This article was first published on Dollars & Sense on 23 August 2018.
Most people will agree that insurance is an important aspect of personal finance. However, not as many people really understand insurance-related matters as much as they should.
With many different types of insurance, it’s easy to get confused over what you should be buying, and what buying these plans cover you for.
Broadly speaking, there are three main types of insurance policies. They are health insurance, life insurance and general insurance.
The main purpose of health insurance is to ensure that your healthcare cost and the loss of income that you may suffer because you are ill is taken care of.
The main purpose of life insurance is to ensure that your dependants, whether they are your parents, spouse or children, are taken care of financially if you are no longer around to provide for them.
General insurance protects you from losses that you might sustain due to the assets that you own. This includes your home and any vehicle you own.
Understanding health insurance
|Types of Insurance||Purpose||Example of products|
|Health Insurance||To protect an individual from healthcare cost or loss of income due to health reasons||Hospitalisation Plan (e.g. MyShield – Integrated Shield Plan), Critical Illness Plan (e.g. MyMultiPay Critical Illness Plan)|
|Life Insurance||To protect an individual’s family from financial hardship due to death/ injury/ illness||Whole Life Insurance (e.g. MyWholeLifePlan), Term Life Insurance (e.g. MyProtector-Term Plan)|
|General Insurance||To provide financial coverage against a range of events or losses which could be suffered.||Home Insurance, Car Insurance, Personal Accident, Travel Insurance|
Health insurance is usually the first area of insurance that you should look into when you start working. Unexpected health problems can rob anyone, even the healthiest and fittest among us, of this ability to work at any point in time. This is why working adults should ensure that they are adequately protected.
Within the category of health insurance, there are different types of health insurance policies that an individual can consider.
The table below is a simple explanation from MoneySense on how each type of health insurance works, and how they can collectively provide you with comprehensive healthcare protection.
|If you want to||You should consider|
|Have your hospital and surgical (medical) expenses covered||Medical expense insurance e.g. MediShield and Integrated Shield plans|
|Received a fixed amount of cash when you are in hospital||Hospital cash insurance|
|Receive a lump sum to help you with expenses when you are diagnosed with a major illness like cancer||Critical illness insurance|
|Replace your income when you are unable to work||Disability income insurance|
|Pay for care you need when severely disabled or too weak to look after yourself||Long term care insurance e.g. ElderShield and ElderShield Supplements|
Private Integrated Shield Plans
If you don’t already have a Private Integrated Shield Plan, you should get one as quickly as possible. Depending on the plan that you have bought, this would cover your hospital bills in private hospitals, or Class A/B1 wards in public hospitals.
Private Integrated Shield Plans provide a good baseline that everyone should have. Coverage is provided on an as-charged basis. This means that there is no limit on claims for eligible expenses.
At the same time, coverage from Shield plans do not cover any loss of income due to an individual not being able to work while they are recuperating from their illness.
How can critical illness plans help?
A critical illness plan provides a lump sum payout to you in the event that you are diagnosed with an illness covered under the policy. Common illnesses that are covered include major cancers, heart attack and stroke. While most critical illness plans in Singapore would cover the majority of the common illnesses, it’s recommended that you understand the coverage that you are getting, before buying any plans. If in doubt, you should ask your financial adviser to explain to you the full extent of the coverage that you will be getting.
Besides knowing what are the illnesses you are covered for, you should also know that there are different stages (early, intermediate and late stage) that the illness can be classified under, when it’s diagnosed.
Many traditional critical illness plans only covers you at the late stage of an illness. For example, if a person is diagnosed with early-stage cancer, a traditional plan may not pay out the sum assured, until it reaches late stage. By then, recovery is usually a lot more challenging. However, there are critical illness plans, such as Aviva’s MyMultiPay Critical Illness Plan, that provides for critical illness protection across all stages of illnesses.
Why are critical illness payouts important?
A person who is diagnosed with a critical illness may require additional check-ups and medications, which might not be covered by a Private Integrated Shield Plan. A lump sum payout provided by a critical illness plan can help individuals and their families cope with the costs of treatment and rehabilitation.
Additional support may also be required at home during the recovery period. For example, a family may engage a domestic worker to help out with household chores. This will add to the household expenses.
Lastly, it is reasonable to expect that a person who has been diagnosed with an illness (e.g. stroke) to take some time off work to recuperate. However, the trade-off is that the family will have a lower income during this period. The lump sum payout provided by a critical illness plan can help reduce financial stress for the family during these challenging times.
Enjoy continuous protection, even after claiming
It’s important to know that being diagnosed with a critical illness, while unfortunate, is far from being a death sentence. With advancements in medicine, chances of recovery are the best they have ever been than at any time in history.
One of the limitations of most standard critical illness plans is that once a payout is made, the plan terminates. For example, if a person suffers from a heart-related illness and makes a recovery after surgery, that person will no longer have any critical illness coverage since a lump sum payout has already been made. Buying a new critical illness plan may not be possible, since the person already has a pre-existing illness.
One solution you can consider is a multiple payout critical illness plan such as Aviva’s MyMultiPay Critical Illness Plan. This plan allows up to 5 claims, including recurrence of major cancers, heart attack and stroke. This is particularly useful for those who are worried that they may recover from one of these illnesses, only for the illness to recur again in the future.
What this means is that, in our example of a heart related illness patient who requires Keyhole Coronary Bypass Surgery, he will receive his first payout for this early/intermediate stage of critical illness. He proceeds to recover well from this heart-related illness. 10 years later, he is diagnosed with severe stage prostate cancer. He receives his second payout and also undergoes successful treatment. At age 70, he suffers a stroke and receive his third payout. Three years later, he suffers a recurrent stroke and receives his fourth payout.
To find out more about this works, you can download Aviva’s MyMultiPay Critical Illness Plan e-brochure.
By having a critical illness plan that provides multiple payouts, you can enjoy peace of mind, knowing that you are not only protected across various stages of critical illness, but can also made multiple critical illness claims on a single insurance policy, rather to lose your coverage once you have made a claim.
This article was written in partnership with Aviva. Views expressed in the article are the independent opinion of DollarsAndSense.sg