Getting to the heart of critical illness plans

By Lorna Tan, Finance Correspondent

Nearly everyone is cutting back on his spending.

Luxury items are out for many people, but others are also holding off on the purchase of insurance products such as investment-linked insurance plans (ILPs).

But no matter how grim the economy, experts warn that it is most unwise to defer basic protection needs against death and illness.

As an added incentive to buy such policies, insurers recently launched innovative critical illness products which attempt to offer enhanced coverage.

Marketing hype aside, what do the new critical illness insurance plans in the market really offer? The Sunday Times checks out policies from local insurer Great Eastern Life (GE) and British Prudential Assurance.

Critical illness plans

In a nutshell, a critical illness policy pays out the sum that is insured upon the diagnosis of any of 30 specified critical illnesses such as cancer and heart attack.

This cover benefit is typically bundled as an optional rider with a basic whole life, term or an ILP. Some insurers, such as French insurer Axa Life and British insurer HSBC Insurance, offer standalone critical illness plans.

For the bundled plans, an 'accelerated' critical illness rider with a life policy will pay out the insured sum upon diagnosis of any of the 30 critical illnesses and the policy terminates with no death benefit remaining.

Plans with an 'unaccelerated' rider will pay out a critical illness claim upon diagnosis but the death benefit remains and is payable upon the insured's death. That is, as long as premiums continue to be paid.

Some consumers feel that one downside of a critical illness benefit is that it usually allows claims only when the insured person is in the more advanced stages of a critical illness. It is no wonder that a common complaint is that it pays the claims only 'when the person is about to die'.

For instance, the definition for cancer is 'a malignant tumour characterised by the uncontrolled growth and spread of malignant cells and the invasion of tissue'.

This excludes non-invasive 'cancer in-situ', which refers to cancerous cells that have not yet invaded the surrounding or underlying tissue.

GE's Early-Payout CriticalCare

Rather than paying claims only when the critical illness reaches an advanced stage, GE's new critical illness plan pays at earlier or less severe stages of the illness for some of the 30 stated illnesses.

The total claim payouts are capped at the sum assured. The plan also comes with a death benefit of $10,000.

With medical advances and the growing emphasis on early illness screenings, you are likely to detect critical illnesses earlier than before. Financial support from an early critical illness claim payout will help patients seek treatment early.

'An earlier benefit payout based on less stringent criteria gives better peace of mind,' said Mr Tan Siak Lim, Alpha Financial Advisers' business unit director.

But this peace of mind does not come cheap. The GE product is 60 per cent more expensive than a traditional critical illness plan, he added.

Pros

Payout at earlier stages of critical illnesses such as, in the case of cancer, upon diagnosis of 'cancer in-situ' across 15 body sites. These include breast, uterus, ovary, colon, rectum and liver cancer.

Multiple lump sum payouts at different stages of the same critical illness or across different critical illnesses.
Depending on the severity, the policy will pay out either 25 per cent, 50 per cent or 100 per cent of the sum assured.

There is no minimum waiting period between claims.
Cons

The premiums for GE's new product are a 'huge jump' over the traditional critical illness benefit, said Mr Patrick Lim, associate director of financial advisory firm PromiseLand.

For example, the annual premium of a GE plan for a male aged 41 with a sum assured of $200,000 and a term of 20 years is $2,570. It costs just $1,616 for a traditional Aviva term plan with a critical illness rider and additional terminal illness coverage, he added.

There is a limit of a one-time claim entitlement for each severity level of the same critical illness. Once a claim is admitted, no future claims can be made under the same or lower severity level of the same illness, noted Mr Lim. For example, if a claim for 'major cancers' at severity 50 is admitted, no future claims can be made under 'major cancers' at severity 25 and severity 50. These severity levels are used as a measure of the severity of an illness.

The insured has to survive beyond 30 days from the day on which he is diagnosed as suffering from a critical illness. If he dies within 30 days, he will receive only the death benefit.
The maximum term of coverage is until the insured person is aged 75 years. This poses an increasing risk as life expectancy levels rise.

Prudential's PRUmultiple Crisis Cover

Traditional critical illness cover terminates after one claim, leaving policyholders without protection for the future.

Prudential's new plan allows policyholders to claim three times and up to three times the sum assured. This is subject to certain conditions like waiting periods between claims and a maximum of two cancer claims. For this product, the 30 illnesses are divided into seven groups. It comes with a death benefit of $3,000.

Pros

The policyholder can claim up to three times for different critical illnesses diagnosed at different times during the term of the policy.
There is a waiver of all future premiums once the first claim has been paid.
It addresses longevity risks because it covers the insured till he turns 99.
Cons

It is about 50 per cent more expensive than conventional critical illness plans, said Mr Tan.

There are specified waiting periods between claims. Multiple claims must arise from different groups. There is a waiting period of one year between claims.
However, in the event of a major cancer, the policyholder may claim for another cancer attack or a major organ failure, provided he has fully recovered from the previous cancer and is certified by a doctor to be cancer-free for at least five years, noted Mr Tan.

The insured must survive for 30 days from the diagnosis of any of the 30 illnesses for a claim to be paid. If the insured dies during this period, no critical illness benefit will be paid but the death benefit is payable.

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Beware of this exclusion ...

If Both Of Your Parents Have The Same Illness Before The Age 60

Even if you are perfectly healthy at the point of application, there will be a high chance of having exclusion or loading to the same illness as what your parents are having. Reason being that, there’s a certain percentage that it can heredity.

If your parents got the illnesses after the age of 60, insurance companies are willing to take it on the note that its due to old age.

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CreateWealth8888 said:

For Critical Illness Cover, you need to open eyes wide and ask intensively on exclusion clauses as critical illness cover is notorious for coming with lots of exclusions so it is very likely you will need to pay extra loading.

In another word, Critical Illness Cover is not cheap after all the exclusions or extra loading. Alternatively, you may consider looking at shield plan to cover your treatment costs instead of hoping to cover loss of income.