Photo Credit: Ronn ashore
I was quite surprised to find out that Mr Tan Kin Lian does not recommend critical illness insurance, or at least not to a large coverage.
From his website on Personal Insurance, he mentioned this about critical illness:
“There is no need to buy insurance to cover critical illness. Your Medishield or private Shield plan can cover most of the medical expenses.
The chance of making a critical illness claim is small. Less than 5% of people make this claim during their working life.
If you wish to have insurance to provide a cash payment, a sum of $50,000 should be adequate. The cost of critical illness cover is high. You should not spend too much premium on this risk, as the return is poor.”
There are 3 points in his argument from his words and I went to investigate a little further.
1. Medishield covers most of the medical expenses
Let us examine what is covered in a basic Medishield plan:
1) Daily ward and treatment charges
2) Surgical operations
3) Implants/approved medical consumables
4) Radiosurgery
5) Chemotherapy
6) Stereotactic Radiotherapy for Cancer
7) Radiotherapy for Cancer
8) Kidney Dialysis
9) Immunosuppressant drugs for organ transplant
10) Erythropoietin drug for chronic kidney failure
It is true that treatment for critical illness is indeed covered in a shield plan. So do you need a critical illness cover? I would say yes if you do not have enough savings.
We must always go back to the purpose of insurance when we discuss about such issue. Insurance is to provide the money you need when you encounter mishap. Hence, a critical illness coverage provides the cash payout when you contract the illness and you can use the money wherever you wished to. In this case if you have a Shield plan, your treatment cost is mostly covered. Hence, do you still need a sum of money?
If the Shield plan claim is not adequate to meet hospital bills, the money may come in handy. But besides settling the bills, it is important to note that most probably you will be out of job and lose your income once you contracted the illness. You will be living off your savings for the rest of your life. It is safe if you have enough savings or investment returns or retirement funds for you to tap from. But if you have not been disciplined to build your savings, you would really need the payout from critical illness.
2. Low probability of claim
Based on 2007 statistics from Ministry of Health website, we have a population of 4.5 mil. Here are the top 10 conditions of hospitalization:
1) Accident, Poisoning and Violence
2) Cancer
3) Ischarmic Heart Disease
4) Pneumonia
5) Obstetric Complications
6) Chronic Obstructive Lung Disease
7) Other Heart Diseases
8) Cerebrovascular Disease (including stroke)
9) Intestinal Infectious Disease
10) Complications related to pregnancy
You may want to compare to the list of critical illness that is claimable here.
Hence, I would say only (2), (3) and (8) qualify for claims. Doing some calculations, the probability is about 1.1% of the population. Of course, this is a very rough estimate since it does not consider all the diseases that are claimable under the critical illness list. However, out of the top 10 conditions, I am quite surprised critical illnesses take a small proportion. But it is still important to remember low probability does not equate to “it will not happen”.
3. Poor return
You cannot buy critical illness cover by itself. It has to tag along a life policy (either whole life or term). A whole life policy usually have a return of 3%-5% per annum. For 10-20 years, a 8%-9% return from a low cost fund can give you much more returns.
I believe if you do not have enough savings, covering yourself with critical illness is important, especially when you just began your work life. It is important to plan well and determine your true needs. Do not under insure or over insure. How about sharing your take on critical illness?
Clarifications from insurance agents:
The issue with critical illness is that it usually payout in the final stages of cancer. Hence, if a person is likely to die, he does not really need the money for treatment. Moreover, if he dies, his life policy which the critical illness is attached to will cash out, which his family can use. So what is the point of paying critical illness cover? Then GE came out with an Early Payout scheme which makes more sense to a critical illness cover. The scheme will payout even the cancer is discovered at stage 0. This means that the patient will receive the money and use it to treat the illness from the onset. The drawback is that the additional premium for this scheme is high.
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Hello sir, you may be the previous CEO of NTUC, I think its best you save your comments. From your remarks I am very sure you do not know your products well when you mentioned about major illness tagging with a whole life etc, please save your comments and find out more before you comment, you sounded rather silly.
Do you also know there are many types of shield plan, and many do not cover experimental drugs. By the way do you know what is experimental drugs? Do you know when a person contract cancer, all types of drugs are used to terminate the cancer cells and not all drugs can do that. Have you ever excute a major illness claim? I had done a few ok.
