Understanding Critical Illness Insurance

If you’ve only got a minute:

• Critical illness (CI) insurance offers a lump sum payout when the insured is diagnosed with a specific critical illness, such as cancer, heart attack, or stroke.
• Early CI insurance plans also provide coverage for early and intermediate stages of critical illnesses. Multi-pay CI plans provide coverage in the event of multiple or recurring diagnoses.
• Key factors to consider when purchasing CI insurance include family medical history, personal budget, and specific coverage needs.

In Singapore, a quarter of all deaths are caused by cancer, according to the Ministry of Health. Research also shows that over 90% of severe-stage claims received by life insurers are for 3 major critical illnesses: cancer, heart attack and related conditions, and stroke (Gen Re Dread Disease Survey).

Given these statistics, having critical illness (CI) insurance is an essential part of your overall financial planning. But it's not just about having insurance—it's about ensuring you have the right amount of coverage to avoid financial strain in the event of a diagnosis.

What is Critical Illness Insurance?
Critical illness insurance provides a lump sum payout if the insured is diagnosed with a specific critical illness, as defined by the policy. The Life Insurance Association Singapore (LIA) has a standardised list of 37 severe-stage critical illnesses. However, insurers have the flexibility to define coverage for early and intermediate stages of these illnesses.

While hospitalisation plans like Medishield Life or private integrated shield plans (IPs) can help cover medical fees, they typically don't cover the broader range of costs associated with a serious illness. These costs could include lost income, domestic help, or alternative treatments that aren’t covered under traditional health insurance.

When a person is diagnosed with a critical illness, the financial impact can be significant, especially if they need to stop working or incur additional costs. A lump sum payout from a CI policy can provide valuable financial support during such a difficult time.

Types of Critical Illness Insurance

1. Conventional CI Plans vs. Early CI Coverage
   Traditional CI plans typically cover severe or late-stage illnesses. These plans are often more affordable and provide crucial financial support during the later stages of illness.

However, with advancements in medical screenings and early detection, more people are being diagnosed with critical illnesses at earlier stages. Early CI plans extend coverage to include these early and intermediate stages, though they generally come at a higher cost. These policies are particularly useful for younger individuals (in their 20s or 30s) as they have relatively lower level of savings and the premiums of an early CI plan would be more affordable.

2. Single-Pay vs. Multi-Pay CI Plans
   Traditional CI policies generally provide a one-time payout upon diagnosis of a critical illness. Once the claim is paid, the policy ends, leaving the insured without coverage for future claims. This can create a gap in coverage if the illness recurs or if another critical illness is diagnosed.

Multi-pay CI plans, on the other hand, provide multiple payouts over time. This is especially useful if a critical illness returns or if the insured is diagnosed with another type of illness. These plans can help cover ongoing treatment costs and provide financial support in the long term.

However, multi-pay plans tend to have higher premiums and more complex terms. Be sure to weigh the costs and benefits before deciding whether this type of plan is right for you.

Learn more: Manulife Early CompleteCare

Considerations When Choosing a CI Plan

1. How Much Coverage Do You Need?
   According to the MAS Basic Financial Planning Guide, you should aim for coverage of at least four times your annual income for late-stage critical illness. This amount can help replace lost income and provide financial support while you focus on recovery.
   
   The payout from your CI policy can also cover costs not included in your hospitalisation plan, such as alternative treatments or special equipment. Additionally, it can help with ongoing expenses like mortgage payments or hiring domestic help.
2. Which Type of CI Plan Is Right for You?
   While basic CI policies are essential for most people, early CI or multi-pay plans may be worth considering if your budget allows. However, the most important coverage for critical illness is still a comprehensive health insurance plan, such as an Integrated Shield Plan, which can cover a wide range of medical expenses.

Read more: Is critical illness insurance necessary?

3. Consider Your Family's Medical History
   Understanding your family’s medical history can give you a better idea of your potential risk for certain critical illnesses. For example, if cancer runs in your family, you might consider a multi-pay CI plan or one that specifically covers cancer-related illnesses. There are also CI plans tailored to cover women-specific health issues.
4. Assess Your Budget and Needs
   Insurance policies require a long-term financial commitment. It’s important to regularly review your coverage needs with your advisor to ensure you can continue to meet both your premium payments and your long-term financial goals.

DBS has partnered with major insurers in Singapore to make health insurance easily accessible online for purchase. You can now independently learn, compare and buy a plan most suited to your own needs. Find out more on DBS Health Marketplace.

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Disclaimers and Important Notice
This article is meant for information only and should not be relied upon as financial advice. Before making any decision to buy, sell or hold any investment or insurance product, you should seek advice from a financial adviser regarding its suitability.