Critical Illness Insurance – What Does It Cover?
When someone close to you is diagnosed with a critical or severe illness, what is the first question that comes to mind?
From our experience of working with clients during claims, these are 3 of the common questions that are asked:
- How severe is the illness?
- Got insurance?
- What can I do to help?
Underlying these questions is a basic desire to wish that the “someone” will recover from the illness.
And, this is what critical illness insurance really covers at its core – the opportunity to “buy back health” and recover from the curveball of a critical illness diagnosis.
What is “Critical Illness” (CI) Insurance?
A critical illness is a serious medical condition which can be potentially life threatening and/or result in long term impairment. Typically, it will involve hospitalisation at the onset as well as ongoing treatment thereafter.
At the beginning, hospitalisation & surgery (H&S) insurance can cover immediate medical expenses. Beyond the initial hospitalisation treatment phase, there is likely to be the second phase of ongoing treatment and rehabilitation. This is when critical illness insurance is important as the coverage provides a lump sum payout to fund for further treatments that may be required, replacement of income as well as the sustenance of a person’s daily expense.
When it comes to the type of illness covered, the Life Insurance Association Singapore (LIA) provides a framework for the insurers to provide coverage and all severe-stage critical insurance coverage starts with a list of 37 critical illness conditions.
One way to understand the critical illnesses listed in the LIA framework is by categorising the illnesses based on the part of the body they primarily affect:
Cancer-related: This includes various forms of Cancer, including leukaemia and lymphoma.
Cardiovascular system (Heart): This includes heart attack, coronary artery bypass surgery, heart valve surgery.
Neurological system (Brain): This includes stroke, multiple sclerosis, Parkinson’s disease, and other neurological disorders.
Other Major Organs: This includes Kidney Failure, End Stage Lung Disease and End Stage Liver Failure
Senses: Blindness, Deafness, Loss of Speech
Others: This includes major burns, HIV due to blood transfusion, and other critical illnesses that are not covered by the other categories.
Coverage For Different Stages of Illness
When critical illness insurance was first introduced in Singapore in the early 1990s, it only covered the critical stage of a defined list of diseases. This meant that the policyholder would only receive a payout if they were diagnosed with a listed illness of great severity, and in most cases had to undergo major surgery or treatment. With the advancement of medical science and better awareness of the need for early health screening, illnesses became more frequently discovered at a lower severity. Over time, critical illness insurance evolved to cover a wider range of conditions and stages. They can be categorized as follows: –
- Early CI – stage where the illness is diagnosed in its early stages
- Intermediate CI – stage where illness has progressed beyond early stage but not yet reached severe stage
- Severe Stage CI – stage where illness has progressed to a critical point and is potentially life threatening
Using the example of coma:
Early stage – coma for 48 hours
Intermediate stage – coma for 72 hours / severe epilepsy
Advanced stage – coma for 96 hours
For the exact definition of the various critical illnesses, refer to the policy wording.
Coverage for Impairment To Health
At this point, it is perhaps appropriate to note that the Critical Illnesses being covered are largely based on the definitions laid out by LIA and the insurers, and often bounded by the medical diagnosis and treatment methods available as of present day. However, given the speed of medical advancements, future treatments are expectedly much more dynamic and may not adhere to those that had been spelled out in the definitions.
On this basis, both the LIA and the insurers need to periodically update the definitions of the critical illnesses to ensure that the insurance products remain relevant with changing times. While this approach can bridge the gap to a certain extent, another approach adopted for the early/intermediate stage CIs, is to base the coverage criteria on impairment to health (i.e. loss of function) instead.
Let’s illustrate this with the example of “End Stage Lung Disease”. Under a definition-based framework, diagnosis of its early/intermediate stage includes evidence of severe asthma, surgical removal of one entire lung or the insertion of a vena-cava filter. On the other hand, under an impairment-based framework, early/intermediate stage is based on having FEV1 of 40%-50%, which implies airflow is moderately obstructed. With this new definition, claims are based on the fundamental impairment to the bodily function instead of the surgical methods that are being used and therefore future-proofed to a great extent.
Coverage For Recurrence of Illnesses
Having a wider breath of coverage can indeed shield us better from the storms of life. Coupled with medical advancements, a person now has a higher chance of survival following a critical illness and possibly living longer. However, this also meant it is more likely for the person to experience a new illness or a recurrence of the same illness as their life expectancy increases. A person who has made a prior critical illness claim will now appreciate the importance of illness planning even more but he/she may be disqualified to obtain further coverage due to medical underwriting.
To prevent being caught in this situation, critical illness insurance can further be structured to provide for recurrent claims. This is where the coverage doesn’t end with a one-time claim, but instead remains in-force to potentially enable multiple payouts should illness occur again.
What Should You Consider For Your CI Coverage?
Regardless of the type of CI coverage, it serves as a complement to medical insurance and plays a pivotal role in the financial plan of both a working individual and a retiree. For an economically active person, it is a means to buy time and replace the loss of income during the downtime brought about by an illness. To a retiree, critical illness cover serves to protect his/her existing resources and assets and to maintain the quality of life.
Last but not least, with the myriad of critical illness insurances available, you can consider the following factors when deciding on the type of critical illness he/she needs:
- Adequacy on the amount of critical illness coverage
- Severity of critical illness coverage (i.e. Early vs Critical)
- Comprehensiveness of CI coverage i.e. Impairment-based / Multiple CI payouts
While falling seriously ill is unpredictable, falling sick is almost a guaranteed event. When it comes to critical illness, it’s not the treatment that matters but the response to the treatment. Part of critical illness planning is to prepare for the predictable unpredictability, and to take away the financial and emotional stress that can come with it. Start planning early and start right when there is a guarantee in health!
Article jointly written by Sheela Tay, Jasmine Tan and Esther Lee
Email: sheela.tay@gen.com.sg, jasmine.tan@gen.com.sg, esther.lee@gen.com.sg
The writers are financial adviser representative representing GEN Financial Advisory Pte Ltd.
