How Much Critical Illness Coverage is Enough for Singaporeans?

Critical Illness (CI) insurance provides a pay out when you’re diagnosed with a critical illness (consult the policy documents to see the exact list of illnesses covered. Note that not all CI policies cover the same range of illnesses).

The pay outs for CI insurance can work in different ways, based on the policy:

For example, the most typical CI policies provide a lump sum payment when you’re diagnosed with a critical illness, at an advanced stage (e.g. stage IV cancer). But there are also CI policies that can pay out at earlier stages of the disease, and policies that provide multiple pay outs (e.g. at different stages of the disease).

As such, it’s important not only to have a CI policy, but to have one that provides the right degree of financial support. Here are some ways to decide on the right amount:

• The recommended amount by Life Insurance Association (LIA)
• Five years of income, after deducting debt
• Consideration of recovery expenses
• Providing for dependents who cannot work
• Combining pay outs with existing assets

1. The recommended amount by Life Insurance Association (LIA)

There’s no “one size fits all” CI plan that’s right for everyone; tailor your CI plan to fit your specific financial situation.

As a straightforward guideline, LIA recommends that the average Singaporean has CI coverage of around $316,000.

However, you should take this amount as a loose guideline rather than a goal. The “average Singaporean” is a vague concept; many of us face different circumstances. For example, you may have dependents with special needs, or you may be an only child who also has to provide for parents. These may require you to increase the amount of CI coverage needed.

Conversely, if all of your children are of working age and doing well, you may actually reduce your CI coverage, as you don’t need to provide as much for them (and they may even be able to provide for you and your spouse, if you’re too ill to work).

It’s best to speak with a qualified Financial Consultant, on matching a CI plan to your financial situation.

2. Five years of income, after deducting debt

While five years of your income is a commonly used guideline, do consider the age of your dependents – you may want more than that if your children are still young.

This is another rule of thumb you can follow: your CI policy should provide enough funds – after deducting debts and other liabilities – to support your income for five years (some Financial Consultants might suggest seven years, depending on your circumstances).

Remember that you can’t count on only life insurance for this, as you are still around during the extent of the critical illness (without any additional riders, life insurance will pay out upon your death). And in many cases, estimations of remaining lifespan may be inaccurate – you may not know if you have months, or years, left to you.

Another difference between this amount (and simply using $316,000 as a guideline) is that it preserves your family’s lifestyle. $316,000, stretched over five years, is roughly $5,260 per month. This may be less than some families are accustomed to; and remember you’ll probably want quality time with them.

3. Consideration of recovery expenses

You may to hire a nurse or domestic helper for some critical illnesses; don’t forget to factor this in as another potential cost.

With some critical illnesses, there may be a higher chance of recovery in the early stages. You’ll want access to the best medical care in such circumstances.

This is where early stage CI plans come in helpful. With plans AXA Super CritiCare, you can get pay outs for different stages of critical illness, and get coverage for recurring critical illness. You can also get pay outs of up to 600 per cent of the Sum Assured.

CI pay outs complement your existing hospitalisation plans too. For example, the pay outs can be used to cover treatments that wouldn’t be covered by hospital plans.

4. Providing for dependents who cannot work

Again, remember that most life insurance policies only pay out upon your death. During the period of Critical Illness when you can’t work, you’ll still need to keep the bills paid.

As such, you need to consider the needs of your dependents. If your child is just 11 years old, for example, coverage should span seven years instead of five (this will last till your child is 18 and can ostensibly provide some income for herself).

Conversely, if your dependents are already working and doing well, you may be able to get by with less coverage. Speak to your Financial Consultant for help on this.

Ultimately, it’s about more than just money

CI plans are not just about paying the bills. It’s also about being able to spend time with your loved ones, at a crucial – and perhaps the final – stage in your life. Regardless of your physical condition, work is often difficult or impossible for emotional reasons (who can concentrate on Monday budget meetings, when it’s possibly their last few years on Earth?)

All of us hope to never make a claim for our CI policies; but few would regret having it, on the day it’s needed.

Disclaimer:

This article is for general information only and does not take into account the specific investment objectives, financial situation or needs of any particular person. The views expressed herein do not necessarily reflect the views of AXA Insurance Pte Ltd and should not be construed as the provision of advice or making of any recommendation. There is no intention to distribute, or offer to sell, or solicit any offer to purchase any product. We recommend that you seek the advice of a qualified financial advisory professional before making any decision to purchase an insurance or investment product. Whilst we have taken reasonable care to ensure that all information provided was obtained from reliable sources and correct at time of publishing, information may become outdated and opinions may change. We are not liable for any loss that may result from the access or use of the information herein provided.