Critical Illness Coverage Review

After a discussion with a fellow blogger about Critical Illness (CI) coverage, I started to notice that many people (financial advisers included, though I am not sure if it is a genuine misunderstanding or deliberate misrepresentation), have a misconception about the 3 main types of CI coverage CLAIMs.

All 3 types have the same coverage, i.e. they cover the 30 types of CI whose definition has been standardized by the Life Insurance Association (LIA) of Singapore. It must be certified by a medical professional that it falls within the contractual definition. BUT the difference is in the claim amount paid out upon diagnosis.

First type of claim is CI waiver. If diagnosed with CI, the claim will be to waive the premiums of the plan. If the plan is for a death coverage sum assured of $100k and premium monthly is $50, it means that you do not need to pay the $50 every month BUT you do not receive the $100k until a death claim. Therefore, the claim is for the premiums and not the sum assured.

Second type of claim is CI (Accelerator). If diagnosed with CI, the claim will be the sum assured. However, this results in a reduction of the death coverage sum assured. So for a plan with death coverage sum assured of $100k. If CI (Acc) coverage is $80k, you receive $80k and another $20k left for death claims, which you still have to pay premiums for! If CI (Acc) coverage is $100k, you receive $100k and the plan terminates.

Third type of claim is CI (Additional). If diagnosed with CI, the claim will be the sum assured, independent of the death coverage sum assured. So for a plan with death coverage sum assured of $100k. If CI (Add) coverage is $130k, you receive $130k and the death coverage of $100k is untouched, fully available for claim, though you still have to carry on servicing the premiums for that unless you add another CI waiver rider separately. However, if you were to pass away without contracting any CI, only the $100k is paid and not with the additional $130k.

CI (Add) coverage can be more than the main plan, but CI (Acc) is always less or equal to the main plan.

As can be seen, the 3 types of plans provides vastly different amount of pay out. CI waiver would be the cheapest in terms of premiums, followed by CI (Acc) and most expensive will be CI (Add).

Some agents are marketing CI waiver that it provides coverage for 30 CI (full stop). Without explaining that the claim is only on the premiums. Clients often mistakenly assume that they will receive the full sum assured if diagnosed with CI.

Although clients would like the CI (Acc) or (Add) coverage, they are often taken aback that it could more than double their premiums with no returns. Further, CI premiums increase exponentially with entry age.

Maybe it is time to review your CI coverage if it is in line with what you understand now.