How much critical illness coverage do you really need?

A follow-up study in 2017 by the Singapore Life Insurance Association (LIA) reveals that an average adult needs S$316,000 of critical illness coverage but the average working adult here only has critical illness coverage of just S$60,000.

The general guideline by LIA recommends critical illness coverage of 3.9 times your annual income. Hence if you earn S$70,000, you should ideally have critical illness coverage of S$273,000.

On top of that, a recurring illness can cost upwards of $200,000 yearly and over 80% of those that contracted a critical illness regretted not having more coverage.

Do you have sufficient insurance coverage, especially in the event of a late stage or multiple occurrences of critical illness?

But you already have a hospitalisation plan

By default, your MediShield Life can provide sufficient coverage in case of a medical condition or emergency requiring hospitalisation. 

This may include surgical and other related expenses such as daily ward charges, doctor’s fees, and pre and post-hospitalisation charges up to a specific time frame.

With an upgrade to an Integrated Shield Plan (ISP) and associated rider, treatment in a government ward B and above or even private hospital ward A should not break the bank.

However, your MediShield Life or ISP is not designed to deal with the long-term cost and expenses in the event of a catastrophic or prolonged life-threatening illness.

The average recovery period for a CI or until the insured person can return to work is five years (Life Insurance Association of Singapore). This is where your critical illness plans or coverage ensures that you have sufficient financial support until you are fully recovered.

Surveys on Singaporean’s knowledge when it comes to insurance and critical illness planning have uncovered gaps in shortfall, lack of information and misconception.

These survey findings have been mostly conducted via The Nielsen Company (an S&P 500 company), YouGov and other independent third-party info providers.

You do not have to fully address your insurance and critical illness shortfall in a single plan if you have budget constraints.

However, seek advice from a qualified financial advisor to ensure your next insurance plan provides the best match based on these:

•  Do you foresee any additional financial commitment where your ability to provide financial resources is a must (a newborn, getting a house, getting married, etc)?
• Will the insurance and critical illness coverage you need at this point in time, decreases over time (Retired, kids are self-sufficient, end of your mortgage or other financial commitment)?
• If you expect the insurance and/ or critical illness policy to accumulate cash value over time, what type of returns are you looking for (Mirror the stock market, slow and steady growth or a guaranteed principal return)?
• At which policy year will the insurance and/ or critical plan achieve your expected returns (does it fits your long-term plans)?
• What are the opportunity costs that you would have gained or lost should you take up an alternative type of plan?
• If you are unable to pay your premium (due to a serious illness, retrenchment or other reasons), will this insurance plan pays with accumulated cash value or get terminated?

Your financial advisor should also factor in the following:

• Existing policies (Any overlap of coverage, maximum limits, etc)
• Cash flow (Expected disruptions or major events)
• Assets and liability (Shorter premium term, or paying off liabilities due to incurred interest)
• Future financial expectations and goals (Flexibility on withdrawal, your investment risk profile, etc)

Note: The above is not a comprehensive list and a qualified advisor must address your personal needs.

Moving on, what type of policies should you consider for your insurance and/ or critical illness need?