Critical illness insurance is generally considered good to have in Singapore… if you can afford it. It is generally not considered as essential as hospitalisation insurance, which every adult should have, or life insurance, which everyone with dependents absolutely needs.
But if you have already fulfilled these basic needs, critical illness insurance is probably the next type of insurance that you should consider.
What exactly is a “critical illness”?
Critical illness insurance is designed to offer a lump sum payout if you are diagnosed with a serious illness. But it’s not up to you to decide what’s considered a “critical illness”.
Instead, each critical illness insurance policy maintains a set list of covered illnesses. Heart attack, stroke and late-stage cancer are almost always included on the list.
The number of illnesses on the list varies from plan to plan. Some offer protection against a long list of illnesses, while some are targeted at a few conditions only, such as cancers.
So, how good is the protection a particular plan is offering? The Life Insurance Association Singapore (LIA) maintains a list of 37 severe stage critical illnesses as part of their Critical Illness Framework 2019.
This includes major cancer, heart attack, stroke, coronary artery by-pass surgery, end-stage kidney failure, end-stage lung disease and end-stage liver failure, to mention just a few. If you want to check if a particular insurer’s critical illness plan is comprehensive, your best bet would be compare it to LIA’s list.
How does critical illness insurance work?
Critical illness insurance usually pays out a lump sum of cash once you get diagnosed with an illness on the list. This may be limited to a late-stage diagnosis, depending on your policy.
This lump sum is known as the “sum assured”, which you can typically choose.
Let’s say you have a sum assured of $200,000, and heart attack is one of the conditions for which your plan offers full coverage. If you suffer from a heart attack, you will receive a lump sum payout of $200,000.
That is the basic mechanism. But some plans have more complex payout terms in various situations.
For instance, some critical illness plans are multi-pay. This enables you to receive more than one payout from your plan. For instance, you might have the right to receive a payout equivalent to a fraction of your sum assured if you are diagnosed with an early- or intermediate-stage disease. You can then receive another payout if you are later diagnosed with late-stage disease.
Some plans will also let you make more than one claim if you are diagnosed with more than one critical illness. You might be entitled to make multiple claims if you suffer from a recurring disease or relapse.
As you can see, there might be more than one way to receive your full sum assured. Some plans might also give you the opportunity to receive more than 100% of your sum assured, such as by letting you make multiple claims. So, it’s important to read the policy documents carefully and understand the plans’ different payout mechanisms when making comparisons.
I already have life insurance. Do I still need critical illness insurance?
If you already have health AND life insurance, good job on getting yourself insured — you are now an ideal candidate for critical illness insurance.
Critical illness insurance is not as crucial to have as health insurance (for all adults) or life insurance (for those with dependents). So, if you don’t have any insurance yet, you should first channel your resources into getting these essentials. After that, if you have money left over, you can seriously consider getting critical illness insurance.
The lump sum payouts offered by critical illness can sound similar to life insurance payouts, but they are not the same. You usually have to die or become disabled to receive a life insurance payout. (If you die, your family or beneficiary will receive the cash).
On the other hand, critical illness payouts can be accessed upon diagnosis of a relevant illness, whether or not it proves fatal.
All that said, a lot of life insurance policies come with optional critical illness riders — more on that below. So check your existing life insurance policy to see if you are already covered for critical illness.
How is critical illness insurance different from health insurance?
Health insurance can sound suspiciously similar to critical illness insurance. And if you fall ill, you might well qualify for payouts from both types of plans. But they actually work quite differently.
Health insurance pays for your medical costs if you end up getting warded in a hospital. It is considered essential due to the relatively high cost of healthcare in Singapore, particularly private healthcare.
Do note, however, that if you are using an Integrated Shield Plan (which is the most cost-effective type of hospitalisation insurance for Singaporeans and PRs) you will always need to co-pay a portion of your bill. The plan will not cover 100% of your medical fees and you will always incur some out-of-pocket costs.
