Thanks BBCWatcher!
In the hierarchy of insurance needs, DII ranks high, in my view. (And I have some.) Future earning potential is the most important asset most people have, and significant or total loss of that income would be utterly catastrophic.
ElderShield and CareShield Life are forms of Long-Term Care (LTC) insurance. They can be important, but they have a much narrower definition of disability. The debate about CareShield Life will be largely moot for younger adults (and future generations) since it’ll be compulsory. But it’s a different form of insurance anyway.
My spouse and I in our early 40s have medical (including. rider) and life insurance. We are both working, but do not have DII. I'd opted out of ElderShield, but my spouse did not and is probably being covered by ElderShield 400. I thought that ElderShield/Eldershield 400 was not useful for us and that we might as well self-insure for that level of coverage, and was therefore encouraging my spouse to opt out of it, before learning about CareShield Life.
Is DII or CareShield Life or both appropriate for us?
Yes, absolutely. DII protects against income loss due to disability (partial or full inability to work). As far as I know all of the DII policies sold in Singapore end coverage at age 65, a typical/traditional retirement age. Savings (hopefully wisely invested), CPF LIFE, Medisave, and (if profoundly disabled) ElderShield or its CareShield Life successor, are supposed to carry you onward from there. Saving is more difficult with (up to) 75% income replacement and no salary increments. Having a disability that affects your income earning (and other aspects of your life, for that matter) is no great fun, to say the least. But zero insurance would be even worse.
The vast majority of people cannot self-insure against this particular risk (significant or total loss of future income due to a work-impactful disability) before and during the early years of their careers. But, over time, yes, they may be able to self-insure against disability and long-term care needs, as savings build up. And you should properly adjust your insurance coverage, if necessary, to account for that reality if your financial situation allows.
So, the thinking is to insure our ability to make hay while the sun shines, and DII is most targeted for this need. CareShield Life or the supplementary private plans are not suitable for this because:
- cost prohibitive to increase the payouts to something like 50% or 75% of pay
- these plans only provide coverage from age 30. (not an issue for my spouse or I, since we are already past 40)
- harder to qualify for payouts (i.e. 3 ADLs)
On the other hand, CareShield Life and the supplementary plans do provide coverage beyond DII
- beyond age 65. but at this age we should have already built our nest egg. If the nest egg is projected to be adequate we might self-insure and opt out of CareShield Life altogether. Otherwise, we might want to opt-in and purchase sufficient coverage for long-term care costs (beyond the expected daily living expenses which should hopefully be provided by the nest egg)
Is this correct, and have I missed anything?
In DII, there are at least a few ways you can “automatically” adjust coverage. One way is to choose the longest waiting period (a.k.a. elimination period) before monthly benefits are paid. The longest available in Singapore is 6 months, and that’s fine. Your emergency reserve fund should bridge you at least that long, and if you don’t have an emergency reserve fund that can handle 6 months of income loss then you soon enough will, since that’ll be a priority to solve as you earn income. If the particular insurance carrier doesn’t offer a waiting period that long, and you still otherwise like their policy, so be it, but 6 months really is fine.
Another possibility is to pick a different term, such as age 60 instead of age 65. I’m a little less keen on that idea since you can always drop coverage at age 60 (or even earlier) if you’re able to self-insure. But it is possible to pull back from an age 65 coverage term limit right at the beginning, if you wish. If, for example, you’re expecting a large bequest (and reliably so) that couldn’t possibly be received any later than your age 60, then there you go, that coverage term might make perfect sense right out of the gate.
Do DII plans keep paying for as long as we are unable to work, up to 65? That sounds like it could be a lot of money in your bus example! Do they, for example, require you to take up whatever work you can do, and then pay the difference?
I wonder how many years someone can get vertigo for... Because if it can be gamed, it is unsustainable and we will eventually be bitten by premium increases.
Your dead body won’t care, but somebody expecting to receive the balance of your estate might.
Ok, Someone told me that estate taxes of US assets for N.R.A. might be mitigated by opening joint accounts, bit also to check with a tax advisor. Do you know anything about this?
I can imagine situations where an adverse event affects both joint account holders at the same time, leaving a largeish bill for dependents...
They’re not ideal, no. However, they are convenient, and that counts for something. Also, they use U.S. funds probably because they have no choice. The favorable tax treatment available with Irish domiciled funds likely doesn’t pass through to foreign institutions but only to individuals (who are non-U.S. persons).
Since utraderobo seems to work with Ireland-domiciled funds for withholding tax reasons, I suspect that the tax treatment should pass through.
I'd bet that the other robo-advisors were aware of the tax issues when they picked the US funds. Just that have a sneaking suspicion that they may have chosen to manage their costs (commissions and spread eat directly into their profit each time there is a trade or rebalancing event), whereas withholding taxes and estate taxes are borne by the customers and will only be felt in the long term so caveat emptor.
Another way is to buy term life policies to balance the 40% estate taxes, but that feels like it might exceed the cost advantages of the US funds.
Hi BBBCW, question on that most exciting of topics, bond funds!
Years ago I bought LQDE for some USD corp bonds. I think I chose it over CORP because it’s 4x the size and has a higher yield.
You’ve mentioned CORP as your preferred Corp bond fund in the past. Is it just for the global diversification? Looking at CORPs holdings it seems to be dominated by Japan govt treasuries and US multinationals. I’m not super excited by the JP treasuries.
I guess I am biased to stick with LQDE even though it is down a bit more than CORP this year, but I’d be interested to know if you had any other reasons to prefer CORP?
I eschewed CORP for LQDA for the same reason... So the question I have is, why did you pick LQDE instead of LQDA? I believe it's the same fund, just accumulating and with a smaller unit value.
