Tan Kin Lian's Blog: Coping with a critical illness

Thursday, April 01, 2010

Coping with a critical illness

When a person meets with a critical illness, there are two financial losses:
- medical expenses to treat the critical illness
- loss of earnings

The medical expenses have to be managed in a sensible manner. I know of a few people that spent a lot of money on treating the critical illness, usually at private hospitals and specialists. In many cases, the large sum that was spent did not make any difference. If the illness was serious, the patient died.

I also know of other people who survived cancer or heart surgery. Those who were treated in a restructured hospital did not spend a lot of money as they benefited from the government subsidy. They were also covered by catastrophic insurance (i.e. MediShield or private Shield).

The best way to handle the loss of income is through personal savings that can be drawn down in an emergency. You do not need to depend on critical illness insurance to give a lump sum payment. If you put all your money in a critical illness policy, you may find your claim to be rejected for some technical reason, at a time when you need the money most. It is better to invest the savings on your own and be free of this uncertainty.

The proportion of people that suffered from a critical illness during the working life is estimated to be less than 10%. More than 90% will retire without suffering from a critical illness.

Tip: Spend less than 2% of your earnings on insurance against death or critical illness. Invest the rest of your savings in a low cost investment fund.

Read my book on "Practical Guide on Financial Planning". Spend $12 and save a lot of money (say $12,000) on wasted premiums.

Tan Kin Lian

9 comments:

Anonymous said...: NTUC agents say you need a wholelife critical illness becuase you 'sure' to get critical illness when you are old. This is a bit too much. I would agree that at old age one is more vulnerable but it is NOT necessary you will get it and it is also NOT the most important time of your life and that you MUST be treated in the best hospital by the best doctor to keep you alive becuase of your economic worth which is zero..
The next question is how much one should have at old age? $200K or $300K... No..they say $100K enough. If you discount for inflation for 25 years it might worth only $30K in today' s dollar. Also the cash value is useless becuase it is depleted by mortality charge and to keep it in force you can't withdraw a single cent.
A more flexible approach is buy term and invest the rest to meet the self insurance at old age.This has an advantage in that the cash accumulated can be used for retirement and that critical illness will not necessary happen. If it does happen your medical H&S medishield can cushion some of the bills and which need not be astronomical as ntuc agents have us beleive.Anyway this is their scare tactic as they are bankrupt of financial planning knowledge.
Don't fall into their trap with this stale argument, a conman or conwoman's ruse. Another of their ruse is pay for 10 years and be covered for wholelife(vivolife). How much coverage ? $300K? can you afford? Do you need it for whole life? The truth is the agents get a big fat commission and the company gets a stream of revenue for life and at your expense.
Clever ploy, eh? Do you trust the agents? Do you trust the company?
Both are in cahoot.. Beware!!!; April 01, 2010 10:06 AM
Anonymous said...: I heard they are trained to push this product to get bigger API which the new management seems to be obssessed with. Their short term payment for wholelife coverage ruse is skewed towards their interest and NOT the buyers' because this product pays high commission regardless of the sum assured you take up and they know you can't afford enough. However it is deliberately planned that they can come back to selll you more instead of addressing your needs immediately with term product and while in the meantime you are walking around with a ticking time bomb. Well, die is your business for you cannot afford enough of vivolife, waht and you want it waht.
Remember last year they lost on annual API but became first because of weighted premium pulled up by their dubious capital plus.
Remember, if a company is obsessed with such goal and NOT your interest you must be careful not to fall into the trap because they are only interested in your money and not your well being.; April 01, 2010 10:45 AM
Garrett said...: I also agree that whole life insurance is crap. It's an expensive and commission-loaded product. However, I think term insurance to cover CI is necessary. BTIR (buy term and invest the rest)!

Mr Tan's argument is only sound if you restrict your medical expenses to govt wards where costs are low. But in a real emergency, one has to go to private hospitals to get fast and quality medical service, and not everyone will be insurable at a Tier 1 shield plan (especially for those with pre-existing conditions). I'm also unsure if shield plans cover expensive experimental drugs and procedures. Anyone knows?

