As any financial adviser will tell you, the fundamental purpose of all insurance is to help you mitigate risk of financial loss in the event an unfortunate insured event occurs.
In the case of health insurance, it aims to address financial impact as a result of being hospitalised, requiring surgery or contracting a major illness.
If you’re considering getting health insurance, you will probably read and hear about the two major types of health insurance: hospitalisation insurance and critical illness insurance. Here’s a succinct introduction to how each type of policy works – and how they both protect you financially in different ways.
What Is Hospitalisation Insurance For?
Hospitalisation insurance reimburses you for your hospitalisation and surgical costs (including outpatient follow-up treatments) up to prescribed claim limits, which typically resets after a certain amount of time has passed.
For Singaporeans and Permanent Residents, you already have compulsory and automatic enrolment into MediShield Life, which provides basic coverage for hospitalisation and surgical procedures sized for subsidised treatments in Class B2 and C wards in government hospitals.
If you want more coverage, such as if you want to receive treatment in a higher class ward or a private hospital of your choice, you can consider getting an Integrated Shield Plan, which provides additional coverage and treatment options at higher premiums.
In general, hospitalisation insurance works on a reimbursement basis, since payouts on your policy would be disbursed to the hospital based on how much of the claimable medical costs were incurred.
While some plans may provide some cash payouts, hospitalisation insurance plans in general are not designed to provide significant amounts of cash payouts to tide you through an extended period of time, such as to help you pay your bills, providing income replacement, or to provide for your dependents. For those, you will need to look at critical illness insurance.
What Is Critical Illness Insurance For?
Critical Illness (CI) insurance provides a significant lump sum payout if you’re diagnosed with a critical illness as defined by your CI policy.
To help consumers in Singapore have a good baseline coverage, the Life Insurance Association Singapore (LIA) has defined a standardised list of 37 severe-stage critical Illnesses that all CI plans offered in Singapore must cover.
However, most insurers offer their own tailored plans that go above and beyond the LIA’s prescribed list, and offer protection for additional critical illnesses and even early stage critical illnesses.
It is important to note that medical bills would be more or less taken care of by your hospitalisation insurance plan, so your CI payouts is aimed at covering your expenses and lifestyle costs as you recover from your critical illness.
These include income loss as a result of extended periods of unemployment, servicing your existing debt obligations while you recuperate, and paying for domestic help or renovating your home to accommodate your additional needs.
Different CI policies also have differing payout schedules, with some paying a smaller amount first when you’re diagnosed with an early-stage CI, and larger amounts if the condition worsens, or if different Cis are discovered, subject to the sum insured or policy limits.
How Much Hospitalisation Insurance And Critical Illness Coverage Do I Need?
In general, the level of hospitalisation insurance coverage to get should be based on the level of healthcare you would like to enjoy, if you were to be hospitalised or require surgery. If you prefer a private hospital or a higher class ward in a government hospital, then you can opt for a plan that covers it.
The amount of critical illness coverage to get can be generally thought of as being enough to cover your financial commitments, loss of income, and maintain your desired lifestyle in the event you contract a critical illness and cannot work like you used to.
Ultimately, buying insurance is a long-term, multi-decades commitment. In addition to considering the level of coverage you would ideally like to have, you should also take your current earnings and ability to service premium payments into consideration.
We can all agree with the old adage of “health is wealth”. And with the right health insurance, we can at least ensure that ill-health doesn’t lead to financial ruin.
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