Singapore Insurance Primer: Critical Illness Coverage
Key Takeaways
- 1. Health and medical insurance only cover hospitalisation and treatment bills.
- 2. Some illnesses render you unable to work permanently or for a long period of time after being discharged from the hospital. This loss in income in addition to the additional expenses incurred could significantly impact your dependents.
- 3. The pay-out from a critical illness insurance can help manage your expenses or supplement your income while you concentrate on treatment and recovery.
What is critical illness insurance?
Critical illness insurance alleviates financial worry if you are diagnosed with a critical illness. Common critical illnesses are stroke, and heart attack. The types of major illnesses covered will be defined by the critical illness insurance policy you purchase.
Under most circumstances and for many insurers, a lump sum is paid-out upon diagnosis. This amount can help cover the loss of income, post-treatment expenses, and other costs such as childcare during recovery. Critical illness coverage is also often offered as an integrated rider under a life insurance policy.
How is critical illness insurance different from medical insurance?
Medical insurance and critical illness insurance are types of health insurance. The difference between the two is the risk they insure.
Medical insurance typically covers the cost of hospitalisation. This may include pre & post hospitalisation, surgery and medication fees. Unlike critical illness insurance, medical insurance does not offer a pay-out to cover the expenses incurred during recovery.
| Covered by Medical Insurance | Covered by Critical Illness Insurance | |
| Medical bills incurred from hospitalisation | Yes | No, but pay-out may be used to pay medical bills, outpatient expenses, deductibles or co-insurance. |
| Outpatient expenses related to the cause for hospitalisation | Yes | |
| Financial support in the form of a pay-out upon diagnosis of a critical illness | No | Yes, a lump sum pay-out is offered. |
To illustrate the difference between medical and critical illness insurances, here is an example.
A healthy 40-year-old father suffers a heart attack. The doctors diagnose this as a critical illness. The treatment plan incurs hefty medical bills.
After discharge, the 40-year-old father chooses to rest at home for one month using unpaid leave. As he is the sole breadwinner of his family, he must continue to support his family despite the lack of income for the month.
At a follow-up check-up, doctors informed him that to prevent the probability of a relapse, long-term treatment is required. To help cope with his recovery, he hires a domestic helper to assist with taking care of his young children.
With this scenario, consider what the man is eligible for under each insurance type.
| Eligibility for a Medical Insurance Claim | Eligibility for a Critical Illness Insurance Claim | |
| Sudden hospitalisation and treatment | Yes | Since a critical illness is diagnosed, the man will receive a pay-out, which may be used to cover the co-pay portion of a medical insurance. |
| Loss of income from recuperation period at home | No | Pay-out may be used to partially cover the loss of income. |
| Long Term Treatment Post-Discharge | Depends on policy coverage terms | Pay-out may be used to defray this medical cost. |
| Cost of Hiring a Domestic Helper | No | Pay-out may be used to defray a non-medical cost. |
When is critical illness cover useful?
Critical illness can place a large financial strain on you and your family. If you were to think about the process of recuperation in totality, it would include both medical and non-medical costs. In the example above, hiring a domestic helper and taking time off work are non-medical costs undertaken to help with the man’s recovery, and can place financial strain on him and his family.
Hence, medical insurance alone may not be sufficient. Given that most critical illnesses require long-term treatment, the treatment costs might exceed the total annual coverage of a medical insurance policy. Tapping on your savings to fund related non-medical costs that are not covered by a medical insurance is not sustainable in the long run. Moreover, if you have dependents, a loss in income, even if it is temporary, could strain your finances. Therefore, critical illness insurance can be a supplement to medical insurance. The lump sum pay-out from a critical illness insurance plan allows you to focus on your recovery without defaulting on your obligations.
What does critical illness insurance cover?
Before you sign on the dotted line, it is important to thoroughly understand the critical illness insurance policy you are purchasing. In this section, we walk through what you should take note of.
What illnesses are covered
Different insurance providers may cover different illnesses, together with different definitions for each illness.
In Singapore, the Life Insurance Association Singapore (LIA) [1] covers a comprehensive list in their Critical Illness Framework, detailing 37 critical illnesses and their definitions. Critical illnesses include:
- • Major cancer
- • Heart attack of a specified severity
- • Coronary artery bypass surgery
- • Coma
- • Deafness
- • End-stage lung disease
- • Multiple sclerosis
- • Muscular dystrophy
- • Major burns
- • Irreversible loss of speech/sight
How much critical illness coverage do I need, and for how long?
According to the Protection Gap Study of 2018 by the Life Insurance Association Singapore (LIA) [2], the recommended amount for critical illness coverage should be, at a bare minimum, 5 years of your annual income. However, some illnesses could be more severe, and 5 years may not be enough. The study also considers several factors, such as the change in the average working Singaporean’s income, the rising costs of hospitalisation and medical expenses, and inflation.
How long you should be covered for critical illness depends on your age. As discussed above, critical illness coverage is primarily helpful to offset the loss of income due to long-term recovery. The 40s and 50s may also be you and your spouse’s peak income-earning years before retirement. If either of you have a critical illness, not only will there be a quantifiable cost of recovery, and a further loss in household income from the time off work.
If you want extra protection for the worst-case scenario, you could consider signing up for one or even more than one critical illness policy. For example, if you have a life insurance policy with a critical illness rider that offers S$200,000 sum assured, and a standalone critical illness policy with S$350,000 sum assured, then you can claim a total of S$550,000 when you are diagnosed with a condition that is covered under both policies.
Learn more on how to bridge the protection gap at different stages of your life.
Early and Intermediate Stage Critical Illness Coverage
In most cases, critical illness insurance only covers late-stage diagnoses. Some plans cover early and mid-stage critical illnesses too, but they cost more.
Hence, it is advisable to go for regular health screenings to detect critical illnesses early on and seek treatment for higher chances of recovery.
Why should I consider getting critical illness insurance?
No one anticipates receiving a bad diagnosis; acting sooner than later will save you and your loved ones from added financial burdens. Speak with a Citi Relationship Manager or Insurance Specialist today to explore more.
Sources
1] Critical Illness (CI) Framework 2019 (2022, November 16). Life Insurance Association Singapore. Retrieved February 14, 2023, from https://www.lia.org.sg/media/3670/mu-5822-part-2-of-4-_lia-ci-framework-2019_lia-definitions-for-37-cis.pdf
[2] Protection Gap Qualitative Study 2018 (2018, August 3). Life Insurance Association Singapore. Retrieved February 14, 2023, from https://www.lia.org.sg/media/2316/lia-protection-gap-qualitative-study-2018_project-umbrella.pdf
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