This article was first published on Dollars & Sense on 10 September 2018.
We previously wrote about the importance of protecting yourself with a critical illness plan, and how such a plan can provide you with funds that you need at a time when you most need it.
For those who don’t already know, a critical illness plan is an insurance plan that provides you with a lump sum payout in the event you are diagnosed with a critical illness covered under the plan. Common critical illnesses covered include major cancers, heart attack and stroke.
In a Singapore protection gap study shared earlier this year by the Life Insurance Association (LIA), it was reported that among economically active people in Singapore, there is an average protection gap of about $256,826 per individual when it comes to the amount of critical illness coverage a person needs against what they currently have. This is based on the assumption that they need about 3.9 times their annual income.
Of course, all these are only an average calculation utilising broad assumptions. Some people may require more coverage while others may need less, depending on their existing circumstances, how much they earn, their living expenses, amount of loans they have and personal preference.
Before you get a critical illness plan, here are some factors that you should consider to determine how much coverage you actually need.
#1 Income needed during your recovery
According to LIA, a safe estimate on how long you may need to recover from your illness is five years. If you have a critical illness, you will likely need to take some time off work to recover.
However, you still need to continue paying for your own living expenses during this period. This includes how much you need to continue your current lifestyle, as well as any loans that you will need to continue servicing , such as your home mortgage or car installments .
Some people may tap on their savings to tide them through the recovery phase. However, you need to be mindful that for most people, our savings already have some designated purposes that we wish to keep it for. Hence relying on it entirely, and risk wiping out our savings, isn’t ideal and should only be seen as a last resort option.
#2 Income support for your dependants
If you have dependants (i.e. children, parents) who are reliant on your income, they will likely continue requiring financial support, even if you are no longer working.
This should not be confused with having adequate life insurance coverage. A life insurance payout is only made when the policyholder has passed on. For a person with ample life insurance policies but no critical illness plans, being diagnosed with a critical illness may mean not receiving any insurance payout yet. This becomes a problem for the family because while the individual is not able to work, he/she is still not entitled to a payout.
As such, you should calculate the amount of money that your dependants will continue to need in the event that you are not able to earn an income for a few years. Your critical illness coverage should take into consideration this amount needed for your dependants to get by at their current lifestyles.
#3 Support services during recovery
Those of us who have first-hand experience witnessing a loved one needing additional personal care while ill will understand this. Things may no longer be what it used to be when someone is critically ill. The person may need additional or even special personal care in order to manage their illness.
If both spouses are working and one falls ill, it’s not unusual for the other to also have to take a leave of absence to care for their spouse. This would mean the loss of income for both, not just the person who is ill.
An alternative could be to engage a domestic worker. In Singapore, this may cost about $1,000 a month. Since most working individuals in Singapore would be able to earn much more than that, it makes sense, strictly from a financial standpoint, for a healthy spouse to continue working while a domestic worker is employed to help out at home.
Beyond caretaking needs, other costs that may be incurred include the purchase of home-based medical equipment, private transport arrangements if an individual needs to go for regular treatments or rehabilitation therapy.
#4 Type of critical illness plan you need
There are many types of critical illness plans offered by insurers in Singapore. Here are some of the key areas to take note of.
Early/Intermediate or Severe Stage
Many traditional critical illness plans only cover a person when an illness reaches the late stage. For example, some people may not realise that early and intermediate stages of cancer are commonly excluded from coverage in older critical illness plans. If you want payout across different stages, you should opt for plans that not only provide you with payout during late stage, but also early stage as well.
Enjoy future coverage, even after claiming
Many traditional critical illness plans are single serving. Think of it as your 3-in-1 coffee packet. You can only use it once to make your drink, and that’s it.
The same logic applies to traditional critical illness plans. If you have an illness, you claim from the policy that you have bought. Once a payout is provided, your policy will terminate. While having one payout is better than getting nothing at all. It leads to two other important questions.
Firstly, if a person recovers from his first critical illness (e.g. a stroke), there is always a risk that the same condition may reoccur (i.e. getting another stroke years later) again. However, while a payout is provided for the first-time critical illness occurs, the person will not get a payout if the same illness occurs again in the future. This also applies for other common illnesses such as heart attack and cancer.
Secondly, a person may recover from one critical illness (thankfully) and be (unfortunately) diagnosed with a different critical illness. For example, a middle-age individual could have a heart-related illness that requires a Keyhole Coronary Bypass Surgery and recovers well from it. However, at a much older stage in life, the individual may be diagnosed with a major cancer. Again, the person will get a payout for his first illness after making a claim but will not get any payout for his second illness.
Very often, upon making a critical illness claim, an individual will no longer be able to buy new critical illness plans. That’s because he or she would already have pre-existing conditions, which makes the person uninsurable.
Buy a multiple-payout critical illness plan
The simple solution to both of these problems mentioned above will be to get a multiple payout critical illness plan such as Aviva’s MyMultiPay Critical Illness Plan.
This plan provides up to 5 lump sum payouts to an individual upon diagnosis of critical illness across early, intermediate or severe stage of critical illness, including up to 2 payouts if the individual is re-diagnosed with cancer or suffer from recurring heart attack or stroke.
In other words, you will be able to solve both your problems with one critical illness insurance plan.
This is particularly useful since advancement in medical technology in recent years has allow for early detection of critical illness. These early detection can lead to a higher probability of recovery. For example, cancer survival rate for men in Singapore has gone from just 13.2% from between 1973 to 1977, to 48.5% between 2008 to 2012. With a critical illness plan that provides coverage from early stage, you can enjoy a peace of mind knowing that you are financially covered should you be diagnosed with an early stage critical illness.
#5 Premiums Payable
If budget is not a constraint, all of us would opt for the highest and most comprehensive level of coverage.
However, we live in a real world where we have to balance between how much we are able to spend on our insurance protection, and other equally important needs such as planning for our retirement and our kid’s education.
If you want a critical illness plan but feel it’s too expensive for you, there are a few things you can do to reduce your insurance premiums.
For a start, you can choose to pay your premiums annually, which would be cheaper, instead of monthly. You can also make healthier lifestyle choices such as to quit smoking, which would reduce your premiums a lot. These are choices that everyone can make for themselves.
Last but certainly not least, when it comes to critical illness coverage, we believe it’s important to have some level of coverage, rather than none at all. By having even a little critical illness coverage, a person is able, to some extent, provide basic insurance protection for himself and his family.
Regardless of the amount, getting a payout when you most need it, even a small(er) one, is still better than getting nothing at all.
You can always choose to start off by getting a good critical illness plan that covers you for what you need, so that you can secure for yourself a basic level of coverage…first. In the future, if budget permits, you can then opt for a more comprehensive level of coverage.
If you are keen to start your protection journey today, leave down your details in the form below.
This article is written in collaboration with Aviva. All views expressed in this article is the independent opinion of DollarsAndSense.sg