You will be able to tell critical illness cover and disability income cover apart and say what each protects.
Think of the thing you own that is worth the most. For most people in their twenties and thirties it is not a flat, a car or an investment account. It is the ability to go to work for the next thirty or forty years and get paid for it. That ability is easy to forget because it does not appear on any statement, and it is the asset people most often leave uninsured.
Two kinds of cover protect it in different ways. This lesson explains what each one does, how they differ from the national scheme for severe disability, and how to tell where you stand.
Critical illness cover pays a lump sum when you are diagnosed with one of the conditions listed in the policy, such as a major cancer, a heart attack or a stroke. The payout does not depend on what your treatment costs. It is yours to use as you choose.
The freedom to spend it sets it apart from the hospital cover in lesson 4.1, which pays the hospital and nothing else. Hospital cover does not pay your rent while you recover, the cost of a family member taking unpaid leave to look after you, treatment your hospital plan does not cover, or the months when you cannot work at full pace. A lump sum on diagnosis covers those.
Policies come in different forms. Some pay only for severe, late-stage conditions. Others also pay a smaller amount at an early stage. Singapore insurers use a common set of definitions for the major conditions, published by the Life Insurance Association, so a stroke in one policy should mean the same as in another. Read the list and the definitions, because a condition that is not listed, or a stage below the definition, does not pay.
A common way to think about the amount is in years of expenses. How many years of essential spending would you want covered while you were treated and recovered?
Disability income insurance pays a monthly amount if illness or injury stops you working. It replaces part of your salary, not all of it, because insurers want you to have a reason to return to work when you can. The share it replaces is set out in the policy.
The details decide how useful a policy is. There is usually a waiting period after you stop work before payments begin, often a few months, which your emergency fund covers. Benefits run until a set age or for a set number of years. And the definition of disability matters: some policies pay if you cannot do your own job, others only if you cannot do any job you are reasonably suited to. A surgeon who loses the use of a hand can still do many jobs, so those two definitions give very different results.
Notice how the two types differ. Critical illness cover pays once for a listed diagnosis, whether or not you stop work. Disability income cover pays every month you cannot work, for any illness or injury the policy covers, including a back injury or a long depression that would never appear on a critical illness list.
CareShield Life is a national long-term care insurance scheme. It pays a monthly amount if you become severely disabled, measured by being unable to do several basic activities of daily living, such as washing, dressing or feeding yourself. It is meant to help with the cost of long-term care, at home or in a care home.
It is not designed to replace a working income. The monthly payout is sized for care costs, and the test for severe disability is strict. A software engineer who cannot work for a year after a car accident, but can still wash and dress, would not qualify. Eligibility depends on when you were born and whether you are a citizen or permanent resident, so check your own status on the CareShield Life website or cpf.gov.sg.
Look at the cover most young workers hold. Hospital bills are partly covered by MediShield Life, and many people have a shield plan too. Death may be partly covered by the Dependants' Protection Scheme and group cover at work. Critical illness is sometimes covered by a policy a parent bought years ago.
Income lost because you cannot work is often covered by nothing at all. Yet it is the largest of these risks for someone young, because there are so many working years left to lose.
Here is a worked example with figures made up for it. Farah is 29 and her essential spending is S$2,500 a month. If she could not work for a year, she would need S$2,500 x 12, which is S$30,000, to pay her bills. Her emergency fund holds six months, which is S$2,500 x 6, or S$15,000. That leaves S$15,000 of bills with nothing to pay them, before any treatment costs. And a year is a mild case. If she could never return to her old job, the gap would run for decades.
Neither lump sums nor monthly benefits are the right answer for everyone, and this course does not tell you which to buy. Insurance Decoded covers both in detail. What you need now is a clear view of your own position. Start by picturing a full year in which your pay stops and the bills keep coming.
Write down what would pay your bills if you could not work for a year, and how much of your income it would replace.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).