Critical illness insurance, on the other hand, offers you a lump sum payout when you are diagnosed with a relevant illness, regardless of the treatment you seek or the amount of medical fees you have incurred.
You can use the money however you like — for instance, you can use it to pay for your out-of-pocket medical costs not covered by your hospitalisation plan, or as income if you have to stop working and concentrate on treatment and recovery.
How to choose the best critical illness insurance plan
By now, you should have a good idea of what critical illness insurance entails and the factors to look out for.
Other than comparing the list of illnesses, the sum assured and the payout terms, here are some questions that can help you find a plan more closely tailored to your needs.
- Do I want a critical illness rider or standalone plan?
- How long do I want to be insured?
- Do I really need coverage for ALL the critical illnesses?
- Am I willing to pay more for early critical illness coverage?
- Am I willing to pay more to cover relapses?
1. Do I want a critical illness rider or standalone plan?
In order to receive critical illness protection, you can either buy a standalone critical illness plan or a critical illness rider or optional add-on for a life insurance plan.
Both term and whole life insurance plans can come with critical illness riders. These riders can extend your life insurance protection to critical illnesses, meaning you can receive your life policy’s sum assured (previously only payable if you die or become totally and permanently disabled) if you get diagnosed with a covered critical illness.
One key advantage of critical illness riders is that they are usually cheaper than standalone plans. But once you get that payout, your policy may no longer cover death or permanent disability.
This is not a standard feature though — some insurers might offer a separate critical illness coverage amount if you get diagnosed with a critical illness, which does not affect your life protection. You’ll want to check your policy wording for this.
By contrast, standalone plans are usually more expensive. But you can then compare across a wide range of insurers to find a plan that offers exactly what you need, without compromising on your life insurance coverage.
2. How long do I want to be insured?
When you first sign up for a critical illness plan, you will need to think about the age up to which you wish to be protected.
For instance, a particular plan might give you the option of protection until the age of 65, 75, 85 or 100. Your policy will be automatically renewed on a yearly basis until your designated age.
The issue here is that standalone critical illness insurance premiums rise with age. As you get older, your chances of getting hit with a critical illness rise drastically, and so too do your premiums.
Unlike with life insurance, you may not get to “lock in” a lower premium by signing up at a younger age. You should therefore ask the insurer for their premium table so you can see how much you’ll have to pay as you get older. This will also help you decide how long you wish to stay insured.
When it comes to critical illness riders tacked onto your life insurance plan, your coverage and premium structure might be a bit different. For instance, if you have a whole life insurance plan, your premiums might be payable for life or for a limited premium payment period only.
3. Do I really need coverage for ALL the critical illnesses?
Critical illness insurance policies can vary wildly depending on how many illnesses they cover. On one end of the spectrum, some plans will cover you for over 100 conditions at any stage. On the other end, some plans are geared towards only cancer or the most common critical illnesses.
Obviously, it is impossible to predict what critical illness you are likely to kena. But certain people might be more concerned about particular conditions.
For instance, if many members of your family have gotten cancer, you might want to go for a plan that allows multiple payouts from early to late stage, since cancer is a disease that has the tendency to recur. If you are on a tight budget, getting a plan that covers only cancer might be preferable to no plan at all.
You will also need to decide between comprehensive critical illness coverage or settling for a (likely cheaper) plan that offers coverage for a smaller list of diseases, like the “big 3” critical illnesses.
Here, your budget is likely to play a big part in deciding which type you can afford.
4. Am I willing to pay more for early critical illness coverage?
Critical illness insurance, in its most basic form, offers coverage for late-stage diagnoses. But these days, many plans offer payouts at early and/or intermediate stages, too. Obviously, they cost more.
As the name suggests, early-stage critical illness plans offer a payout if you are diagnosed at an early stage of a critical illness. If you’re the type of person who goes for screening regularly, there’s a higher chance you’ll be able to catch a disease at an earlier stage.
