According to the most recent study by the Life Insurance Association of Singapore (LIA) on protection gaps in Singapore, Singaporeans are inadequately protected financially for Critical Illness (CI) to a greater degree compared to their life insurance protection gap.
Assuming a five-year CI recovery period, the average CI protection need of an economically productive adult in Singapore is $316,603, which translates to 3.9 times the average annual income.
This would cover household expenses, ongoing debt payments and lifestyle maintenance during the period of recovery, and does NOT include immediate medical expenses, which is assumed to be covered by hospitalisation insurance, such as MediShield Life and private integrated shield plans.
Unfortunately, as of 2017, the average CI coverage of economically productive Singaporeans was just $59,776, which represents a 80% CI protection gap.
Despite the range of CI products available in the market, including early CI plans and multi-pay CI policies, why are Singaporeans still so severely underinsured when it comes to critical illness? We discuss five possible obstacles.
#1 Financial Impact Of Critical Illness Isn’t Straightforward To Assess
Though recovery periods of between 3 to 5 years are commonly used by financial advisers when advising clients on the recommended amount of CI coverage to have, your actual recovery time, and thus financial needs, could differ vastly depending on the actual critical illness(es) you have and the stage at which you were diagnosed.
CIs like cancers can be particularly challenging, involving many years of treatment and care, while the costs of managing chronic conditions like Type 2 Diabetes over a lifetime can add up significantly, though more gradually.
In addition, one’s financial obligations and lifestyle would also play a part in deciding how much CI coverage one would get, which makes calculating the financial impact to be insured for a tricky task.
#2 Not Easy To Understand The Wide Range Of Critical Illness Policies Available
Despite LIA’s efforts to standardise and keep up-to-date CI definitions, there is still a wide range of different CI plans available in the market, which can make it difficult for Singaporeans to make a decision.
There are CI plans that cover you for late stage CIs only and others that also cover you for early stage CIs. There are single-pay and multi-pay CI policies. There are standalone CI insurance plans and CI riders on top of life insurance policies.
Insurers have also offer plans that cover for additional CIs, such as the newly-launched AIA Power Critical Cover, which is multi-pay CI plan that is the first to provide coverage for early-stage Type 2 Diabetes, one of the most expensive chronic conditions in Singapore.
The sheer complexity and variety of CI plans might also give Singaporeans a false sense of comfort, since they are not exactly aware of what their CI plan covers– and perhaps more importantly – does not cover.
#3 High Cost Of Premiums For Critical Illness Insurance
The high cost of CI plans in general, and multi-pay CI plans in particular, has made getting the ideal amount of CI cover an expensive proposition. This has led to many Singaporeans being under insured for CI protection or not getting any CI protection at all.
Singaporeans today have to allocate their finite budget to immediate spending needs, investing for retirement, and supporting their dependents.
Industry efforts like tightening of CI definitions by LIA should help to keep the price of CI plans from being unaffordable, but cost is undoubtedly a major concern.
Companies like AIA continue to encourage a healthy lifestyle with programmes like AIA Vitality, which rewards policyholders with a 5% discount on their first-year premiums and further discounts subsequently as they continue to make positive health changes in their everyday lives. AIA Power Critical Cover, which will be available on 10 October 2019 onwards, is one of the policies eligible for AIA Vitality.
#4 Lack Of Cash Value For Critical Illness Plans
Unlike whole life policies and universal life policies, standalone CI plans don’t typically have any cash value when they are surrendered prematurely or when the policy matures and no claim is made.
This makes their high cost harder for some Singaporeans to stomach.
If you’re one of those Singaporeans who prefer your standalone CI plan to retain some cash value, you might be interested to know that the AIA Power Critical Cover plan that we mentioned earlier has a Life Plan option that pays a Surrender Benefit for policyholders who decide not to continue with the policy after age 75. There is a Maturity Benefit as well, payable at age 100.
#5 Understanding Of CI Not Keeping Pace With Medical Advances
Unlike the past, where contracting a major CI pretty much means your prospects for survival is bleak, medical advances in prevention, early detection and treatment mean that survivability and a long and normal life is increasingly common among CI sufferers.
Perhaps many Singaporeans may not understand the value and importance of CI coverage because they might still hold outdated perceptions of CI and what it means for sufferers.
Getting Critical Illness Protection Helps You Focus On Recovery
Contracting a critical illness is tough enough physically, mentally, emotionally on you and your loved ones. Getting adequate critical illness insurance ensures that finances wouldn’t be an additional source of stress, or worse, limit your treatment or recuperation options.
When you don’t have to worry about the financial aspect of coping with critical illness(es), you can place your focus on recovery and getting your life back on track as soon as possible.
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