Nobody disputes the importance of having hospitalization and medical insurance coverage. Almost everyone would agree that paying for medical insurance is more prudent than having to pay for the medical treatment itself, regardless of age. Moreover, medical insurance becomes even more important when we age as the probability of a claim increases. It is also a fact that medical insurance premiums increase as we age. This may result in premiums becoming unaffordable, especially in our retirement years. We will then face the problem of unaffordable coverage when we need it most. The obvious solution is to factor the future cost of medical coverage into our Retirement Planning. Here are some suggestions on how to go about it.
Set Aside Money to Pay for Premiums
Setting aside a lump sum or a regular amount during our working years may be the simplest solution. But this method comes with inherent problems. Firstly, the value of the money that is set aside decreases every year due to inflation. Secondly, it would take tonnes of discipline to save regularly for something so far down the road. There will always be the temptation to use the money. Finally, even if we have the discipline, we would bear the opportunity cost of not being able to maximize and grow this sum while it waits to be used for future insurance premiums.
Invest My Money and Use the Gains to Pay for Future Premiums
This method sounds more logical than the first. After all, we’d be maximizing the growth of our funds. The downside is that investments are not guaranteed. We may use investments as a vehicle to help in the accumulation of funds during our economically active years; but then we’ll have to park those funds in an instrument with much less risk (and much less returns) on retirement. That once again puts us in the same situation as the first method – setting aside a lump sum. Although this time the “wasted, unmaximized” years are less than the first.
Save Money in a Flexible Multi-use Plan
The third method, which is the one I advocate, is to save regularly in an instrument that allows us to grow our money while we don’t need to use it. Monetary contributions to this plan would end after a predetermined number of years or until retiremenat. The steady growth of our funds should continue even during our retirement years. This instrument would also allow us to make withdrawals on a regular basis to fund our medical insurance premiums, without jeopardizing the rest of the funds left in it. Finally, there should also be the option for a full liquidation at a profit, in our later retirement years, should we decide that we no longer need to maintain our medical insurance (e.g. age 75 and I’m still healthy; I might decide to liquidate and use the funds for a final round-the-world trip).
One example of such a plan is the AIA Gen3. We can choose to pay premiums for 10 or 25 years. Yet coverage last till age 100. A guaranteed annual cash payout starts after 10 years. We can choose to accumulate these cash coupons for more interest and start withdrawing only when we need them (i.e. on retirement). The Gen3 comes with annual dividends which increases its surrender value year after year. Finally, it comes with death coverage. This means that should we decide to keep it to the end, we would be able to further leave a legacy. Thus this plan can benefit both us, when we need regular funds, as well as our descendants, when we’re no more.
Of course, there are other options. Find out more from your Financial Consultant today!