I guess it depends on the individual. If you are the type who think "OK I am going to die so forget about it and I'll stay in govt ward to save cost for my family", then maybe a CI insurance doesn't make sense. However if you are the type that think "I don't wanna die and I want all options available to me no matter the financial cost", then CI insurance is arguably necessary.; April 01, 2010 10:50 AM
Tan Kin Lian said...: Here is my reply to Garett. A critical illness is not something that the patient need to get "fast" medical attention. There is usually time to make a proper assessment.

I am not sure about "quality". Most ailments can be treated by a good specialist, who does not need to be "top quality". If the patient is very sick or old, there is nothing that can be done - even by "quality" doctors.

Many old people know that there is nothing that can be done when the time comes and that money cannot bring health.

If you have plenty of money to give to the medical specialist, it is all right to do so. But people should not be spending money wastefully, when the money can be better spent on the living expenses of the surviving family members.; April 01, 2010 11:21 AM
Christine said...: Dear Mr. Tan

Does the Enhanced Incomeshield Plan Plus Rider cover the new expensive chemo drugs costing a few thousand dollars a month?

The policy states clearly that chemotherapy is 100% covered so policy holders is not wrong to presume that Income pays for any chemo treatment.

Thank you.; April 01, 2010 12:22 PM
Charles said...: Something is wrong in the way you look at the statistics: the reason one buy insurance is to cover the risk that one gets a serious illness at a time when one would not have been able to save enough to cover for the bills; April 02, 2010 9:50 AM
Anonymous said...: Which stage of your life that you need most coverage? Between 30 to 50, right?
Do you know Singaporeans are only insured averagely for $45K?
Do you know that insurance agents are telling you that you need it most at old age because you are more vulnerable? Do you really need it at old age? Is it important compared to the stage when you are bringing up your family?
You see , the truth is insurance agents want to sell you wholelife because of the commission. If the agents really care and sincere they should sell you term to make sure you have enough and have peace of mind. But is it their interest to put your interest first? Think about it. These cheat and conmen and conwomen only care for themselves. You can die and it is your business.
I have a friend who died at age 42 of cancer. He left 3 young children and a wife. He had only $50K critical illness, a DPS and had no death/TPD insurance .By the the time he died he already used $20K. He left his family only $150K altogether including CPF and 4room HDB flat.
Is the $150K enough to see his family through life? How long will it last? The only cheque that came from the agent is from DPS and which wasn't sold by her.
This is a typical case and you can say it is caused by insurance agents who are dishonest and unethical or honest but incompetent.
Unless MAS nips this problem in the bud quickly more families will suffer in the hands of insurance agents.
MAS must ban commission to ensure competent and objective advice and the interest of the consumers is put first.MAS must enforce the need based advisory approach in compliance with section 27 of the FAA.It cannot be delayed anymore, other countries are already doing it. MAS must do the right thing for the sake of consumers, to protect them from the rogue and incompetent insurance agents.; April 02, 2010 12:00 PM
Anonymous said...: I have a chance to browse through your book. I was looking for materials that is not already in this blog. It's either your book or the Starbucks Coffee and cheesecake.

Thank you making it concise so that I only need about 40 mins to finish the book given that I am a slow reader. You will be glad to know that after finishing the last page, I put it back to the shelves nicely so that another person can browse or buy. I saved $12 so that I can spend on other more worthwhile items. Good luck to your book sales.; April 02, 2010 2:20 PM
Anonymous said...: So long you don't buy wholelife critical illness plan you will be safe.
For a $250K cover , if u are 30 years old , it will cost you a bomb for WL. You can get a term for only $30 a month. This is what you need and whatever money left put it into a regular investment plan.This will give far superior return , eg. 7% with lesser risk than a WL.
With this approach you can both be adequately covered and same time save money which is independent of the insurance plan. With WL plan you will be held hostage by the insurer and at their mercy. Don't let your dishonest agent and his or her insurer cheat and con you. They are not sincere and truthful.
The agent is a conman disguised as financial CONsultant.; April 02, 2010 3:13 PM