You will be able to explain what critical illness cover pays for and how it differs from hospital cover.
Ryan once asked Jun Hao a question that stopped him. "If you were diagnosed with cancer tomorrow, your shield plan would pay the hospital. Who pays your share of the mortgage while you're having chemo?" Jun Hao had assumed his hospital cover dealt with illness. It deals with hospital bills, which are only one part of what a serious illness costs a household.
This lesson explains what critical illness cover pays for, how it differs from hospital cover, and the conditions attached to a payout.
Hospital cover, the subject of module 4, pays bills. When you're admitted or have certain treatments, it pays the hospital and the doctors, subject to its deductible, co-insurance and limits. If you're never admitted, it pays nothing. If your bill is S$40,000, it pays part of the S$40,000. The amount depends on the bill.
Critical illness cover pays a fixed lump sum when you are diagnosed with a condition listed in the policy, as long as the diagnosis meets the policy's definition. The amount is the sum assured you chose. It doesn't depend on what treatment costs, whether you were admitted, or whether you stop working. The money is paid to you, to spend as you like.
The two kinds of cover overlap only slightly. One deals with the bill. The other deals with everything around it.
Picture Jun Hao, with a diagnosis of a cancer that needs a year of treatment. His shield plan and rider would pay most of the hospital and treatment bills. Here is what they would leave untouched, and what a lump sum could pay for:
his income, if he can't work or can only work part-time for a year or more Mei's lost earnings if she takes unpaid leave to care for him or for Elise a helper or extra childcare while he's unwell transport, special food, home changes and equipment treatment his plan doesn't cover, or a second opinion abroad the mortgage, which keeps falling due whatever happens
Some of these can be large. A year without his pay would mean S$42,000 that his household relies on from it, in the example from module 2. None of it is a hospital bill.
That's why critical illness cover is sized from living costs and recovery time, not from treatment costs. Lesson 5.4, Size your critical illness cover in years of expenses, does the sizing. Lesson 4.3 of The Singapore personal finance system, end to end, Critical illness and disability income cover, introduced the idea; this module goes into the definitions and the policy structures.
A lump sum on diagnosis sounds simple. Three conditions decide whether, and when, it's paid.
First, the condition must be on the policy's list and must meet the policy's definition. A heart attack, for example, has a specific definition in most policies, and a mild event may not meet it. Lesson 5.2, Severe, early and multi-stage: what the definitions decide, covers this in detail.
Second, many policies have a survival period: the insured must live for a set number of days after diagnosis before the benefit is paid. If the insured dies within that period, the critical illness benefit isn't paid, although a death benefit may be, if the policy includes one. The length of the survival period is in the policy contract and varies between policies.
Third, many policies have a waiting period at the start, during which certain conditions, often including major cancers and heart conditions, aren't covered if they're diagnosed. The aim is to stop people buying cover after noticing symptoms. Check the waiting period for each condition in your policy.
Add to those the usual exclusions, such as pre-existing conditions you disclosed or that the policy excludes in general, as lesson 1.3 explained.
People sometimes assume critical illness cover protects their income in general. It protects against a listed set of diagnoses. A back injury that stops you working for two years, a long depression or a bad car accident may never appear on a critical illness list, and none of them would pay. Module 6 covers the cover that pays when you can't work, for any covered reason.
So critical illness cover answers a specific question: if you were diagnosed with one of the listed serious conditions, would your household have enough money to get through treatment and recovery, beyond what hospital cover pays?
The activity asks you to write the costs you'd face in the year after a serious diagnosis that hospital cover wouldn't pay. Be concrete. Write the monthly amount your household relies on from your pay, who would care for you and your children, and the costs that would rise. That list becomes the first line of your sizing sheet in lesson 5.4.
Write the costs you would face in the year after a serious diagnosis that hospital cover would not pay.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).