Singapore is an economically successful nation, however, did you know that most of us aren’t ready for the financial impact of a critical illness? A recent study sprang up another surprise: higher income groups are more likely to be unprepared for this setback.
Having adequate critical illness insurance (also known as CI insurance) is the key to protecting your lifestyle and averting potentially severe financial consequences in the event of major health setbacks. In this article, I’ll give you an overview of CI insurance and its role in your protection portfolio.
- What’s a CI insurance plan?
- Illnesses that a CI insurance plan covers
- How critical is a CI insurance plan?
- When would you get money from your CI policy?
- Will you receive a lump-sum or recurring payout?
- Does CI insurance pay for medical fees?
- How much CI coverage do you need?
- Types of CI insurance plans
- What happens when you make a claim?
Hard truth: Higher income groups are more likely to be underinsured against critical illness
While Singaporeans have been doing more to protect themselves against the financial impact of critical illnesses, there’s still a 74% CI protection gap among economically active Singaporeans. Protection gap refers to the shortfall in insurance coverage as a percentage of one’s insurance needs. More on the recommended CI coverage below.
If diagnosed with a critical illness, majority of us might have to dip into our savings or seek other funding sources to cover our expenses. This adds to the physical, mental and emotional stress of dealing with a serious health condition.
Interestingly, Singlife’s 2024 Financial Freedom Index results showed that among CI insurance customers, the segments with the biggest CI coverage gap were affluent individuals (earning more than S$20,000 monthly household income) and emerging families (married couples with young children, earning S$10,000 to S$20,000 monthly household income).
What’s a CI insurance plan?
Sometimes called "dread disease insurance", a CI insurance plan gives you a lump-sum of money when you're diagnosed with any of the critical illnesses the plan covers. The payout helps to ensure that your needs and those of your family continue to be met during your recovery period. You can use the money in any way.
Illnesses that a CI insurance plan covers
The Life Insurance Association Singapore has standard definitions for 37 severe-stage critical illnesses. However, different CI insurance plans cover slightly different critical illnesses. Generally, all cover more than 30 critical illnesses which are usually long-term and very serious, including major cancer, stroke with permanent neurological deficit, end-stage kidney failure and severe dementia.
How critical is a CI insurance plan?
Critical illness is a growing risk for Singaporeans. As we continue to live longer, our window for developing a critical illness widens. In 2023, 55.4% of deaths were attributed to cancer or cardiovascular disease1.
Furthermore, higher survival rates for patients diagnosed with critical illnesses such as cancer2, heart attack3 and stroke4 (also known as the “big three”) mean that individuals are spending more years living with critical illness. On average, 10 out of 84 years are spent in ill health before death5.
A CI plan mitigates the financial impact of both these risks.
- It helps tide you over when you're unable to work as a result of a critical illness. You won't have to touch your savings for the many expenses you may incur during a critical illness – from getting a second medical opinion for your condition to daily expenses and caregiver costs.
- It protects your quality of life and future plans, so you needn't worry about sacrificing the comforts of your current lifestyle, or having less money for your retirement or children’s education down the road.
When would you get money from your CI policy?
Your insurer will make a payout upon diagnosis of a covered critical illness. The stage of critical illness at which you can make a claim depends on the coverage purchased. Majority allow claims at the severe stage of a critical illness. However, there are also plans that allow claims at the early and intermediate stages.
Will you receive a lump-sum or recurring payout?
Most CI plans give a lump-sum payout.
However, when you’re faced with a critical illness like dementia, having both a lump-sum and recurring payout from different plans can offer more holistic support.
- Lump-sum payout: The lump sum from a CI insurance plan can help cover large upfront costs to cope with the diagnosis like renovations to make the home safer.
- Recurring payout: Regular payouts from a dementia protection plan like Singlife Dementia Cover can provide financial support on an ongoing basis for expenses like daycare and hiring a caregiver.
Does CI insurance pay for medical fees?
Technically, it doesn’t.
A Singlife study6 found that one in two CI policyholders see CI insurance plans as a way to pay for medical treatment. However, it’s important to understand that medical and hospitalisation costs are typically covered under MediShield Life or your Integrated Shield plan while the payout from your CI policy can be used for everything a Shield plan doesn’t cover.
For example, if an individual undergoes chemotherapy for oral cancer, their MediShield Life and Integrated Shield plans will cover most of the treatment costs. These plans typically pay your hospital bills or reimburse you for whatever you’ve paid. The individual can then use their CI policy payout for anything the medical plans don’t cover (see the table below).
In other words, your medical and CI policies complement each other. If you don’t have enough medical coverage to cover the cost of treating cancer, heart attack or other critical illnesses which can be very high, you can even use your CI policy payout for your hospital fees as there are no restrictions on how it's used.
