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.
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.