Tell whether your critical illness cover is accelerated, additional or standalone, and what a claim does to your other cover.
Get out the policy schedule for every policy you hold that includes critical illness (CI) cover. If the CI benefit is a rider, also find the rider's own page. Check whether a CI claim would reduce your life cover. Two policies that both list "S$50,000 CI" can leave your family with very different amounts after a claim, and the schedule or rider page shows which kind you have.
An accelerated critical illness rider pays the CI benefit in advance, out of the policy's death benefit. When you claim, the death benefit falls by the amount paid. If the accelerated CI sum equals the death benefit, a claim can use up the whole policy, and the policy ends. On a whole life policy with cash value, an accelerated claim usually also reduces the cash value and future premiums in proportion. The policy contract sets out exactly what an accelerated claim reduces. Accelerated riders cost less than the alternatives because the insurer pays only once, either on illness or on death. You get earlier access to money you would have received anyway. The rider does not add a second sum.
An additional critical illness rider pays the CI benefit on top of the death benefit, so a claim leaves your life cover untouched. Some insurers call this a "non-accelerated" or "additional" benefit, and the wording varies between insurers.
A standalone critical illness policy is a separate policy that pays only on critical illness. It is not linked to life cover, so a claim does not affect your life cover.
Additional riders and standalone policies cost more than an accelerated rider for the same sum because the insurer may pay twice: once on illness and again on death.
Jun Hao has a whole life policy. Its schedule lists S$100,000 on death and S$50,000 on critical illness (example figures). He has always added the two together and thought of his cover as S$150,000. While reading his rider page for lesson 5.2, he found the word "accelerated".
That meant a S$50,000 CI claim would cut his death benefit to S$50,000 (S$100,000 minus S$50,000). His real total cover is S$100,000, and some of it could be used up before his family ever received it.
His life cover gap from module 2 is S$900,000, and that figure already counts the whole life policy's S$100,000. Suppose he gets a critical illness and claims S$50,000. His death benefit falls to S$50,000 and his gap rises by S$50,000 to S$950,000. If he had bought term cover to fill the S$900,000 gap, his family would now be S$50,000 short, and he would no longer be able to buy more cover.
He has two options. He could add S$50,000 to the term cover he buys, so that his family's cover still meets the gap after a claim. Or he could buy separate CI cover and keep the old rider as a small extra. Lesson 5.4 works out how much CI cover he needs in total.
After a CI claim, the sick person may be out of work for a long time, and the illness may shorten their life. From the day of diagnosis, buying new life cover becomes very hard or impossible. In practice, the life cover left after a CI claim is all the life cover your family will ever have.
The risk is greatest on term policies sold with accelerated CI for the full sum. Take a term policy with S$500,000 life cover and S$500,000 accelerated CI. A CI claim pays S$500,000 and the policy ends. That policy then provides no life cover, even though death may now be more likely. Some families spend the CI payout on treatment and lost income, which is what it is meant for, and are then left with their original life cover need and nothing to meet it.
An accelerated rider can still be a sensible choice, because it gives you cheap access to money on diagnosis. If your life cover is much larger than your CI need, a modest accelerated amount still leaves plenty of life cover.
Ask yourself two questions. First, after a CI claim, would your remaining life cover still meet your family's need from module 2? Second, could you afford the premiums to hold the CI cover on an additional or standalone basis instead?
If the first answer is no and the second is yes, additional or standalone cover protects your family better. If both answers are no, an accelerated rider may be what you can afford. Now that you know the trade-off, size your life cover with a margin.
Work through each policy that has CI cover:
Find the policy schedule or the rider's own page. Look for "accelerated", "advance payment", or a statement that the benefit "will reduce" or "be deducted from" the sum assured. Any of these means the benefit is accelerated. Look for wording that the benefit is payable "in addition to" the death benefit. This usually means it is additional. If the wording is unclear, ask the insurer in writing and keep the reply.
Then write it down. For each critical illness benefit you hold, write its type and what your life cover would be after a claim. A list that says "S$100,000 life, S$50,000 CI" is incomplete until it also says "accelerated: S$50,000 life left after a CI claim".
Go through each critical illness benefit you hold. Write down whether it is accelerated, additional or standalone, and what your life cover would be after a claim.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).