Critical illness cover: Thumbs up for innovation

CRITICAL illness (CI) plans are a staple among health insurance products and are regarded as a must-have for health risks, alongside hospitalisation plans. The good news is that even in this traditionally staid category of plans, innovation is thriving.

Traditional CI cover is simple. Because of its cost in the past, it was typically offered as a rider for a whole life plan. Once you are diagnosed with a CI, the rider pays a lump sum and cover ceases. Today, not only are standalone CI plans ubiquitous, but there are also multi-pay CI plans which can pay out up to five times the sum insured for up to five claims. And more plans may soon emerge where even “emerging illnesses” can be covered. What’s not to like?

Flexibility has become a key feature. Whereas in the recent past, a multi-pay feature is bundled in the CI design, today, most insurers now offer multi-pay riders sitting atop a base advanced-stage CI plan, alongside other riders for early-stage CI, for example.

The industry guidelines for CI definitions comprise 37 CIs in advanced or severe stages. Insurers are free to add or reduce the number and are also free to define CIs outside the 37.

‘Future-proof’ cover

The latest innovation is a plan that sets out to “future-proof” CI cover with protection for “future unknown” illnesses. FWD’s Recover First plan covers up to 141 illnesses, and adds on “emerging illnesses that could affect your body organs or body functions to your coverage, regardless of illness defined”.

FWD CEO-designate Adrian Vincent says CI definitions tend to be static and may not keep up with advancements in medical science where new diagnostic tools and treatments are getting discovered for new diseases. One option for consumers, he says, is to take up new plans as new CI definitions are added, but this isn’t feasible for those who may no longer be healthy.

“It may be worth considering a solution where the definition of coverage is not limited to a list of defined CIs. Instead, we may want to consider a principle-based approach that covers customers for an impairment, surgery or intensive care for the functioning of key body systems such as cardiovascular and respiratory systems.”

Impairment due to illnesses or injuries to eight body systems are eligible for cover, including cardiovascular and digestive systems, as well as hepatic system and liver functions, among others. Vincent says Recover First removes finite lists of illnesses common in CI products and helps to provide customers with peace of mind.

Will other insurers follow suit? Interestingly AIA’s Absolute Critical Cover features a “safety net cover” where the insured will be covered when admitted into intensive care in Singapore “even without surgery performed or even for a future unknown disease”.

FWD was the first in 2020 to come up with a CI plan focusing on the top three causes of death – cancer, heart attack and stroke – that account for 90 per cent of CI claims. Vincent says the Big 3 CI Insurance plan can be seen as a cost-effective plan for those looking to manage within a budget, or can serve as a top-up layer for existing CI cover. Currently some other insurers also offer cover focusing on the three illnesses.

AIA has found that based on a survey of over 300 respondents, nearly 50 per cent believe current plans do not offer comprehensive early-stage CI protection. More than 80 per cent believe relapse coverage, payout for early-stage CI diagnosis and continuing CI cover are important or extremely important. Some 96 per cent feel it is important to have continued CI coverage even after any claims made.

Eddy Cheong, head of Providend’s solutions team, says of the multi-pay feature: “The chances of a relapse can be significant. For example, the probability of relapse of liver cancer after five years of surgery can be about 70 per cent. Clearly, the financial impact from a recurrence of CI can be a huge financial strain, if one is unprepared. And it is quite unlikely one could obtain additional CI protection once a CI claim has been made.”

He notes that multi-pay CI plans’ premiums have also declined over the years, although they would still cost about 50 per cent more than traditional CI. A traditional 25-year CI plan with S$300,000 in cover could cost S$1,171 a year for a 40-year old male, compared to $1,827 for a plan with multi-pay benefit. But the latter could potentially pay out more than S$900,000.

“Though pricing is quite attractive, a multi-pay CI still costs more, hence one would need to balance between benefits and affordability. But if budget allows, a multi-pay CI would offer a better total value proposition at current pricing.”

As always in insurance, the devil is in the details. If you are considering taking up a CI plan, here are some things to note.

• How much cover do you need? The rule of thumb based on a release by LIA in 2018 is around 3.9 times your annual income. Most people are likely underinsured for CI. Despite longer life expectancy, Singaporeans are expected to spend longer years in poor health. The lump sum benefit from a CI plan is meant to tide over the loss of income due to a CI.

• Term of cover. Premiums for standalone CI plans are quoted based on a specific term, and also depend on age, gender and health. While technically you may not be covered for life, some insurers such as AIA, Prudential and Manulife allow you to choose to be covered up to age 99 or 100. There is typically a maximum age of entry of 60 or 65. Premiums are quoted on a level basis, based on the age at inception. Hence it makes sense to take up CI when young and healthy. While renewability is guaranteed as long as premiums are paid, the premium itself is not guaranteed. Insurers reserve the right to adjust premiums based on claims experience, giving you a month’s notice. Adjustments are made on a cohort basis, and not on individuals, which means they would not discriminate against a policyholder because of claims.

• Note the definitions. LIA’s framework prescribes definitions for 37 critical illnesses in the “severe” stage. The framework aims to facilitate comparisons, as well as attain a “consistent outcome”. That is, with the standard definitions it becomes less likely that one insurer would pay a claim, and another rejects it.

Insurers today are free to add on or reduce the 37 CIs. They are also free to define the stage – such as early or intermediate – that qualifies for a payout. Such a framework, as the LIA says, sets out to facilitate innovation and the provision of good value to consumers.

• Waiting periods. This is where it may get confusing. There is a distinction between multi-pay for the recurrence of different CIs and recurrence of the same CI. A multi-pay plan can typically pay out the sum insured up to two or even five times. For recurrence of the same CI, the typical waiting period is 24 months in between claims. There are two catches here: Insurers may limit the same-CI recurrence to five or six specific CIs, such as major cancer. And, some insurers may require that the policyholder be in “complete remission’’ before a recurrence.

For multiple claims for a different category of CI, the waiting period is typically 12 months between the dates of diagnosis.