Critical Illness Insurance – Why is it important?
Client: My friend’s aunty recently had a heart attack. Her hospital bills were covered by insurance, but she did not get any payout from her insurance. Is there something wrong with the claims?
Me: Oh I see, does she have critical illness insurance?
Client: Huh, critical illness insurance and life insurance, are they not the same?
Me: No, they are not the same. Critical illness insurance provides a lump sum payout when a person is diagnosed with critical illness, while life insurance provides a lump sum payout upon death.
Client: Aren’t they the same? Getting a critical illness means that death is likely right?
Me: Not exactly, you might be confusing critical illness which has a chance of recovery with terminal illness which is incurable. Critical illness insurance planning is one of the most important planning to get right in financial planning.
Client: Am I covered for critical illness?
What is Critical Illness (“CI”) Insurance?
Critical Illness (“CI”) insurance provides a lump sum payout when a person is diagnosed with the listed illnesses according to LIA CI framework. In this framework, there are 37 severe stage illnesses with standard definitions that is being used by insurers offering critical illness insurance coverage. Many people are often confused between Critical Illness and Terminal Illness. Terminal illness refers to an incurable medical condition and it is expected to lead to the patient’s death. On the other hand, Critical Illness refers to a medical condition with chances of recovery.
Suppose you are diagnosed with a severe stage critical illness and your doctor says that there is an expensive drug which will help you to recover and gain back your quality of life, will you take up the offer, no matter how much it costs?
While there is no “sure” answer to a question like this, we should at least have the option to say “yes” to the treatment if that is what we ultimately decide. And, to be able to say “yes” will require a comprehensive insurance program that includes hospitalisation insurance and also critical illness insurance unless you are an ultra-high net worth individual. A side note, even ultra-high net worth individuals do not wish to use their hard-earned wealth to pay for the cost of buying back their health!
In this article, we explore 4 reasons why critical illness insurance should be an important part of your risk management portfolio.
4 Reasons Why CI Insurance Is Important
1) Because life is unpredictable
Some of the people whom we meet will say this to me: “I have a healthy diet, I don’t smoke, and I exercise regularly. I am sure that I will not fall seriously ill.”
Yes, these are good measures and studies have shown that taking care of our body will reduce the risk of some diseases, but it does not provide absolute immunity from critical health conditions. Below are some actual successful critical illness claims which our GEN clients have made over the past 3 years.
As you can see, critical Illness is really unpredictable and it can occur to anyone regardless of gender, age or wealth status.
2) Because we Love Ourselves
Having critical illness coverage empowers you to make informed decisions about your health. You can explore treatment options, consult with specialists, and take proactive steps to improve your well-being.
Recently, a client was diagnosed with stage 3 nose cancer. The doctor that initially consulted with recommended a series of chemotherapy sessions to start a month later. As a cancer patient, he was feeling worried and fearful of the uncertainties. One month of waiting seems like one year to him. With adequate critical illness coverage, he decided to seek a second opinion with a different doctor who was able to start his treatment in a week’s time. Now, he is on his road to recovery, and with the additional cash from the insurance proceeds, he can stop work with no financial pressures and focus on getting well.
Having critical illness coverage provides you with more control and empowers you to make decisions based on your personal preferences which can be invaluable at the difficult period of a cancer diagnosis.
If you love yourself, you will also want to invest in your future well-being. Considering critical illness coverage when you have a clean bill of health, will help you to obtain the most comprehensive cover throughout your lifetime, even when your health changes along the way. If you wait until you have a health condition to seek coverage, you may encounter medical underwriting challenges. This can result in higher premiums, coverage exclusions, or even denial of coverage. Your future self will love your present self for doing so.
3) Because we Love our Family
Critical illnesses often lead to significant financial liabilities. If you are not adequately prepared, these burdens can easily extend to affect your family members. Picture dealing with mounting medical bills, housing mortgages, car loans, and day-to-day living expenses all at once. Critical illness benefits can, at the very least, ensure that your family’s financial future remains secure, even if your income is disrupted.
The situation can become extremely challenging, especially if you are the sole breadwinner for your family and are grappling with major health conditions. While critical illness insurance may not contribute to your physical recovery, it does serve to minimize the impact on your family’s lifestyle and standard of living. With this coverage in place, your family won’t have to rush into liquidating assets, downsize housing, making drastic cuts to their living expenses, or even jeopardizing their retirement plans.
4) Because we Love our Money
Raise your hand if you don’t love money! There’s absolutely nothing wrong with appreciating the value of money, as long as it’s not driven by greed. Money is what provides us with everything we have in life, both in the present and the future. While you might not be interested in pursuing extreme wealth, isn’t it essential to safeguard your assets and prevent unnecessary losses?
Facing a major illness is undoubtedly challenging. But imagine the added distress of depleting your savings while battling health issues. How would you feel if you needed to take out $200k cash for a medical bill?
If you’re someone who likes to save money, consider securing critical illness coverage while you’re young. The advantage of doing this is that the younger and healthier you are when you apply, the lower your premiums will be. This decision can translate into substantial long-term savings. You might be surprised to discover just how much you can save by making this crucial decision early on – it could even mean having an extra $10,000 for a Business Class air ticket to Switzerland!
Today, co-payment is a common feature of medical insurance coverage in Singapore due to the escalating costs of healthcare. This means that even with comprehensive hospitalization insurance, you may still need to dig deeper into your own pockets. Therefore, having robust critical illness coverage is transitioning from being an option to becoming a necessity, especially if you truly cherish your money.
Critical Illness Insurance – A Plan You Do Not Wish To Claim From But…
We frequently encounter clients, particularly those who are seeking guaranteed success (those hoping for a sure-win), and they often enquire about the best investment options. Sometimes, they share their experiences with various investments or admit to the occasional temptation of trying their luck with TOTO. In response, our consistent advice always emphasizes the importance of thorough research.
Through this process, clients often come to realize a sobering fact: the likelihood of facing a critical illness in their lifetime is significantly higher than hitting the TOTO jackpot (which is, ironically, a sure-win scenario that nobody truly wishes for). Moreover, achieving success in the “Critical Illness TOTO” means shouldering additional financial burdens that not only affect them but also impact their loved ones.
In summary, it is not about the probability of being diagnosed with a critical illness but rather, the consequence of being unprepared financially when a diagnosis happens. As the adage goes, it’s better to be safe than sorry.
Plan safe and enjoy the journey!
Article jointly written by Lois Chua, Andy Wu and Hau Eng
Email: lois.chua@gen.com.sg, andy.wu@gen.com.sg, haueng.moo@gen.com.sg
The writers are financial adviser representative representing GEN Financial Advisory Pte Ltd.
