Tan Kin Lian's Blog: Insuring critical illness

Monday, November 16, 2009

Insuring critical illness

I have often been asked if it is advisable to buy insurance to cover critical illness. It is difficult for me to answer this question. It is likely that the customer has been advised by an insurance agent to buy critical illness policy to cover medical bills, which can amount to $100,000 or more, and for the loss of income during the period of treatment.

The large cost of medical treatment is usually exaggerated and the chance of incurring a large bill is small, especially as there is the option to be treated in a subsidised ward.

In most cases, the medical bills can be covered by Medishield or private Shield, which pays for the major portion of large hospital bills. The patient has to pay only the deductible and coinsurance.

Some insurance agent advised on the need to insure the loss of income during treatment of the critical illness. However, you must consider the the risk of loss of income does not arise only from critical illness. It is more likely to arise from unemployment and retrenchment, which is higher than the risk of critical illness.

The best way to protect against loss of income is to have adequate savings. If you save 15% of your monthly earnings, it will take you 10 years to accumulate savings amounting to two years of earnings. This is likely to be more than the sum that you can insure under a critical illness policy.

The accumulated saving can be used not only for critical illness, but also for unemployment and other emergencies. Furthermore, you also do not have to worry about the exclusions in a critical illness policy.

If you wish to cover for critical illness, make sure that you do not pay more than 0.4% of the insured sum. If you insure for $100,000, the premium should not exceed $400 a year. If you take a critical illness term coverage for 10 years, the cost should be lower.

However, if you cannot buy a critical illness cover at a fair price. it is better for you to be uninsured. The chance of getting a critical illness during the first 10 years for a young person is quite low. The priority is to accumulate sufficient savings as early as possible. This is explained in my book on Financial Planning. Get a free copy here.

Tan Kin Lian

4 comments:

Anonymous said...: Besides adequate savings, the best way to protect against loss of income is disability income insurance. Your ability to earn income is your biggest asset.

If you have cancer and have to take off 9 months from work for treatment, disability income can provide you with a portion of your income. That way you don't have to dip into your retirement savings. Our sell your house.

While self insuring is always the ideal, not all people are rich enough to do this.

Being disabled for more than 90 days before age 65 is three times higher than the risk of you dying before age 65.; November 16, 2009 9:14 AM
Anonymous said...: Oh, and disability income will pay out whether it is illness or accident that cause you to be disabled. It will not be a narrow list of diseases like critical illness insurance.

It is the inability to go to work and earn a living. And it's not just any work, it's either your specific job or one suited for you.

So if you are a dentist and can't practice anymore, the insurer will not expect you to go and start cleaning trays at the mall.; November 16, 2009 9:15 AM
Vincent Sear said...: In Singapore, the basic hospitalisation payment planning is, Medishield provides insurance but with deductible and co-insurance; Medisave takes care of deductible and co-insurance.

Critical illness coverage can be considered optional or even luxury. It pays a lump sum assured, not according to hospital bill incurred. If one feels more comfortable having such coverage, one can afford it, understands the costs-to-benefits involved, it's probably fine to have part of one's life insurance "accelerated" to critical illness coverage.

However, I think that basic life insurance planning is still about death (to protect dependants) and disability (to replace loss of income). Take care of these first.; November 16, 2009 11:51 AM
Anonymous said...: How to have enough critical illness coverage when insurance agents only interested to sell you limited payment wholelife? sure die when you don't have money; November 16, 2009 12:25 PM