I was quite surprised to find out that Mr Tan Kin Lian does not recommend critical illness insurance, or at least not to a large coverage.
From his website on Personal Insurance, he mentioned this about critical illness:
“There is no need to buy insurance to cover critical illness. Your Medishield or private Shield plan can cover most of the medical expenses.
The chance of making a critical illness claim is small. Less than 5% of people make this claim during their working life.
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If you wish to have insurance to provide a cash payment, a sum of $50,000 should be adequate. The cost of critical illness cover is high. You should not spend too much premium on this risk, as the return is poor.”
There are 3 points in his argument from his words and I went to investigate a little further.
1. Medishield covers most of the medical expenses
Let us examine what is covered in a basic Medishield plan:
- Daily ward and treatment charges
- Surgical operations
- Implants/approved medical consumables
- Stereotactic Radiotherapy for Cancer
- Radiotherapy for Cancer
- Kidney Dialysis
- Immunosuppressant drugs for organ transplant
- Erythropoietin drug for chronic kidney failure
It is true that treatment for critical illness is indeed covered in a shield plan. So do you need a critical illness cover? I would say yes if you do not have enough savings.
We must always go back to the purpose of insurance when we discuss about such issue. Insurance is to provide the money you need when you encounter mishap. Hence, a critical illness coverage provides the cash payout when you contract the illness and you can use the money wherever you wished to. In this case if you have a Shield plan, your treatment cost is mostly covered. Hence, do you still need a sum of money?
If the Shield plan claim is not adequate to meet hospital bills, the money may come in handy. But besides settling the bills, it is important to note that most probably you will be out of job and lose your income once you contracted the illness. You will be living off your savings for the rest of your life. It is safe if you have enough savings or investment returns or retirement funds for you to tap from. But if you have not been disciplined to build your savings, you would really need the payout from critical illness.
2. Low probability of claim
Based on 2007 statistics from Ministry of Health website, we have a population of 4.5 mil. Here are the top 10 conditions of hospitalization:
- Accident, Poisoning and Violence
- Ischarmic Heart Disease
- Obstetric Complications
- Chronic Obstructive Lung Disease
- Other Heart Diseases
- Cerebrovascular Disease (including stroke)
- Intestinal Infectious Disease
- Complications related to pregnancy
You may want to compare to the list of critical illness that is claimable here.
Hence, I would say only (2), (3) and (8) qualify for claims. Doing some calculations, the probability is about 1.1% of the population. Of course, this is a very rough estimate since it does not consider all the diseases that are claimable under the critical illness list. However, out of the top 10 conditions, I am quite surprised critical illnesses take a small proportion. But it is still important to remember low probability does not equate to “it will not happen”.
3. Poor return
You cannot buy critical illness cover by itself. It has to tag along a life policy (either whole life or term). A whole life policy usually have a return of 3%-5% per annum. For 10-20 years, a 8%-9% return from a low cost fund can give you much more returns.
I believe if you do not have enough savings, covering yourself with critical illness is important, especially when you just began your work life. It is important to plan well and determine your true needs. Do not under insure or over insure. How about sharing your take on critical illness?
Clarifications from insurance agents:
I guess I draw alot of negativity from insurance agents when I wrote this post. Anyway, I should also give a side of what one of them thinks. I have 2 good friends who are also insurance agents and they read all the posts on insurance on this blog. They gave good comments and since I have a very open mind, I do agree with what they said (don’t get me wrong, it does not mean I am easily convinced). Hence, I decided to share it here.
The issue with critical illness is that it usually payout in the final stages of cancer. Hence, if a person is likely to die, he does not really need the money for treatment. Moreover, if he dies, his life policy which the critical illness is attached to will cash out, which his family can use. So what is the point of paying critical illness cover? Then GE came out with an Early Payout scheme which makes more sense to a critical illness cover. The scheme will payout even the cancer is discovered at stage 0. This means that the patient will receive the money and use it to treat the illness from the onset. The drawback is that the additional premium for this scheme is high.
Another friend commented that critical illness may not be terminal. For e.g., coma or Parkinson’s disease. Although each of them has terms and conditions regulating claims, they are likely to be paid out when they are diagnosed and need not wait till the end stage. His point is that critical illness cover is important, especially for such non-terminal cases.