Navigating critical illness plans

HARDLY anyone would argue against the need for some critical illness (CI) protection, but the big question is - how much do you need?

The Life Insurance Association (LIA) recently came up with an answer in its Protection Gap Study 2017. The study found that individuals here have a combined protection gap for mortality and critical illness of S$893 billion. It also found that individuals are covered for 80 per cent of their mortality (life) needs, but only 20 per cent of their CI needs. CI plans pay a lump sum upon diagnosis; this amount is meant to help finance the family's expenses during the treatment and recovery period in which the policyholder is unable to earn an income.

CI is a basic building block of health protection; the other must-have is a hospitalisation plan.

The LIA has come up with a rule of thumb of how much CI you should have - 3.9 times your annual income. This assumes a CI recovery period of five years. In contrast, the mortality protection need is estimated at nine to 10 times income. At the moment, the average CI policyholder has less than one standalone policy, with protection of S$128,861 per person. CI coverage tends to be bundled with whole life policies, or they may be riders on top of other main life policies. Rider coverage accounts for about 47 per cent of CI policies in terms of number, and about 43 per cent in terms of CI coverage. Riders are generally more affordable than standalone CI plans.

In recent years, however, insurers have refreshed their CI offerings. The good news is there is a wealth of choices of standalone CI plans. Some plans allow you to claim more than once for more than one type of CI, with total payouts expressed as a multiple of your sum insured. It is important that you read the fine print carefully, particularly the conditions under which multiple claims are allowed. There may be caps on the amounts you can claim. It is also important that you consider your own needs, and your family history of illnesses. An adviser should help to clarify issues.

Says Eddy Cheong, Providend's head of DIYInsurance: "Every insurer strives to cater to the different needs and wants of the CI segment, and the buying consideration should not just be on price alone. Ultimately, knowing what you value more should be the guiding principle in finding the most suitable plan." Providend generally recommends a range of between two and five times annual income for CI cover.

Here are highlights of some of the plans in the market and what you should watch out for. Direct comparisons are a challenge due to the variety of features. While definitions of CIs are standardised, there are a number of standard caveats as well. One is the waiting period of 90 days before cover kicks in. Pre-existing conditions must be declared and are likely to be excluded from cover. Premiums are also not guaranteed and may rise upon renewal.

Most stand-alone CI plans are non-participating, but there may also be CI plans that are participating, or have a cash value. There is likely also a death benefit, but this may be a relatively modest amount of, say, S$5,000 or S$10,000.

Aviva My MultiPay CI Plan III

This plan covers early, intermediate and severe stages of CI. It allows for up to five lump sum payouts, including two payouts if you are re-diagnosed with cancer or suffer from recurring heart attack or stroke. The total benefit payout is up to 600 per cent of the sum assured. The indicative annual premium for a 35-year-old male, for cover of about S$200,000 is S$2,110, for a term of 30 years or up to age 65. One of the things to note is that while you can get up to two lump sum payouts, or 200 per cent of sum assured, for early or intermediate stage CI, they must be from separate groups of CI, as specified in the company's terms. Group 1, for example, is early cancer and illnesses relating to major organs. Group 2 is for heart-related illnesses; and Group 3 for illnesses of the nervous system and other systemic conditions.

Prudential PRUtriple Protect

This is a stand-alone CI covering 36 illnesses. This is a non-par policy with a guaranteed death benefit, which is equivalent of the sum assured. Policyholders receive protection up to three times the basic coverage. Each claim, however, must be for a different CI. There must be a period of 12 months between the dates of diagnosis where no claims are made. The indicative annual premium for a S$200,000 sum insured (35-year-old male, policy term of 40 years) is S$2,788. The guaranteed CI benefit is S$600,000.

AIA Triple Critical Cover

The plan covers 43 CIs through the early, intermediate and major stages. A benefit illustration for a 35-year-old male for sum assured of S$200,000 will cost S$3,952 in annual premium; this is the "Value" plan which covers up to age 75. This policy provides a guaranteed death benefit of S$200,000 and a guaranteed maximum CI benefit of S$600,000. While the policy allows CI claims of up to 300 per cent of the sum assured, there are also internal caps on claims - up to S$200,000 for early stage CI, for instance. Only one claim can be admitted for each stage of a particular CI. There is a "power reset" feature which restores your CI coverage back to 100 per cent, once 12 months have passed from the previous claim.

Manulife Ready CompleteCare + Cover Me Again Rider

The base policy covers up to 106 conditions for early, intermediate and advanced stages. There are caps set for each stage, however: up to S$250,000 for early stage and S$350,000 for intermediate stage. The rider allows coverage to reset five times or up to 500 per cent of coverage. But each claim has to be for a different CI, and there must be no CI claim within 12 months of the last claim. The rider also allows additional major CI benefit of 200 per cent for six CIs; and a recurring cancer benefit of 100 per cent for subsequent advanced stage major cancer. The indicative annual premium for a 35-year-old male, S$200,000 sum assured (up to age 75) is S$3,538.

AXA Early Stage CritiCare

This non-par policy covers 36 CIs at various stages, from less serious to terminal stage. For each stage of CI - early, intermediate, advanced stages - the policy will pay 100 per cent of the sum assured minus previously paid CI claims. At the terminal stage, it pays 150 per cent of sum assured minus previous CI claims. The indicative premium for a 35-year-old male for S$200,000 sum assured is S$2,710 for cover until age 65.