Making Sense of Critical Illness Insurance Part 2

Contributed by Michelle Ee, Wealth Management Director, Financial Alliance Pte Ltd
and MK Chan, Corporate Development Director, Financial Alliance Pte Ltd
(The contributors can be contacted at michelleee@fa.sg and mkchan@fa.sg)

In the previous instalment, we explained what critical illness insurance is and why it is essential to be covered by critical illness insurance. In this instalment, Ms Michelle Ee, Financial Alliance’s Wealth Management Director, discusses the payout patterns of critical insurance policies and shares her opinions about them.

PAYOUT PATTERNS

Critical illness insurance in Singapore pays out in three major ways, subject always to the diagnosis falling within the critical illness’ definition in any given policy.

• A critical illness policy pays upon the diagnosis of any one of the critical illnesses or surgery covered.

• A critical illness policy with early/intermediate-stage critical illness benefit pays a fraction of the total sum assured meant for advanced-stage critical illness upon the diagnosis of an early-stage or intermediate-stage critical illness. Do be aware that it is possible that early-stage critical illness claims against such a policy may fully exhaust that policy’s entire critical illness benefit, upon which the policy will terminate.

• A multi-pay critical illness policy pays multiple times, upon the diagnoses of different insured critical illnesses or different stages of a critical illness, subject to the sum insured or policy limits.

Basic critical illness cover

According to Michelle, having basic critical illness insurance is essential as the financial impact of contracting any of the covered critical illness or advanced stage illness is usually huge.

Moreover, the Life Insurance Association, Singapore (“LIA”) requires all insurers to use standardised definitions of critical illnesses. The current set of definitions in use was last revised in 2014 and covers 37 illnesses.

Early-stage critical illness cover

Michelle feels that early-stage critical illness cover is good to have but not the most important.

The more important insurance to meet early critical illness needs is comprehensive hospitalisation and surgical insurance, such as Integrated Shield Plans (also known as “IPs”), whose premiums are largely paid out of Medisave funds. Michelle explains that individuals diagnosed with early-stage critical illness recover relatively quickly and the financial impact on them is less severe. Furthermore, the presumption that early-stage critical illnesses have higher chances of claims make the premiums rather expensive.

Unlike basic critical illness insurance, insurers are not required to use standardised definitions for early-stage critical illnesses, so they have more leeway to decide how “early” is early enough to make a claim and what parameters to set. In view of the more complicated terms and conditions, non-standardised definitions, and limitations on claims, Michelle advises consumers to be extra careful with the fine print when considering early-stage critical illness insurance.

Multi-pay critical illness cover

Michelle opines that multi-pay benefit is a good one to have, especially for illnesses such as cancer, stroke and heart attacks, which constitute over 90% of all critical illness claims. She adds, “As it would be hard for an insured person who has claimed against his/her critical illness insurance to apply for a new one, the multi-pay benefit does offer additional peace of mind.”

Michelle likened basic critical illness insurance to the main course of a meal, early critical illness insurance to the ice cream and multi-pay insurance to the privilege to re-fill your plate if needed.

For more effective defense against medical costs arising from major illnesses or surgery, Michelle advises complementing critical illness insurance with hospitalisation and surgical insurance as the cash payouts from critical illness insurance could help pay for palliative care and medical treatment that fall outside the scope of hospitalisation and surgical insurance.

Click here to learn more about critical illness insurance