Understanding Critical Illness Insurance

NAV TL;DR

If you don’t have time to read through the whole article, you can check out our short version below.

• CI insurance provides a lump sum payout when the insured is diagnosed with a critical illness.
• Increased health screenings and medical advancement has enabled earlier detection of certain CIs, which makes early CI policies relevant today.
• Multi-pay CI plans can be beneficial for certain illnesses – cancer, stroke and heart attack – which are common ailments that afflict Singaporeans.
• Family medical history, personal budget and coverage needs are some considerations when purchasing CI insurance.

Do you know that close to 30% of deaths in Singapore are caused by cancer? Research findings indicate that over 90% of all severe stage claims received by life insurers are for 5 critical illnesses (CIs): major cancer, heart attack of specified severity, stroke with permanent neurological deficit, coronary artery bypass surgery, and end-stage kidney failure.

Getting a CI insurance is thus a crucial step in your overall insurance planning. Other than getting suitable insurance, the right amount of coverage is also important to reduce financial stress while one is recovering.

What is Critical Illness insurance?

CI insurance provides a lump sum payout when the insured is diagnosed with a critical illness. While the Life Insurance Association has official definitions of 37 common critical illness which are included in most CI plans, different insurers offer varying levels of coverage with regards to the severity and type of illness. The LIA carries out regular reviews of critical illness definitions to ensure that CI products stay relevant with changing times and to provide greater transparency for customers to compare different plans. Do note that changes to the CI definitions will be introduced in August 2020. The standardization of CI definitions will not impact existing CI plans.

Although some argue that hospitalisation plans like Medishield Life or a private integrated shield plan can provide some coverage for medical fees, there are many other expenses in the wake of a serious illness, so the lump sum payout by a CI policy will come in handy.

When a person is struck by critical illness, there could be a need to stop work, hire a domestic helper, or attend alternative treatments that are not covered under a traditional health insurance plan. With the loss of income, there are also ongoing debts/expenses that must be taken care of – mortgage payments, family expenses and so on. This is why a lump sum payout can provide some financial cushioning.

Types of Critical Illness insurance

• Conventional CI plans VS Early CI coverage

Conventional or basic CI insurance provides coverage for severe or late stages of CI. While this type of plan is still useful in cushioning the financial impact upon the diagnosis of CI, it neglects, and may exclude payouts upon the early stage diagnosis of a CI.

Increased health screenings and medical advancement has enabled earlier detection of certain CIs. With traditional CI plans, the insured may not be able to claim any pay outs because they do not fall under the category of severe stage of the CI. But with early CI policies, they can.

Early CI policies provide a lump sum cash payout upon a successful claim, just like a conventional CI plan. The key difference is that unlike a CI plan that only covers the severe or critical stage of a CI, an early CI plan extends the coverage to cover the early stages too.

This seemingly small difference can make a big impact to the life of the insured. When the pay outs can come in early in a CI diagnosis, the insured has the options to seek additional medical opinions and treatments, or even consider stopping work to focus on recovery.

On the flip side, one has to consider the higher cost that typically come with an early CI plan as these plans typically provide coverage beyond the standardised CI definitions.

• Single-pay vs Multi-pay CI Plans

Traditional CI policies work on a single-claim basis. These single-pay plans provide a lump sum payout upon a critical illness diagnosis, after which the plan is terminated. This leaves the patient with a gap following the diagnosis, as most insurers will not cover an individual for pre-existing conditions.

Multi-pay CI plans come in handy in situations where a CI recurs later in life after a first claim, or if the individual is struck with a second CI. Such plans provide several payouts upon diagnosis, which can help to fund early treatment costs as well as longer-term needs should a relapse occur.

Consumers need to weigh the costs and benefits of multi-pay plans as they tend to come with higher premiums and more complex terms and conditions. However, it can be especially beneficial for certain illnesses – cancer, stroke and heart attack – which are common ailments that afflict Singaporeans.

Considerations for CI Plans

• How much coverage?

There is no one-size-fits-all solution when it comes to how much insurance coverage one needs. Bearing in mind that you would most likely use a CI payout to cover medical treatment fees and daily expenses due to the loss of income, this could give you an idea of the amount you need. Most advisors will also recommend a minimum sum that covers 60 months’ worth of living expenses as 5 years is the estimated duration for a person to recover from a critical illness.

You might also want to consider other possible expenses during this period, such as the need to purchase certain equipment or employ help, as well as covering mortgage loans, if any. If in doubt, do speak to a wealth planning manager who can advise on the sum assured taking into consideration your personal circumstances.

• Which type of CI plan is suitable?

While a basic CI policy is considered a staple for most individuals to cover medical expenses and loss of income, an early CI or multi-pay plan is a good to have, if you can afford it. Keep in mind that the most important insurance to meet early CI needs is still a comprehensive health insurance plan, such as an Integrated Shield Plan.

• Examine your family’s medical history

Although a critical illness can strike anybody at any time, having an idea of your family’s medical history can help to estimate your risk propensity for certain illnesses. If, for instance, your family has a history of cancer, a multi-pay plan could be useful as cancer can recur.

You can also consider CI plans that specifically cover cancer-related illnesses. Other specialised CI plans include covering women-related illnesses.

• Assess your budget and needs

Insurance policies requires a long-term commitment. You should plan your budget and assess your insurance needs regularly with your advisor to ensure that you can meet your coverage needs and premium payments.

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