You will be able to tell whether critical illness cover is accelerated, additional or standalone and what a claim does to your other cover.
Jun Hao's whole life policy schedule lists two benefits: S$100,000 on death and S$50,000 on critical illness. He had always added them up in his head and thought of it as S$150,000 of cover. Reading the rider page for lesson 5.2, he found one word that changed the sum: "accelerated". If he claimed the S$50,000 for a critical illness, his death benefit would fall to S$50,000. He had S$100,000 of cover, not S$150,000, and part of it could be used up before his family ever saw it.
This lesson shows you how to tell the three ways critical illness cover can be attached, and what a claim does to the rest of your cover.
An accelerated critical illness rider pays the critical illness benefit in advance from the policy's death benefit. When you claim, the death benefit falls by the amount paid. If the critical illness sum equals the death benefit, the claim can use up the whole policy, and it ends.
On a whole life policy with cash value, an accelerated claim usually reduces the cash value and future premiums in proportion as well. The policy contract describes exactly what is reduced.
Accelerated riders are cheaper than the alternatives, because the insurer pays once, either on illness or on death. You're buying earlier access to money you'd have received anyway, rather than a second sum.
An additional critical illness rider pays the critical illness benefit on top of the death benefit. A claim leaves the life cover untouched. Some insurers call this a non-accelerated or "additional" benefit; the wording varies.
A standalone critical illness policy is a separate policy that pays only on critical illness. It has nothing to do with your life cover, so a claim doesn't touch it.
Both cost more than an accelerated rider for the same sum, because the insurer may pay twice, once on illness and again on death.
Think about the family after a critical illness claim. The sick person may be out of work for a long time. The illness may shorten their life. And from the day of diagnosis, they will find it very hard or impossible to buy new life cover. Whatever life cover is left after the claim is, in practice, all the life cover the family will ever have.
Take Jun Hao. His life cover gap from module 2 was S$900,000, counting his whole life policy's S$100,000. Suppose he has a critical illness and claims the S$50,000. His death benefit falls to S$50,000, so his life cover gap rises by S$50,000 to S$950,000. If he had bought term cover to fill the S$900,000 gap, the family would now be S$50,000 short, at a moment when he could no longer buy more.
The problem is sharper on term policies sold with accelerated critical illness for the full sum. Suppose a term policy has S$500,000 of life cover with S$500,000 of accelerated critical illness. A critical illness claim pays S$500,000 and the policy ends. The household now has no life cover from that policy at all, and the illness may have made death more likely. Some families spend the payout on treatment and lost income, as intended, and then face the original life cover need with nothing to meet it.
An accelerated rider can still be a sensible choice. It gives cheap access to money on diagnosis, and for someone whose life cover is far larger than their critical illness need, a modest accelerated amount leaves plenty of life cover behind.
Ask two questions. After a critical illness claim, would my remaining life cover still meet my family's need from module 2? And could I afford, in premiums, to hold the critical illness cover on an additional or standalone basis instead? If the answer to the first is no and the second is yes, additional or standalone cover protects the family better. If both answers are no, an accelerated rider may be what you can afford, and knowing the trade-off lets you size your life cover with a margin.
Jun Hao could handle his S$50,000 accelerated rider by adding 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 critical illness cover and leave the old rider as a small extra. Lesson 5.4 works out how much critical illness cover he needs in total.
The policy schedule or the rider's own page tells you which kind you hold. Look for the words "accelerated", "advance payment" or a sentence saying the benefit "will reduce" or "be deducted from" the sum assured. An additional rider usually says the benefit is payable "in addition to" the death benefit. If the wording is unclear, ask the insurer in writing and keep the reply.
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".
Check each critical illness benefit you hold and write 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).