The Medishield plan pays for hospital expenses above a deductible of say $3,000 and for the co-insurance of 10%. The rider pays for a certain percentage of the the deductible and co-insurance.

Assuming the claim frequency and severity as follows:

a) 10% of the covered population incurs hospital expenses each year and the average claim amount is $5,000 (for the deductible and co-insurance).

b) 2% of the covered population incurs hosptial expenses above the deductible each year and the average claim amount is $20,000.

c) The insurer loads the premium by 50% to cover its operating expenses and profit.

The premium is computed as follows:

a) For rider: 0.1 * $5,000 X 1.5 = $750

b) For the main cover = 0.02 * $20,000 X 1.5 = $600

In this case, the premium for the rider is higher than the main cover, due to the higher frequency of claim.

The above example applies to a younger person. For an older person, the premium for the rider and the main cover will be higher. At some point, the premium for the main cover will be higher than for the rider.

Tan Kin Lian