Critical Illness Cover is lump sum protection. You use the money for whatever purpose you see fit. It’s not just about paying for medical expenses. A lot of people take out critical illness cover in line with a mortgage so that if they are diagnosed at least they can pay off their mortgage and not risk losing their home.
Hey bro,
Some very exciting news about the latest development from GE.
We are launching a new critical illness product which is revolutionary in the market.
Currently, all critical illness payout only occurs in the later stages of the illness, NOT in the early stages or what we term stage 0.
We are changing how payout is to occur! With our new plan which is launching in April, payout will even occur in stage 0 of an illness such as cancer.
What it means?
It means that you will be able to make a claim for a significant amount even before the illness develops into the later stages and thus use the money for treatment or as compensation from time off work during early treatment. This is in line with doctor’s recommendation to start treatment early for all illnesses and also the high recovery rates due to early treatment.
GE is making a revolution once again. We are the 1st in Singapore to start critical illness coverage in 1987 and this year, we are making a significant change in how critical illness coverage can benefit.
Can i share on your site more about this?
Hi,
I would like to make a few comments.
1) Kindly brought out by “life critical illness”, critical illness lump sum is not entirely for medical expenses. As pointed out, its role is to replace your income and daily living expenses for self or family.
2) Dr Auther Tan, who is a frequent contributor to Straits Times’s “Mind Your Body”, wrote an article before. Many patients who fortunately recovered from an critical illness like cancer are having a tough time looking for a job after their long break for treatment and recovery and this amount again, comes in very handy.
3) Be sure about what your hospital plans cover. Recently, there is a rising trend to administer approved experimental drugs by doctors, specially for cancer treatment. One example is Herceptin, which is a kind of drug used in Chemotherapy. This drug, however is very targeted and kills less good cells and focus in on the cancerous cells.
So its very important to take note if your current Shield Plan covers for small details like these, which might possibly save your life. Check out the exclusion list on your policy contract for your Shield Plan and not just the table of benefits.
Every detail count on a contract.
Tan Kin Lian sounds like an idiot..I have a relative who suffered from a “terminal illness”, one that would definately take his life away and but slowly..slowly..
From the time of diagnose to his death, there was a period of about 3-4years where he was totally dependent; paralyzed first waist down then neck down before death.
He had insurance, yes, and maybe he thinks like TKL too; need not alot of CI insurance, and he didnt.
And was life the same for his family? Of course not. There are many many expenses not covered under the shield plan: – the maid, yes the maid, because in situation like this when the husband did not have enough CI insurance, the poor wife MUST go and work. And who will look after the husband who require 24 hours attention? Who will take care of the 2 little children who are barely out of primary school?
On top of that, expenses still need to be spend on adult diapers, special diet, special bed frame, medication, and many other things that the husband would probably never be able to afford with even his usual monthly income.
Perhaps its true than less than 5% of people make CI claim, or not..but how do we ever know when or who will be those “lucky 5″?
Hi KLX, you are right. The 5% may be you.
On the other hand, CI payout is not confirmed even if one contracted the covered illness. For some of these illnesses, the insured need to be at the final stage before he/she can make a claim. So if it is still an early stage, he/she would not get a single cent even though he/she is bedridden at home.
Personally, I think that if you want to get CI, you should get early payout option.
I express my comment to this case as, being an insurance agent myself, I need to convince that critical illness coverage is essential before i present it to everyone else. In this case, AIA and GE have related products to early payouts.
Upon better understanding, AIA’s critical illness coverage pays out as much as 6 times or more upon diagnosis and even when the insured has relapsed. Also, i would have to agree that critical illness insurance is way too expensive for most people. I hence suggest 2 life plans (limited payment of up to 15 years inclusive of critical illness coverage) you pay premiums for 15 years and the policy will cover you till 100 years old. Eg:
for myself, I have a 200,000USD life policy covering myself of up to 100yrs old and 125,000USD for critical illness. i am paying a premium of $4200 per year of up to 15 years [of course this depends on age] however, my total layout is $63,000 and I have a gauranteed legacy of up to 200,000 and in addition of bonus every year. This settles the probability of the 5% as mentioned above and hopefully, we do not fall into that scope.