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Is early critical illness insurance necessary?

Thursday, August 17, 2017

I have blogged about the importance of having critical illness insurance before and because I get questions from readers now and then on whether early critical illness insurance is essential, I decided I should blog about it.

Please bear in mind that this is just my opinion and some might disagree.

Reader:
I've started my investing journey and I am quite amazed I've learnt quite a lot ever since I started reading your blog last year. I would like to seek your talking to yourself opinion. Is it essential to get an early critical illness term insurance? The premium is really high.





AK:
When we buy insurance to cover ourselves against critical illnesses, it is so that we get paid a lump sum of money if we should be diagnosed with one of the dread illnesses.


The difference between regular and early forms is that the latter will pay the insured once diagnosed with a dread illness even if it should be at an early stage. The regular form would only pay if the illness is at an intermediate stage.

I am of the opinion that we need regular critical illness coverage because it could be that we must stop working to undergo treatment. We could be too ill to work. 

Critical illness coverage gives us a lump sum payment. Now you know why this is necessary. We need this in case we have to stop working. It provides us with money to continue living our life as if we were still working (for a long while, hopefully) until we get better.

At the early stages of an illness, it is conceivable that we would still be well enough to work and would not have to give up our regular income. So, it is my opinion that it is not essential to have early critical illness insurance. We don't need it.

Any medical treatment required if we should be diagnosed with a critical illness in the early stage should be covered to a large extent by our H&S insurance. Think Medishield Life, for example. We don't need early critical illness coverage to pay for our medical treatment.


The early variant of critical illness insurance is also unattractive because it is very pricey. 

How much more does it cost?







For example, a 30 year old male might have to pay almost $800 per year for a $200,000 death with regular critical illness benefit till age 65 but he might have to pay more than $2,000 per year if he were to opt for early critical illness benefit.


That is 150% more! 

If it were 10% or 20% more, maybe, but 150% more? Mind boggling.

I have blogged about what I feel is the best insurance in life and I feel that the extra money used to pay for early critical illness insurance could be better used towards this project.


If you don't know what I am talking about, see related post #2 at the end of this blog.

Insurance is absolutely necessary against events which we will not be able to recover from easily without financial help.


For all other events, insurance is probably a "nice to have" and not a "must have".

Buy what we know we need and not what sales people want us to think we need.

Related posts:
1. Without CI coverage?
2. Best insurance to have in life.

10 comments:

Spur said...

Hi AK,

My thoughts exactly on early CI .... and the selling point is always about stage 0 or stage 1 cancers cannot claim. BTW, the old CI T&C (before 1994??) do allow for stage 1 cancer claims.

Treatment for early stage cancers is much milder and workwise can be covered by the Employment Act's paid medical & hospitalization leave.

H&S like the various Shield plans is absolutely critical, especially in high-cost S'pore. An appropriate level medical treatment can mostly be covered by relevant Shield plans. Obviously a person can't expect Mt E treatment to be covered by basic Medishield Life but you will still get adequate treatment in C or B2 class. It's a balance between what H&S you can afford (or want to) pay & the kind of treatment you expect.

I previously had colleagues undergoing relatively strong chemo & surgery for stage 2 & 3 cancers, and they could cover using their annual, medical & hospitalization leave, without having to take no-pay leave or quit their jobs. OK different people have different thresholds & responses, but still...

Alternative to CI cover is Disability Income. Good to compare costs & T&C for those interested.

If you have sufficient passive income streams, then insurance such as CI and DI actually may not make sense from an objective view, as they mostly protect you against not being able to continue working for income. OK lah ... some people treat them as (expensive) forced savings for par plans .... and maybe even some secretly hope to strike lucky draw!!

pirate said...

What are your thoughts about CI coverage for beyond 65 years old?

AK71 said...

Hi Spur,

We have the same sentiments and share the rationale for related post #2.

Unfortunately, many people end up paying a lot more for insurance than they really should and in more ways than one too.

The insurance industry is a necessary evil. We must be able to separate the necessary from the evil. ;p

AK71 said...

Hi pirate,

The answer is in related post #1. ;)

cheryl2010 said...

Hi AK, would like to offer a different opinion. While early CI offers payout in early stage in life and not deemed necessary but it is a good option to provide in the event that one is sick and employer retrenches/fires the person esp in this uncertain job environment. Aviva offers NSmen/regulars and their spouses very affordable early CI policy, probably the cheapest in the market. Anyone who is interested can go take a look.

AK71 said...

Hi Cheryl,

If you are buying early CI insurance instead of regular CI insurance because you not only afraid of contracting a dread illness but because you are also afraid of being retrenched, I think you are confused as to what CI insurance is supposed to do.

If you are afraid of being retrenched and losing your earned income (and if you need your earned income), there is another insurance product for that. It is a bad reason to buy early CI insurance instead of the regular version because of this fear.

Buy something that is fit for the purpose.

As for Aviva group insurance, you have to remember that the premium is not guaranteed, the terms can be changed without your consent and coverage can be cancelled at any time. So, it is prudent not to depend solely on group insurance.

tippytim said...

Consider SAF early CI term. f you are eligible. That is one of the cheapest early CI insurance

AK71 said...

Hi tippy,

Definitely no harm getting it since it is much cheaper but like I told Cheryl, we have to be aware of the negatives in group insurance.

sy sy said...

hi ak

normally we can get cheaper price from group insurance.
and i am having a term group insurance from ntuc income & critical illness insurance both also group insurance.
i really blur blur & don't understand what u mean by "negatives in group insurance"
i would love to heard u talking to yourself on what is the "negatives" please...

because this is the cheaper insurance i can get, if really group insurance is really not so good. can u please give me some advice which insurance can i get which is cheap for term insurance & CI ... i am not high income earner so i really appreciate your help on this... please talking to yourself...

many many thanks

sy

AK71 said...

Hi sy,

Please refer to the last paragraph of my reply to Cheryl higher up in this comments section. ;)

It would be prudent not to rely solely on group insurance for coverage.

Getting a personal term and CI insurance to complement the group insurance would be prudent, in my opinion. :)

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