You will calculate the critical illness cover you need from your expenses and recovery time.
Ryan's critical illness quotes were both for S$150,000, a figure he described as "what most clients your age take". It might be right. But Jun Hao now knew that a number nobody can explain is a guess, and he had the method from module 2 to replace it. Critical illness cover is sized the same way as life cover, from the money your household would need, with a different question: how long would you need it while you're treated and recover?
This exercise takes about 30 minutes. Have your list from the lesson 5.1 activity, your premium breakdown from lesson 1.4 and your critical illness benefit types from lesson 5.3 to hand.
Start with your essential yearly expenses, meaning the spending that would continue if you were seriously ill: housing, food, utilities, insurance premiums, children's costs, transport, support for parents. Leave out holidays and discretionary spending. If you have a partner who earns, use the part of the household's essentials your income pays for, as you did in lesson 2.1.
Then choose the number of recovery years you want covered. It's a judgement. Some people choose the time a typical treatment and recovery might take; others choose longer, to cover the chance of not returning to the same job or the same hours. Write down your reason beside the figure.
Essentials times recovery years is the first line of the sheet.
From your lesson 5.1 list, add the one-off and extra costs: a helper or extra childcare, transport, home changes, treatments your plan wouldn't cover, a second opinion abroad, a partner's unpaid leave. Use rough estimates and label them as yours. If you don't know a figure, a round allowance is better than leaving it out.
List every critical illness benefit you hold from lesson 5.3, with its amount and type. Subtract the total from your need. Mark any accelerated benefit, because claiming it would reduce your life cover, and note how much life cover you'd lose.
You can also subtract savings set aside specifically for this purpose, but not your emergency fund, which a serious illness would use up in the first months anyway.
The result is your critical illness cover gap.
Lesson 5.2, Severe, early and multi-stage: what the definitions decide, showed what each structure does. Now decide whether either is worth the extra premium for you, with two questions.
Would an early payout change what you could do? If an early cancer meant a short operation and a few weeks off, your buffer might cope, and early-stage cover adds little. If you work in a job where even an early illness would stop you for months, or you have a family history of a particular condition, being paid earlier is worth more.
Would a second illness ruin the plan? If one payout would see you through recovery and you have other savings, multi-pay adds little. If a second illness years later would hit a household that had already spent the first payout, multi-pay protects against that.
Get a price for each structure at your sum and write the yearly difference beside your answers.
Every figure is an example made up for the exercise.
His household relies on S$42,000 a year from his pay. He wants three years covered, reasoning that a year of treatment could be followed by two years of reduced hours. 42,000 times 3 is S$126,000.
Extra costs: S$24,000, an allowance for a helper for a year, transport and treatment not covered by his plan. Total need: S$150,000.
Existing cover: his whole life policy's S$50,000 accelerated critical illness rider. Gap: 150,000 minus 50,000 is S$100,000. Beside it he notes that a claim on the rider would cut his whole life death benefit from S$100,000 to S$50,000, so he'll add S$50,000 to the term life cover he buys, as lesson 5.3 suggested.
So Ryan's S$150,000 wasn't far off as a total need. But Jun Hao already had S$50,000 of it, so the cover to buy was S$100,000, and he could now explain every line.
On structure, he chooses early-stage cover. His father had a cancer caught early at screening, and an early payout would let Jun Hao take time off without touching the family's savings. He decides against multi-pay: with term life cover in place and savings growing, a second payout would be useful but not essential, and the price gap was larger than he wanted to pay.
A finished sheet has your essential yearly expenses and the recovery years you chose, with your reason; extra costs, each estimated and labelled; existing critical illness cover with each benefit's type and the life cover it would cost you; and the gap. Underneath, write your decision on early-stage and multi-pay cover with the yearly price difference you weighed. That gap goes into your household plan in lesson 7.5.
Build a short sizing sheet with expenses, years covered, extra costs and existing cover, and write your critical illness cover gap.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).