and other factors until their retirement age.

DPS is underwritten by Great Eastern. I just discovered this insurance while reviewing my policies and understood how it works after further investigation.

CPF Life: Lifelong retirement annuity

CPF Life is a government-backed annuity plan and a Government’s move to address the challenges of an aging society and resource allocation. CPF Life can be opted out of: the government does not restrict citizens from planning their retirement independently, but you need to have an alternative retirement plan in place. For instance, you can use rental income from property for retirement or opt for retirement annuities from other private insurance companies. However, it can generally be affirmed that CPF Life is superior to retirement annuity plans offered by other insurance companies in Singapore. It can serve as a passive source of retirement income, and I recommend maximizing CPF contributions. Personally, I endorse retirement annuities because, when you reach your seventies or eighties and may not have the energy for other activities, having a source of passive income provides a sense of security. Now, let’s discuss the age at which we should consider a private insurance companies offered retirement annuities. Many insurance brokers advocate for starting as early as possible to benefit from compounding interest. However, annuities aim for stability, which often results in lower returns. If you are further from retirement age, you can afford to take on more investment risk by putting your money in the market for potentially higher returns. The CPF Life model involves a lump-sum payment at 55 years old, with the option to start receiving retirement payouts at 65. As a reference, in my thirties, I would not consider purchasing a retirement annuity plan. I might consider it as a lump-sum payment schema when reaching fifty or even later.

Health, life, and retirement - this is the most fundamental insurance setup. Other policies such as critical illness and accident insurance are not necessities but rather supplementary.

I want to reiterate my personal perspective: both critical illness and accident insurance are not necessities but supplements. Especially for accident insurance, many insurance agents promote its high cost-effectiveness. Although accident insurance is very affordable, the payouts for routine medical visits are typically low, and the probability of receiving a high payout due to accidents resulting in disability or death is extremely low. More importantly, accident insurance cannot address significant financial crises in life, so it is the least essential type of coverage. On the other hand, the primary issue with critical illness insurance is its relatively high cost, which can be a burden on individuals and families with limited budgets. If you are the sole breadwinner for your family, facing temporary disability due to illness can indeed create some financial pressure. Adding a critical illness rider to a life insurance policy is a cost-effective choice.

In my view, insurance serves two practical purposes: first, it safeguards the financial stability of individuals and families to a certain extent in the event of uncontrollable accidents. The second purpose, from a macro perspective, is that insurance contributes to the rational allocation of social resources.

As for savings and investment-type insurance, it’s a matter of personal preference. Of course, it’s a form of financial planning, but there are certainly other investment instruments that offer higher returns. Personally, I’m not inclined toward savings and investment-type insurance. I will share more about my views on savings and investment in other blog articles.

Reference:

• MediShield Life and ISP
• CareShield Life
• Dependents Protection Schema
• CPF Life