How much CI coverage do you need?
According to the Life Insurance Association, a working adult should have CI coverage of approximately four times their annual income. This is based on how much is needed to cover their needs for five years – assuming this is the duration from critical illness diagnosis until the individual returns to work. Based on an average annual income of S$90,855, this works out to S$357,864. However, Singaporeans only have 26% or about one-quarter of what’s needed.
Note that S$357,864 is a recommended CI coverage amount and you should consider your circumstances, i.e. things like your annual income, number of dependants and other financial obligations.
This is why it is important to have regular financial reviews to assess your protection needs and adjust your coverage accordingly.
There’s no upper limit to one’s CI coverage, but as a guide, you should spend at most 15% of your income on purchasing pure insurance products.
CI Insurance vs Cancer Treatment Insurance
CI insurance covers cancer plus other critical illnesses and gives a lump sum that you can use any way you wish, while cancer treatment insurance supplements your hospitalisation plan by covering large medical bills from cancer-related treatments, including those that are not on the Cancer Drug List.
Types of CI insurance plans
There are different types of CI insurance plans to cater to different needs:
- Severe stage vs multi stage
In the past, most insurers only covered severe stage critical illness. These days, many CI insurance plans also cover early and intermediate stage critical illness for more comprehensive critical illness coverage. Early detection and treatment of critical illnesses improves survival rates. Treatment at early stages can also be less complicated, with a shorter recovery period.
- Single payout vs multiple payouts
Some plans allow for only one claim, before the plan is terminated. This means that should you try to get another single payout CI plan, you’ll either not be covered or have limited coverage due to exclusion of certain illnesses. A multiple-payout CI insurance plan provides more than one payout for different severities of critical illnesses and even when specified critical illnesses recur – this is useful as critical illnesses like cancer, stroke and heart attack can happen more than once, with each episode more severe than the previous one. Singlife Multipay Critical Illness, for instance, gives up to 900% of the sum assured, in multiple payouts. It covers 132 conditions across early, intermediate and severe stages of critical illnesses and the recurrence of six specified critical illnesses including Re-diagnosed Major Cancer, Recurrent Heart Attack of Specified Severity and Recurrent Stroke with Permanent Neurological Deficit.
- Standalone vs rider
CI insurance comes in the form of standalone plans or riders attached to whole life or term life insurance plans.
- Coverage for pre-existing conditions
Previously, it was impossible to get critical illness insurance coverage if you had a pre-existing health condition such as pre-diabetes, high blood pressure or high cholesterol – and if you could, it would come with coverage exclusions and/or eye-popping premiums. Now, there are plans that do cover individuals with pre-existing conditions.
To know more about the cost differences between these plans, speak to your Financial Adviser Representative.
What happens when you make a claim?
Upon diagnosis of any covered critical illness, you’ll get a lump-sum payout, which, depending on your plan, could be your chosen sum assured or a percentage of it. Unlike a hospitalisation or personal accident plan, you don’t have to undergo treatment at a hospital before payout is made. You can use the money immediately.
Conclusion
Critical illness insurance is a must-have protection plan. I was convinced to get CI coverage because it replaces my income in the event of a critical illness. Should I stop work to focus on recuperating after treatment or spend more time with my family, the payout will allow me to continue supporting my family and paying bills. Some people I know say CI protection is also essential during times of economic uncertainty as it helps mitigate fears that poor health may affect their jobs and livelihoods.
Hearing stories of individuals being diagnosed with critical illness even in their teens, I’ve learnt that it’s better (and cheaper) to get it when you're young and healthy – once you're diagnosed with a critical illness, most insurers won't cover you. It's wise to do your research and pick a plan that’s best suited for your health requirements. More importantly, regularly review and adjust your coverage amount to ensure that it'll adequately cover your needs if you're ever diagnosed with a CI.
Notes
1. Source: Ministry of Health, “Principal Causes of Death”, accessed on 30 August 2024.
2. Source: Health Promotion Board, National Registry of Diseases Office, Singapore Cancer Registry Annual Report 2022, August 2023.
3. Source: Health Promotion Board, National Registry of Diseases Office, Singapore Myocardial Infarction Registry Annual Report 2021, September 2023.
4. Source: Health Promotion Board, National Registry of Diseases Office, Singapore Stroke Registry Annual Report 2021, November 2023.
5. Source: The Straits Times© Singapore Press Holdings Limited. Extracted with permission. “Singapore wants to become a Blue Zone 3.0 where gap between life and health spans is smaller”. 13 October 2023.
6. Source: Singlife internal proprietary study on “Consumer understanding, attitudes and preferences on critical illness plans” (June 2024). Unpublished.
