Long-term care insurance like ElderShield works by pooling together premiums paid by policyholders in their younger years while most are still working (Current ElderShield insurers should return surplus premiums to MOH, by Mr Cheng Choon Fei; May 31).

These funds are collected and invested, so that they are available in future years, when policyholders are no longer paying premiums and are more likely to suffer from severe disability.

Premiums collected under ElderShield currently exceed the claims paid out because the age profile of ElderShield policyholders is relatively young, with a median age of 52.

The premiums collected are not surpluses. They are meant to support future claims, when ElderShield policyholders become older and more of them become severely disabled and start to make claims.

To illustrate, annual claims paid out have risen by 12 per cent per year from 2013 to last year, much faster than the 3 per cent increase per year in premiums collected over the same period.

We expect this trend to continue, in tandem with the ageing demographic profile of policyholders.

The Government will be administering CareShield Life on a not-for-profit basis. Any surpluses generated will stay within the fund and go towards benefiting policyholders through higher payouts or premium rebates.

For ElderShield policyholders who wish to join CareShield Life, the ElderShield premiums they have paid will be taken into account in their transition to CareShield Life and their new premiums.

More details on the premiums and government support package for this group will be released later.

Some ElderShield policyholders may choose to remain on their current ElderShield plan, instead of switching to CareShield Life.

Their ElderShield policies will continue to protect them, and the premiums they have paid will continue to be set aside for their future claims.

Lim Siok Peng (Ms)

Director, Corporate Communications

Ministry of Health