Photo Credit: atomicjeep
I think many people buy insurance without knowing exactly what they are covered for. Hence, I decided to create this post to highlight coverage as well as shortfalls in the different types of policy. As every contractual detail of a policy differs from company to company, and from time to time, it is not possible to cover the specifics pertaining to your policy contract. It is of course best to read and understand your policy. What I hope to achieve here is to share the common and general facts of coverage. These generalities should apply to most policies. I would also like to keep this post ‘live’ and update when I have new facts. Feel free to contribute too!
Life Insurance
Life insurance in this context refers to both whole life and term life policies. A life policy usually covers Death and Total and Permanent Disability (TPD). As long as you are dead, your beneficiaries can claim the sum assured… except due to suicide (there maybe a time period where it is not payable, e.g. first 12 months).
I also found that military personnel are not able to claim TPD resulted from the course of military activities, even in peacetime. However, it is claimable if the insured is serving his National Service.
TPD is not claimable if caused by war.
TPD payout only occurs for loss of a pair of limbs. If you lose one limb, you cannot claim under TPD. You can claim if you meet any of these criteria:
- loss of sight of both eyes
- loss of both arms or legs
- loss of an eye or an arm/leg
Critical Illness (CI)
Your life insurance may have a Vincent Tong from iFAST Financial mentioned the following in an article titled “You Are Covered or Are You?”(from iFAST Insight magazine Feb-Jul 09):
“Currently, there are 37 definitions of critical illness, and each insurer chooses only 30 to cover.” This means that you may not be covered for 7 critical illnesses that were left out by your insurer.
He added on, “…the aggregate CI benefit for most insurance companies is only S$1 million on the same like insured. So if you had purchased 2 separate critical policies from the same insurance company, with each policy having a sum assured of S$750,000, the insurance company will only pay S$1 million if a claim occurs…”
Hence, he proposed one to purchase policies from different insurers to overcome the aggregate benefit as well as to be covered for all 37 CI.
It is also important to note that TPD has an aggregate benefit of S$2 million.
Mr Patrick Lim, associate director of PromiseLand (quoted in a 12 Apr 09 Sunday Times article), mentioned that a standalone critical illness plan usually requires the insured to survive beyond 30 days from the day on which he is diagnosed with a critical illness. “If he dies within 30 days, he will receive only the death benefit, which is usually a small sum of $10,000 or less.”
In the same article, another downside of critical illness plan was highlighted; “it usually allows claims only when the insured person is in the more advanced stages of a critical illness. It is no wonder that a common complaint is that it pays the claims only “when the person is about to die. For instance, the definition for cancer is “a malignant tumour characterised by the uncontrolled growth and spread of malignant cells and the invasion of tissue.” This excludes non-invasive “cancer-in-situ”, which refers to cancerous cells that have not yet invaded the surrounding or underlying tissue.”
Accident -Death payout only if you died in an accident and not because of other reasons like illness. Loss of body parts are usually a percentage of the death benefit.
Partial Disability – You can claim as long as you cannot work due to physical limitations for more than a period of time specified by the contract. More details in this post.
Mr Eng Tiang Chuan has a great article published in INVEST magazine – Top 10 Common Mistakes In Protection Planning.
{ 8 comments… read them below or add one }
Hi Alvin,
you mentioned that a life insurance policy does not pay out, if death is due to war. This is incorrect.
It is only if TPD is caused by war, then it is not payable – However, this clause is only found in some Insurance companies policy contracts, and not all.
And if purchase a separate Accidental Death cover, then usually it would have exclusions, if the accidental death is caused by wars, riots, rebellion etc (and a host of other exclusions as well).
Hope that this is a helpful contribution to your article…
Thank you James for your clarification! Keep them coming!
Hi Alvin,
no worries…
How to keep them coming, if there is nothing else to clarify? LOL
I can’t comment on the Army/Military Personel coverage that you brought up, as in my 20 year career selling Life Insurance, I have yet to sell to one, who is a Army Regular.
Seems like the government is taking care of them well such that they do not need to buy any additional coverage :)
Hmmm…not too sure about that, but from what I understand, the career soldiers in the US have better benefits.
Hi,
“In the same article, another downside of critical illness plan was highlighted; “it usually allows claims only when the insured person is in the more advanced stages of a critical illness. It is no wonder that a common complaint is that it pays the claims only “when the person is about to die. For instance, the definition for cancer is “a malignant tumour characterised by the uncontrolled growth and spread of malignant cells and the invasion of tissue.” This excludes non-invasive “cancer-in-situ”, which refers to cancerous cells that have not yet invaded the surrounding or underlying tissue.”
In response to the need for an early payout, Great Eastern Life has a new plan which pays at stage 0 of cancer. It pays out according to severity levels and claims can be admitted for the same illness or across different illnesses.
This provides a sum to seek treatment not cover by hospital and surgery plans such as TCM, and other adjustments that need to be made in the event of a illness, such as change of diet etc.
I do agree that a payout at early stages of cancer is more meaningful as the money can come in handy for treatment and possibly increase the chance of surviving the dreaded illness. That being said, any other details that we need to look out for?
Hi Alvin,
The most important detail for critical illness is probably the definition for the claim to be administered.
If u seen on the papers, there are many unsuccessful claims due to either the illness is ‘not severe” enough or maybe because of waiting period.
Do take a close look at the waiting period as some companies have a very long waiting period such as 5 years between claims, which makes the whole program not very meaningful.
If you are interested to know more about the early payout plan which i mentioned, you can drop me an email so i can furnish you with more information.
Thanks!