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Guide To Understanding How Critical Illness Policy Works

In five minutes, understand how a critical illness insurance policy work and consider if its something you need.

This article was updated on 29 August 2019 after changes to the critical illness definitions by the Life Insurance Association Singapore.

One of the most common types of insurance that people frequently talk about is Critical Illness (CI). You may have heard about it from your insurance agent, or from friends who have bought these policies. You may even know of one or more person who have claimed from it.

But what exactly does critical illness covers us for? More importantly, do all of us need to buy some form of critical illness overage? In this article, we aim to address both of these common questions.

What Is A Critical Illness Plan For?

As its name suggests, a Critical illness (CI) plan is a type of insurance that pays out a lump sum payment to a policyholder when he/she is diagnosed with an illness covered by the policy.

One important to note is that claim payout is only made when policyholders are diagnosed with a condition that meets the common definition of these critical illnesses. For example, the definition of a kidney failure would be a “chronic irreversible failure of both kidneys requiring either permanent renal dialysis or kidney transplantation”. These must be conditions diagnosed by a certified doctor or specialist. You can read up more about the common definition here.

Payments make do not depend on the policyholder incurring any medical costs or hospitalisation admission for the treatment. The money is simply given out once the condition is diagnosed.

Typically, the rationale to purchase a CI plan is to ensure that one received important financial support during this difficult phase of illness, where additional funds may be required for specialised treatment, homecare, and to replace for potential loss of income during recovery. How policyholders use their money is entirely up to them.

What Does Critical Illness Cover Me For?

To begin, it’s important to first understand that within Singapore, there is a standard list of 37 illnesses covered under traditional CI policies. Here’s the full list of them.

Source: Life Insurance Association

* Some companies may also cover other illnesses beyond what is found on this list in their CI plan

** If you purchase an early-stage CI plan, you will be covered for a wider range of illnesses. If you have an existing early-stage CI plan, do check with your respective insurer on the extent of the coverage.

Premiums Payable

Similar to life insurance, the premiums that you pay for your CI policy is dependent on the sum assured, your age, gender and length of coverage. Here are some rules of thumbs to consider.

  • In general, females tend to pay more than male for CI policies
  • Older people will naturally pay higher premiums
  • The longer you want coverage for, the higher your annual premiums is likely to be
  • Generally, sum assured starts from $50,000
  • Early-stage critical illness will cost much more than traditional CI plan due to the fact that it provides for more extensive coverage

Do I Need Really Need To Buy A Critical Illness Plan?

First and foremost, it’s important to remember that a critical illness plan is a type of health insurance. It’s not an investment plan. Neither is it a savings plan. In other words, you only get a payout if something bad occurs. Nobody should be buying a CI plan hoping to get a payout.

A CI plan can help you and your loved ones offset the financial stress when an unfortunate illness occurs. This allow policyholders and their family members to focus on getting suitable treatment and recovering, without having to worry about their financial resources being stretched as a result of the illness.

Some CI policies can be bought as an add-on rider to a main life insurance plan. If you are already intending to buy a life insurance policy, you can check with your insurance agent if you can add-on a CI rider to your policy, instead of having to buy a stand-alone plan.

If you have a question about critical illness policies that you wish to ask, you can submit your questions on the fundMyLife website. fundMyLife will automatically connect your financial planning questions, to the right trusted advisers in its platform. Furthermore, your questions are private and anonymous, unless of course you intend to connect with the agents you want to for a further discussion.

You can also follow fundMyLife on their Facebook page to stay updated with insurance discussions and questions.

Alternatively, the Insurance Discussion SG Facebook group is a good place to discuss insurance-related topics with fellow Singaporeans.