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 our previous articles, we gave an overview of what a critical illness insurance is, how the payout for a critical illness insurance works and how much critical illness insurance should one get. For this last instalment, Ms Michelle Ee, Financial Alliance’s Wealth Management Director, will talk about what to be wary of when making a purchasing decision.
CHARACTERISTICS OF CRITICAL ILLNESS INSURANCE TO BE AWARE OF
When choosing your critical illness cover, Michelle advises you to be aware of these seven key conditions and characteristics:
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Affordability – If the critical illness plan lapses due to missed premium payments, the insured may not be able to reinstate it if the insured’s health condition has since deteriorated.
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Waiting period – Some or all of the benefits only take effect after a stipulated time has elapsed from the policy inception date (or from the previous claim in the case of policies that allow more than one claim). In other words, if any disease or type of surgery specified by the policy is diagnosed or carried out during the waiting period, no benefits will be paid. Hence, the longer the waiting period, the less advantageous it is for the insured.
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Survival period – Some critical illness policies pay only if the insured is able to survive a number of days (say 7, 14 or 30 days, etc) after being diagnosed with a covered critical illness. Hence, the longer the survival period, the less advantageous it is for the insured.
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Coverage period – Critical illness coverage bundled under different plan types will come with different coverage periods which, for instance, could be 20 years, 30 years, up to 75 years of age or up to the whole of life. Any limitation in coverage period will leave the insured exposed once the period is up. Lifetime coverage is therefore better.
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Payout criteria – For critical illness policies, it is important to understand the criteria and limitations relating to the payouts. Getting a full understanding for each payout is even more crucial when it comes to early-stage and multi-pay insurance.
For early-stage critical illness plans, do pay careful attention to how the early stage is defined. The more stringent or multi-faceted the definition is, the less advantageous it is for the insured. Since common conditions such as cancer, stroke and heart attack account for over 90% of critical illness claims, it would not be surprising if the insurance companies are more meticulous when setting their claim triggers.
For multi-pay critical illness plans, do consider carefully if the terms and conditions for making subsequent claims are fair and reasonable. Too many exclusion clauses or long waiting periods may make the benefit less useful than it sounds.
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Loss of critical illness coverage – Critical illness coverage could be “removed” under certain circumstances, so you have to be aware of them.
If the critical illness cover is attached to a participating policy, critical illness coverage may be removed should the insured invoke certain policy provisions such as cashing out on a participating policy or converting the policy to a paid-up policy. In the case where the critical illness cover is attached to an endowment policy, the critical illness cover will be terminated when the endowment policy matures.
If the critical illness cover is attached to an investment-linked policy, critical illness coverage might be removed should the insured take a premium holiday, i.e., stop paying the premiums for a period of time during which some units in the policy’s mutual funds are sold off to pay for the insurance coverage.
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Some critical illness policies primarily cover critical illnesses only – Unlike critical illness covers that are attached to whole life policies, some critical illness plans are designed the other way round – to mainly cover critical illnesses. Hence, the death benefit on such a policy, if any, is only a small token sum of $10,000 or $15,000 regardless of the amount of sum assured covering critical illnesses. For example, if an insured has such a policy with a sum assured for critical illnesses of $300,000 plus a death benefit of $15,000, the policy will only pay $15,000 instead of $300,000 should the insured pass away during the survival period or from an accident. If the insured or his/her beneficiaries are not made aware of this, they could unwittingly be dealing with a policy that will not be paying as much as they think when a death claim is made. Such a misunderstanding could be avoided upfront – to ensure that you know what you are buying into, do check with your financial adviser what amounts are payable upon critical illness diagnosis and upon death.
We hope there is enough food for thought in this article to get you going forward in your financial planning endeavours. Ultimately, financial protection from critical illnesses and major surgeries should not be taken for granted. What is easy today might be impossible tomorrow.
In case you missed the first 3 parts of our four-part serial on critical illness insurance, you can find part 1, part 2 and part 3 here.
