How much Life Insurance is needed for Critical Illness, Death and Total Permanent Disability?

This is Part 2 of the art­icle on $0 Med­ic­al Insur­ance: is it pos­sible?. In Part 1 of the art­icle, I recom­men­ded that one should pur­chase as-charged integ­rated shield plan (ISP) offered by insur­ance com­pan­ies and the riders for the ISP so as to cov­er all med­ic­al expenses required for treat­ments in hos­pit­al, effect­ively cut­ting it down to $0.

This art­icle revis­its the top­ic on life insur­ance but in great­er depth. The sum assured for life insur­ance and estim­ated premi­um required for the cov­er­age; early-stage crit­ic­al ill­ness plan and how it com­pares to the tra­di­tion­al advanced-stage crit­ic­al ill­ness plan are cla­ri­fied in this art­icle.

 

Coverage for Critical Illness and Factors affecting Insurance Premium

Life insur­ance plan is med­ic­al insur­ance that cov­ers 30 defined crit­ic­al ill­nesses, death and Total Per­man­ent Dis­ab­il­ity (TPD). There are a few factors to con­sider when pur­chas­ing life insur­ance that cov­ers the 30 crit­ic­al ill­nesses. These include:

  • Sum Assured Required
  • Type of Plans (Whole-life or Term insur­ance)
  • Cov­er­age Term and
  • Early-Stage versus Tra­di­tion­al Advanced-stage Crit­ic­al Ill­ness Plan

 

Sum Assured Required

The recom­men­ded total amount of sum assured required is $100,000 plus 3 to 5 times your annu­al expenses. The $100, 000 will be used for imme­di­ate treat­ment and med­ic­a­tion for boost­ing the immunity and improv­ing the well-being of the patient. The rest of the pay­out will be for the Income Replace­ment for 3 to 5 years when the patient is recu­per­at­ing at home to recov­er from the crit­ic­al ill­ness, such as can­cer.

Table 1 shows the yearly and total premi­um for a non-smoker male to cov­er $100,000 with the tra­di­tion­al advanced-stage crit­ic­al ill­ness whole-life. The premi­um is pay­able for 20 years for the whole-life cov­er­age. As the fig­ures sug­gest, the earli­er you start, the lower the premi­um pay­able.

 

 

 

 

 

 

 

 

 

Type of Plans (Whole-life or Term insurance) and Coverage Term

Since crit­ic­al ill­ness can strike at any age, it is advis­able to provide the sum assured of $100,000 with lim­ited pay­ment term whole-life insur­ance. As the pro­tec­tion value increases with time, whole-life insur­ance will address the increas­ing med­ic­al cost due to infla­tion. If there is no claim for crit­ic­al ill­ness or TPD, then the amount can be used for one’s FINAL EXPENSES.

The pay­out for the remain­ing 3 to 5 times of your annu­al expenses can either be covered by whole-life or term insur­ance. Table 2 shows the Pros and Cons in the two types of plans.

 

The com­par­is­on sug­gests that it is prob­ably good for the risk-adverse to con­sider buy­ing whole-life insur­ance if the premi­um amount is not an issue. How­ever, for invest­ment-savvy per­son who is cap­able of gen­er­at­ing oth­er source of income with high­er return, term insur­ance should be bet­ter off. Even if the cov­er­age is only till age 65, it will not be an issue if your depend­ents no longer require your fin­an­cial sup­port by then.

 

Early-Stage versus Traditional Advanced-Critical Illness Plan

In gen­er­al, the early-stage crit­ic­al ill­ness plan pays only 25% or 50% of the Sum Assured, and up to a cap of $75,000. A lim­it is imposed on the max­im­um claim for early-stage crit­ic­al ill­ness, no mat­ter how big is the Sum Assured. This is because early-stage crit­ic­al ill­ness is likely to be cured when one is dia­gnosed and treated. Patient will then most likely to be sent home to recu­per­ate for half to three months. Hence, if you are employed with hos­pit­al­isa­tion leave bene­fit giv­en by com­pany, there is no loss of income dur­ing this peri­od. There is, how­ever, long-term med­ic­a­tion, that you may need to take for a few years. The early-stage pay­out money may then be use­ful for the med­ic­a­tion.

