By Lorna Tan
Having your hospital bills covered by insurance is a huge relief, but there are plenty of other expenses that can crop up in the wake of a serious illness that could leave you shelling out a fortune.
So, while hospitalisation plans like MediShield Life and private Integrated Shield Plans are vital, it is prudent to consider complementing your healthcare cover with a critical illness plan or rider that provides a lump sum payout if you are diagnosed with a critical illness.
This sum will come in handy, particularly if you are a breadwinner, to cushion the financial impact - such as sudden income loss - if you cannot work due to an illness.
When a person is struck with a debilitating disease, there can be additional costs, from hiring domestic helpers to alternative medical treatment not typically covered under insurance such as tonics and Chinese medicine.
There are also ongoing family expenses and mortgage payments to be met, says Mr Alfred Chia, chief executive of financial advisory firm SingCapital.
He notes that when critical illness coverage was made available here in the 1990s, it generally covered only the severe stage of a critical illness, but this has changed. With the advancement of medical technology and the general awareness of regular health screening, critical illness can be detected at the early stage, which has led to the availability of early stage critical illness plans.
There are also multi-pay type products that cover multiple critical illness claims within one policy.
"Early detection means that there is higher chance of recovery. Patients also realise that one can be unlucky to have multiple strikes of critical illness. For example, many colon cancer patients go on to contract liver cancer," says Mr Chia.
Ms Ho Lee Yen, AIA Singapore's chief marketing officer, said the AIA Health Matters Survey 2016 findings indicated that an overwhelming nine in 10 Singaporeans find it challenging to purchase another critical illness plan after a diagnosis of a critical illness.
So it's no surprise that there is rising demand for such coverage with insurers jumping on the bandwagon, introducing different types of critical illness policies to meet varied customer needs.
Mr Carlos Vazquez, chief product officer at Manulife Singapore, says multi-pay critical illness policies restart the coverage after the entire sum is paid out, so the plan covers you again.
The good news for consumers is that with the greater awareness of the need to protect against the risk of critical illness, the larger pool of insured people and intense competition among insurers means that premiums have become competitive.
TYPES OF CRITICAL ILLNESS INSURANCE
CONVENTIONAL CRITICAL ILLNESS COVERAGE VS EARLY CRITICAL ILLNESS COVERAGE
Conventional or basic critical illness plans provide coverage for severe stages of afflictions.
Ms Michelle Ee, director of wealth management at Financial Alliance, says such cover is important as the financial impact is usually huge once such illnesses are diagnosed.
"A basic critical illness cover is a great tool to cushion the financial impact upon diagnosis with critical illness, and having to face the double whammy of big medical bills and loss of income," says Ms Ee.
Mr Daniel Lum, director of product and marketing at Aviva Singapore, says early critical illness plans provide coverage from early to intermediate stages of critical illness.
"Medical advancements have made early diagnosis of illnesses possible, and early treatment has in turn been found to improve chances of recovery," he adds.
Ms Ee says the payout will provide the financial support to seek care or treatment that falls outside the scope of hospitalisation insurance. However, early critical illness plans come with high premiums, non-standardised critical illness definitions, complicated terms and conditions, and limitations on claims.
SINGLE-PAY VS MULTI-PAY CRITICAL ILLNESS PLANS
Single-pay plans provide a single lump sum payout upon diagnosis and the policy is terminated after the claim is paid.
Manulife's Mr Vazquez says it is extremely difficult for the customer to get such insurance again.
This means, says Mr Brandon Lam, Singapore head of financial planning group at DBS Bank, that if the critical illness recurs or if the customer has another critical illness later in life, there will be no coverage or his cover will be restricted with exclusions for specific critical illnesses.
This is where multi-pay plans come in handy. They provide several payouts upon diagnosis and are designed to help fund early treatment costs as well as longer-term needs, such as if a relapse occurs.
Aviva's My MultiPay Critical Illness Plan, for example, allows policyholders to claim up to five times in the event of critical illnesses: An initial lump-sum payout in the event of early or intermediate stage of the illness and additional payouts at severe stages, and up to two payouts for cancer relapses.
However, multi-pay critical illness plans typically come with higher premiums and a more complex set of terms and conditions.
Still, Ms Ee says multi-pay plans are a benefit, especially for afflictions such as cancer, stroke and heart attack - three ailments that constitute over 90 per cent of all such claims.
"As it would be hard for an insured who had claimed critical illness coverage before to apply for a new critical illness policy, being able to claim multiple times does provide the extra peace of mind," she says.
FACTORS TO CONSIDER
1. HOW MUCH IS ENOUGH?
DBS' Mr Lam points out that the insurance industry cap is $2 million per life for critical illness cover, adding that such cover is highly personal and there is no one-size-fits-all solution.
The cover amount has to be determined by you considering the estimated amount for treatment for types of illness, bearing in mind that the two most common here are cardiovascular disease and cancer.
You also need to consider the potential amount to cover loss of income while under treatment and recovery, and your ability to pay the premiums.
Financial Alliance's Ms Ee says the sum assured will depend on the amount you need every month to cover living expenses. She recommends covering a minimum of 60 months as this period is about the right duration for a person to recuperate from a critical illness.
"We also recommend adding on a lump sum to cater for care and treatment expenses... We will discuss with clients on the likelihood of using alternative treatments or overseas treatment to help him derive the right amount of lump sum," she adds.
The same method can be used to work out the amount required for early critical illness. The duration to cover expenses may be reduced to six months plus a small lump sum to cover care or treatment that falls outside the scope of hospital and surgical insurance.
Mr Chia recommends setting aside a budget of about 10 per cent of your income for insurance. The priority should be for medical insurance (hospitalisation), followed by life protection to protect loved ones and critical illness.
2. WHAT TYPE OF CRITICAL ILLNESS PLAN IS SUITABLE?
Ms Ee says: "Basic critical illness is the main course of a meal, early critical illness is the ice cream and multi-pay critical illness is a privilege to refill your plate if needed."
She adds that early critical illness cover is "good to have" but not the most important. "The most important insurance to meet early critical illness need is a comprehensive hospital and surgical insurance like an Integrated Shield Plan.
"Most people diagnosed with early critical illness are only down for few weeks or a month and they are back to work again. The financial impact is very much less severe. Furthermore because of the presumption that early critical illness will have higher occurrence of claims, premiums are rather expensive."
3. KNOW YOUR FAMILY'S MEDICAL HISTORY
Before buying a critical illness plan, check your family's medical history, says Aviva's Mr Lum. For example, if family members have a high incidence of cancer, you might want to look into multi-pay plans as cancer is something that can recur.
4. WAITING PERIOD
Check if the plan comes with a waiting period. This means that some or all the benefits become effective only after a stipulated period has lapsed from when the critical illness was diagnosed. A long waiting period is not to your advantage.
5. SURVIVAL PERIOD
Some critical illness coverage only pays claims if you can survive a period of seven, 14 or 30 days after being diagnosed with the covered illness. Such a limitation is also not favourable, says Ms Ee.
6. COVERAGE OF CRITICAL ILLNESSES AND OTHER POLICY FEATURES
While most policies tend to cover major illnesses, not all provide the same coverage. "Do your research to see what is covered under the various plans, and consider which plans - be it in terms of coverage, payout terms or other policy features - would be most relevant to you given your medical history and financial needs," says Mr Lum.
7. ASSESS YOUR BUDGET AND NEEDS OVER TIME
Insurance plans are long-term commitments. You should plan your budget carefully and weigh your ability to meet the premium payments over time, adds Mr Lum.
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