Critical illness cover: Read the fine print

INSURANCE protection against critical illness (CI) is one of the major building blocks of a sound financial plan. Whatever your age, a major CI diagnosis is a heavy financial burden unless you have ample financial assets.

The good news is there is a wealth of standalone CI plans in the market with innovative features such as the ability to claim for early, intermediate and late stage CI. You can even make multiple claims in a single policy, and potentially receive a benefit up to 500 or 600 per cent of your sum assured.

This is unlike CI policies of 10 or 20 years ago, which may be available only as riders on a whole life plan, and may also cease once you make a single claim. The caveat is all the fine print you will have to understand to avoid disappointment.

This column will highlight some of the new definitions that the Life Insurance Association issued in August 2019. For applications signed by August 25, the grace period for transition to the 2019 definitions has been extended to 25 Feb 2021 as Covid-19 has posed difficulties in applying for medical examinations.

While not exhaustive, this column will also highlight some of the fine print in the new CI policies.

Insurers say demand for CI cover is rising. AXA Insurance managing director Sean Goh says: "We expect demand for CI to continue to be healthy, alongside growing public awareness of the importance of CI protection; factors such as an ageing population with more older people at risk of developing CIs; and the introduction of relevant, accessible and affordable CI plans that meet the needs of consumers.''

A survey by AXA has found that only one in two working adults in Singapore are insured against CI. Among them only one in four said he or she feels confident the coverage will give enough protection against CIs.

Definitions

First off, the revised set of definitions for 37 CIs. The definitions are reviewed regularly. Standard definitions of 21 CIs and the names of 14 CIs were refined to clearly state the intent of coverage, LIA said in a statement in August last year. Policyholders with older CI plans based on definitions spelt out in 2014 or earlier are not affected.

Over 90 per cent of claims for severe stage CI are for five CIs: major cancer; heart attack of specified severity; stroke with permanent neurological deficit; coronary artery by-pass surgery; and end-stage kidney failure.

While it may be tempting to think the new definitions make it more difficult to make a successful claim, the industry maintains that the refinements are to enhance clarity and to keep pace with current medical technology.

What you need to keep in mind is that the intent of a traditional CI plan is to provide a benefit because the illness is so severe as to be life threatening. With medical advancements, however, some types of cancers, for example, that may have elicited a terminal diagnosis a decade ago may well be treatable today.

The new generation of CI plans covering early and intermediate stages are a different matter altogether. But more on that in a while.

Here are some examples of the refinements. For major cancer, the new definitions feature a longer list of exclusions. The new definition spells out that major cancer diagnosed on the basis of finding tumour cells or tumour-associated molecules in bodily fluid, "in the absence of further definitive and clinically verifiable evidence'', does not meet the definition.

Another new exclusion is all bone marrow malignancies which do not require recurrent blood transfusions, chemotherapy and targeted cancer therapies among others.

An article by MoneyOwl points out that certain prostrate, thyroid, gastro-intestinal and new variants of bone marrow cancers are considered minor and, in some cases, non-malignant, and hence have been excluded.

For stroke, the 2019 definition specifies stroke "with permanent neurological deficit''. This was already spelt out in the 2014 version. The 2019 version excludes "secondary haemorrhage within a pre-existing cerebral lesion''.

For kidney failure, the 2019 version spells out "end stage'', compared to the 2014 version which says "chronic irreversible failure of both kidneys''.

New-generation CI plans

The latest crop of CI plans, which have been in the market over the past couple of years, appear to answer most, if not all, of the limitations of older CI plans. First, many are standalone policies, not dependent on the policyholder committing to a whole life plan. Two, pricing appears to have improved compared to older standalone plans. Three, coverage is more comprehensive and flexible. And, it is possible to be covered up to age 100, a boon in an ageing society.

So, what is there not to like? The devil, as they say, is in the details.

First, many of the standalone plans are considered non-participating, which means the plans do not earn bonuses. Depending on the product, however, it is possible to get a surrender or maturity benefit. AIA's Power Critical Cover - "life plan'' version - allows the policyholder to receive a surrender benefit of 75 per cent of the covered amount at age 75 or 100 per cent at age 100, subject to any CI benefit already paid out and any other amount owing to AIA.

If you are considering a new CI plan, it will help to consult a financial planner to ascertain how much you need. Based on the CI protection calculator on LIA's website, a 45-year-old with a working spouse and two children is estimated to need about $360,000 in CI cover.

Note that the industry appears to impose a S$3 million cap on CI benefits, which may aggregate policies by different insurers.

Highlights

Here are some highlights of the fine print from some CI plans.

There is also the "power relapse benefit'' which provides twice the coverage amount if you suffer from the same CI, including re-diagnosed major cancer and recurred heart attack or stroke. But 24 months must pass from the last claim.

AIA sets a maximum claim amount; this is something to watch if you hold more than one policy and would like to claim for the same CI. For early stage CI, for instance, it is S$250,000 and S$350,000 for intermediate stage CI. There is also a CI per life limit of S$3 million, aggregated with other policies and supplementary basis for the same life.

There are benefit caps to be aware of, such as a S$350,000 cap for each early stage condition and another S$350,000 for each intermediate stage condition. The eligibility of claims for rediagnosed cancer, recurrent heart attack and recurrent stroke are subject to conditions.

READ MORE: Insurers' critical-illness portfolios healthy, but risks lurk