As with many things in life, early critical illness coverage is nice to have — if you can afford it. So it again boils down to looking at your budget and assessing whether you can afford the extra coverage.
Bear in mind that early stage illness tends to be more treatable and less devastating, so if you’re on a tight budget, you may want to forgo it for the time being.
5. Am I willing to pay more to cover relapses?
Earlier, we mentioned that there are multi-pay critical illness plans which enable you to make multiple claims if you suffer from a relapse or recurrence of an illness.
So, if you get early stage cancer and then later suffer from a relapse, you might be able to make 2 claims in total.
If you’re considering a multi-pay plan, be sure to read the terms and conditions governing each payout, taking note of the percentage of the sum assured you’ll get to claim at early or intermediate stages of illnesses, the period of time that must pass before your sum assured is “reset” after each claim (usually 1 or 2 years), and whether prior claims will affect your sum assured in the event of a late-stage illness.
Similar to early critical illness coverage the multi-pay feature is nice to have but costs more. So, you’ll need to look at your finances and decide whether you can afford such a plan.
How much do critical illness insurance premiums cost?
If you’ve read up to here, you probably see the value in having critical illness insurance. After all, most of us are going to die from illnesses rather than freak accidents. The question is: how much does it cost to get critical illness insurance, and can you afford it?
As mentioned earlier, your age will have a huge influence on your premiums, which rise as you get older. For instance, a 45-year-old can expect to pay roughly 2 to 3 times more than a 35-year-old. Smokers also pay more.
When comparing premiums of critical illness plans, it’s best to split them into single pay plans and multi-pay plans, as the latter are much more expensive.
At the age of 35, for a sum assured of $100,000, you can expect to anywhere from about $300 to $1,000 per year for a standalone single-pay critical illness plan, or $1,000 to $3,500 for a standalone multi-pay critical illness plan.
How much “sum assured” is enough?
According to a 2018 news report, the LIA recommends that the average Singaporean has critical illness coverage of about $316,000, which works out to about 3.9 times the average annual pay at the time of the report.
To adapt this figure to your own circumstances, you can multiply your annual salary by 3.9. However, that may not be enough for some people.
Another statement made by the LIA was that people should ensure that their coverage can pay for their family’s needs over a recovery period of 5 years. So, you might also want to ensure that your coverage is enough to cover 5 years’ worth of your contribution to your household’s spending.
That being said, these are just a recommendations and there is no hard and fast rule. You might have other ways to replace your income and pay off your mortgage if you fall ill. So, it would be best to do the math yourself to work out how much you would actually need if you were unable to work for 5 years.
If you can’t afford that much critical illness cover at the moment, just go with what is within your budget.
A few things to note before you buy critical illness insurance
With critical illness insurance, I can’t stress enough the importance of reading the actual policy documents and not just the brochure when you are considering signing up.
In particular, go through the list of exclusions, which might include pre-existing conditions or genetic risks, to make sure you know when you would not qualify for a payout. The last thing you want is to discover that you are not entitled to a payout because a particular condition is excluded.
You should also check the policy’s survival or waiting period (typically 7 to 30 days), which is the amount of time that you must survive after your diagnosis to receive the payout. Your policy may only offer its payout once the survival period has elapsed, which means that if you pass away too soon, your family may not receive anything.
Critical illness insurance is stackable, which means you can sign up for more than one policy in order to enjoy greater protection. So, if you have a rider offering a $300,000 sum assured as well as a standalone policy offering $200,000, you can claim a total of $500,000 if you are diagnosed with a condition that is covered by both.
Finally, take note of the claims process when you buy critical illness insurance so you know what to do if you do get a diagnosis you can claim for. You might need to submit certain documents such as medical and/or lab reports. Knowing what to ask your healthcare providers for can help to make an already stressful period a tiny bit less taxing.
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