In com­par­is­on, the tra­di­tion­al advanced-stage crit­ic­al ill­ness plan does not impose any per­cent­age on the pay­out of the Sum Assured. The max­im­um cov­er­age that you can be pur­chased depends on your cur­rent annu­al income, age and the num­ber of years that you would like to recu­per­ate at home before rejoin­ing the work­force.

Obvi­ously, early-stage crit­ic­al ill­ness plan is par­tic­u­larly bene­fi­cial to the self-employed who are not covered for loss of income dur­ing the recu­per­a­tion peri­od. Young chil­dren will also bene­fit from buy­ing early for the cheap­er premi­um and easy accept­ance for their good health in gen­er­al at this tender age.

As for the premi­um, the early-stage crit­ic­al ill­ness plan is nor­mally 20–60% more expens­ive than the tra­di­tion­al crit­ic­al ill­ness plan since it needs to price in the high­er chance of claim. This is illus­trated in Table 3 below — com­pare this with Table 1 for tra­di­tion­al advanced-stage crit­ic­al ill­ness plan for a non-smoker male for a sum assured of $100, 000.

 

Life Insurance for Death and Total Permanent Disability (TPD)

All Singa­pore Cit­izens and Singa­pore Per­man­ent Res­id­ents who con­trib­utes to their CPF will auto­mat­ic­ally be included in the Depend­ent Pro­tec­tion Scheme (DPS). This is a term insur­ance that cov­ers death and TPD with sum assured of $46,000. The aim of DPS is to insure (CPF) mem­bers as early as pos­sible when they are likely to be health­i­er and insur­able at that time.

The down­side of DPS is that the cov­er­age ceases at the age of 60, and the annu­al premi­um increases when you are older. Hence, it is neces­sary to con­sider cheap­er and more flex­ible altern­at­ive insur­ance plans that last till at least age 70 and up to age 99.

The gen­er­al rule of thumb is to provide for 10 times your annu­al expenses for death and TPD. You can get this through Group Term Insur­ance (e.g. SAFRA, NTUC Uni­on) which offers cheap­er premi­um. How­ever, take note that such term insur­ance will ter­min­ate once you leave the group. On the oth­er hand, you can get this term insur­ance cov­er­age from any com­mer­cial insurer that provides com­pet­it­ive rate for pure pro­tec­tion.

Table 4 below shows an example of the yearly premi­um from NTUC Income for a non-smoker male for a Sum Assured of $500,000 to cov­er against death and TPD.

 

 

 

 

 

 

 

Conclusion

As illus­trated in this 2-part art­icle, the dream for $0 med­ic­al expenses can come through if you and your fam­ily have the right amount of appro­pri­ate hos­pit­al­isa­tion and life insur­ance plans. Act now to upgrade to Medis­ave-approved Private Integ­rated Shield Plan with “As-Charged” fea­ture and the rider.

To be suf­fi­ciently covered for crit­ic­al ill­ness, you can provide yourselves with $100,000 whole-life insur­ance and 3 to 5 times of your annu­al expenses with whole-life or term insur­ance. Self-employed can con­sider get­ting some of these cov­er­age from the early-stage crit­ic­al ill­ness plan.

Next, insure yourselves with anoth­er 10 times your annu­al expenses with term insur­ance for death and Total Per­man­ent Dis­ab­il­ity. This will ensure that your fam­ily, par­tic­u­larly the chil­dren, is adequately provided in case you are not around to provide the fin­an­cial sup­port they most needed.

The pdf ver­sion of this art­icle is avail­able at the Fea­tured Art­icles sec­tion of the web­site.

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