Avoiding assumptions about Critical Illness (CI) insurance
Would you spend on an item that you would rather not use?
This is often a point of debate when it comes to purchasing insurance plans. It seems perfectly fine wanting to spend money and protect our worldly possessions. We buy phone covers to protect our phones, travel insurance in case of uncertainties that may disrupt holiday plans, or insurance for our home, car, gadgets – you name it.
What about our health?
In 2017, the Life Insurance Association Singapore (LIA) found that the average Singaporean faces an 80% Critical Illness (CI) Protection Gap. Assuming that a person who is diagnosed with CI, this person would have coverage for only one year of expenses – 20% of what is needed , should he be out of the workforce for five years (taking that time off to recover fully).
A CI insurance policy pays out a lump sum to the policyholder in the event that they are diagnosed with an illness covered under the policy. Perhaps money cannot buy health, but having sufficient CI coverage can help you offset the financial impact of medical expenses and treatment, giving you one less thing to worry about while you recover.
So why is there a huge gap in critical illness protection amongst Singaporeans? There may be reluctance to spend on an insurance plan that might not come in handy, but here are 4 false assumptions about critical illness insurance that you should avoid:
Assumption #1: But I’m young and healthy!
For many young and healthy people, it is hard to imagine possibilities of coming down with any critical illnesses and correlate critical illness with age or unhealthy habits like excessive smoking and alcohol consumption.
However, in recent years, local news publications have reported a rising trend in the diagnosis of certain diseases among younger individuals. Be it a 60% increase in those diagnosed with skin cancer under the age of 50 from 2013 to 2017, or the frequency of colorectal cancer in people under 50 rising from 1 in 10 cases before 2010 to 1 in 5 cases in 2019, the reality is that even someone young and healthy can be diagnosed with a major cancer.
While being young and having a healthy lifestyle certainly reduces your risk of critical illness, it does not eliminate it, and there are always other environmental and genetic factors that can increase the risk.
Assumption #2: I think I’m already covered for Critical Illness
It is easy to assume that your current health insurance policy covers critical illness. After all, it’s meant to cover hospitalisation and treatment and most of us would own at least a shield plan to cover your medical expenses. But if you take a closer look at your health insurance policy, you’ll see that health insurance and CI insurance are quite different.
Health insurance helps cover the cost of hospitalisation, surgical procedures and certain outpatient treatments specified in the policy only, and the payout can only be used to cover those expenses. CI insurance, on the other hand, upon diagnosis with CI covered under the policy, it provides a lump sum payout that is not restricted to medical-related expenses — you can use it to help cover cost of your daily living expenses during your recovery period.
As for CI insurance, they can be purchased as a standalone policy or as a rider to your existing health insurance policy — so be sure to check your policy documents to see if you really are covered for CI.
Assumption #3: I think I have enough Critical Illness protection
This might be an assumption based on the idea that having a health insurance policy is enough to protect you from the financial impact of treating and recovering from critical illness. Unfortunately, this is not the case, as highlighted by LIA in its 2017 Protection Gap Study mentioned earlier.
In LIA’s study, it was highlighted that in the event of a critical illness, Singaporeans only have enough protection to cover 20% of the financial impact caused by CI or death. This is based on several data points including:
- Advances in medicine are increasing survival rates in those diagnosed with CIs, meaning treatment for certain CIs may last for several years.
- The CI recovery period of up to 5 years can be expected before the insured can resume full-time employment, meaning you would need an estimated 3.9X your annual income to have adequate protection.
Keep in mind that the financial impact goes beyond just treatment and hospitalisation. This also includes all of your ongoing basic living expenses including your mortgage repayments, utilities, food, clothing, insurance premiums and other financial obligations that will be impacted by the loss of income.
Assumption #4: I will lose my Critical Illness protection once I use it
Fortunately, this assumption is not completely true. While there may be some policies and riders that only provide a single payout upon diagnosis of CI, there are now many options that provide multiple payouts in the event of multiple CIs.
For instance, Manulife’s Ready CompleteCare comes with a “cover me again” feature which allows you to restart your coverage multiple times even after you made a claim, up to 900% of your sum insured. Your coverage will be restarted to 100% of basic sum insured, with a maximum payout of 500% of basic sum insured after 12 claim-free months from the last critical illness claim.
Getting a multiple claim critical illness plan can put your mind at ease as you can continue to enjoy coverage in the event of future CIs, as long as they are covered within your policy.
Are you adequately protected against Critical Illness?
Planning ahead for the unexpected may not be something you want to think about when you’re in your 20s or 30s. After all, these are the years when you’re working hard to build a career and start a family. However, it is wise to plan ahead by choosing the right CI policy to offset the financial impact of medical treatment should you need it.
If you’re unsure of what CI policy options are available to suit your needs, it’s good to seek out the advice of an experienced financial consultant who can help you evaluate your policy options.
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