Highlighting a few critical steps to consider before you make a decision to buy critical illness insurance.
Last week’s article looked at the history of critical illness insurance. It was conceptualised by heart surgeon Dr Marius Barnard, after he had witnessed the suffering of many patients.
His mounting frustration stemmed from his observation that doctors could only operate and treat their patients after a bout of critical illness, but patients themselves constantly neglected their recuperation by returning to often-strenuous work to make ends meet for their family.
This inevitably resulted in their health deteriorating further.
Dr Barnard’s idea was a simple, yet profound one – what if a minor tweak was made to life insurance, so that the payout was upon the diagnosis of a critical insurance and not upon death?
This would enable patients to receive a substantial amount of money to pay off their expenses while they convalesced. Through his persistence and involvement in politics, the first critical illness plan was launched in 1983.
Today, most of us know that critical illness insurance is popular and frequently marketed as part of a complete financial planning and protection portfolio.
However, conflicting financial needs and increasingly complex products and add-ons can make the purchase of a plan a perplexing decision.
Here, we break down a few steps to consider before you make that decision to buy a policy:
Do I really need critical illness cover?
Critical illness insurance is by no means mandatory, but the most important aspect of critical illness cover is the immediate amount of money that is paid out upon the diagnosis of the illness, and this, at the very least, alleviates the amount of stress that you’d face financially.
Think about it, is being worried something you want to experience while sick or recovering?
Critical illness cover should be a serious consideration in the following situations:
·When you or your spouse have significant competing financial priorities (housing or education debt, retirement) and dependents, so that you cannot afford to deplete your savings if you are hit with a critical illness.
·When your employer’s benefits are insufficient.
What does critical illness cover encompass?
Policies generally allow for claims on up to 36 critical illnesses. This list represents some of the more common illnesses and is already fairly extensive.
However, in Malaysia, there are three critical illnesses that have both a high chance of occurring and recurring more than once during a person’s lifetime. These are heart attack, stroke, and the various forms of cancers.
Most conventional critical plans lapse once a single claim has been made on a selected illness, which is unfortunate. Studies have shown that the chance of surviving a critical illness is getting higher when the right lifestyle changes are made, but in tandem, relapses or different critical illnesses can occur.
Hence, you should comb through the benefits and exclusions carefully. There are products that offer “multiple”, “twice”, or even “triple” coverage, but not all policies are created equal, including those that cover only “early cancer”, or excluding recurrence on the same illnesses.
Exclusion clauses are also common for illnesses that are already present at the onset; pre-purchase and any neglect in disclosing this information can render the entire policy void.
How much critical illness cover do I need?
This is often the most common question, and the trickiest.
The first thing to consider is what kind of directly-related costs you would incur if a critical illness hits, and how much you expect these financial costs to run up to, and for how long.
These are of course the medical, hospitalisation and treatment expenses. But do note, these expenses can be immediate, or they can be staggered out over a period of time (dialysis or chemotherapy for example). This amount is the very least that your critical illness plan should cover.
Other than that, list down all the other expected expenses that arise directly as a result of a critical illness:
·Will you need a sum of money to replace your income for yourself and dependants if you’re not working when ill?
·Do you have any urgent debts and expenses that need to be paid off if you are not working when ill?
You should then evaluate to see if you want the critical illness plan to cover the above, or if it can come from your savings, or if you’re willing to liquidate some assets during that period.
Your insurance agent will be able to help you with this.
The below is an example of the costs of major surgery that arise from critical illnesses, taken from Critical Illness & Family Financial Impacts.
· Coronary artery by-pass surgery: RM30,000-RM50,000
· Angioplasty: RM16,000-RM25,000
· Heart transplant: RM50,000-RM80,000
· Heart disease: RM10,000-RM30,000
· Stroke: RM30,000-RM60,000
· Liver transplant: RM300,000-RM400,000
· Bone marrow transplant: Adult, RM350,000; child, RM140,000
But do factor in that the expected increase in medical costs is approximately 12-15% per year. What costs RM100,000 today, will be quadrupled in 10 years.
What else should I do before buying a policy?
At the most basic, you should look out for the below when purchasing a policy:
· How much the maximum benefits are for the policy, versus the costs that you need to incur for that insurance.
· What kind of deductibles there are – deductibles refer to the costs that you have to pay for yourself before the insurer takes up the claim, and can vary greatly from one insurer to another.
· Waiting periods – you would have to wait a number of days from the day you bought the policy, and in between illnesses, before you make a claim. The shorter the waiting period, the better.
Next week, we look into the various type of critical illness plans that are available in the market, and selecting one that suits your needs.
> This article was brought to you by Manulife Insurance Berhad.