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Thursday, October 15, 2015

CPF Life Plans: Basic or Standard?


Assumptions:
  1. A lower monthly payout is not a major concern for you.
  2. You have max Full Retirement Sum (FRS) in your Retirement Account (RA).
  3. You still have more than 60k in OA/SA/MA.
  4. With or without dependents.

When the CPF Life scheme was first started and my brother was required to make a choice, I advised him to opt for higher monthly payout as his income was/is low. He only has one child and I told him he need not worry about bequest to him as he should know how to take care of himself. At that time, I did not study the scheme in detail, only comparing monthly payouts and bequest amounts.

Now I study the plans in detail.

Under The Standard Plan:

1.  If I do not have dependents and should I die early after joining CPF Life, I do not mind donating my money under the Standard Plan to fellow Singaporeans in the CPF Life Pool since my beneficiaries will get less or nothing in bequest monies.

2.  However, should I not die early but instead suffer from a medical condition which causes me to be permanently unfit for any employment, to have a severely reduced life expectancy, or to be terminally ill, I would want to get more money back when exiting CPF Life. But under the Standard Plan, this is not possible as you can see from the lower Bequest Amounts you can get. The key reason why we will be getting a lower Refund Amount is the interest earned on CPF Life premium contributions, extra interests earned on CPF balances (first 60k) and CPF RA will remain in the CPF Life Pool: these are not considered your money when u exit. (hahaha, we dun know how they pay you back in the monthly payouts)

Conclusion:

I have prepared a table below to summarise the above, highlighting the key differences between the Basic Plan and the Standard Plan. I'll base my decision, not on the monthly payout amount, but on more money back should I need to exit from CPF Life. CPF Life is an insurance plan, so it should do what it should do, ie provide me with funds when I need it most when I exit, not just monthly payouts. Choose the Basic Plan!


(CPF Board allows changing of plans now, you have to cancel CPF Life then rejoin at age 65. However, if the above assumtpions dun apply to you and you have been on CPF Life for some years, it might not be worthwhile to change now.)

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