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The importance of Early Critical Illness insurance and Why CI plans 'failed'

Updated: Feb 9, 2023

ECI insurance has a pretty interesting history.

A 2008 study showed that only 5% of people who had bought Critical Illness (CI) insurance had claimed up-to-date. Because this statistic was pretty staggering, it made CI plans look pretty useless. Why would I buy something that I’m not going to claim on, despite the fact Singapore was already starting to show high rates of CI? This, coupled with the economic crisis, kept insurance companies under heavier scrutiny and regulations. Why weren't they seemingly doing the job that they were being paid to do? Of course there were a couple of factors (that incidentally, contribute to our current state of insurance). For example, people were living much longer average lifespans than anticipated at the turn of the millennium, from their late 60s to their early 80s. CI typically manifested later as well - as one would say, 60 is the new 40.

But one significant thing that they noticed was a growing trend for this particular trend, with no small part due to the improvements in medical technology. It looked a little something like this:

1) Patient gets a medical checkup, or a checkup as a byproduct of a smaller issue like being warded for food poisoning.

2) Doctors diagnose that he has early stage cancer, or even a non-invasive tumour due to become cancer.

3) The patient panics and quickly exhausts his options.

Unfortunately, his options at the time look a little something like this: No Insurance.

One significant finding from insurance research showed that due to improvements in MedTech, people were being diagnosed earlier and this was a problem. For example, Stage 1 cancer is not yet invasive so it does not meet the requirements for a CI claim. So now a bunch of people were saying, "I have Stage 1 cancer but I can’t claim anything until it's a Stage 3.” Since the ideal is to not let the cancer progress, you'd pay your bills out of your own pockets, thus making your CI insurance pretty much useless.

Early Critical Illness - supporting the bills
Early Critical Illness insurance - Financial support for the med bills

Another thing that actually happens is when people believe that they have CI insurance just because they have hospital insurance. That’s not meant to offend anybody. It’s just true and actually came out in the LIA study released early 2018. Say you contract an illness and end up in the hospital, you are covered for the stay but end up saddled with a staggering bill for the treatments.

(Early) Critical Illness insurance is not hospital insurance. You do not automatically get ECI/CI insurance when you have a hospital plan.

I can't take a public bus full of people who are really sick with my infection-prone body. I'll need to take private transport and that's cash. I'll probably also buy all sorts of nonsense to alleviate my pains and that's cash. I might also have to hire a maid to help around the house.

And if I'm going to fight cancer for the next 2-5 years, I’m not going to be working because I’m going to be fighting cancer. I need an ECI payout to replace my income loss.

It is crucial to have both a hospital plan and an ECI plan because the hospital plan covers the bills, ECI covers everything else.

Getting Started

As I shared in the article linked above, prioritise your ECI plan. It goes hand-in-hand with your hospital plan. Some Whole-Life plans come with ECI coverage so you could consider getting a hybrid plan. I do not recommend the Buying Term and Investing the Rest (BTIR) strategy for ECI because their term plans are expensive. You would need to make consistently strong investment returns in order to make BTIR worthwhile i.e. it becomes very challenging (and I prove that with numbers).

How Much ECI Coverage Should I get?

When it comes to a critical illness, setting aside a good few years to combat it would be ideal. A good estimate for the size of your coverage is 4-5 years of your current income.

Say you are earning $3,500 a month, that's $168,000 across 4 years or $210,000 across 5. Have ECI coverage of somewhere between $168k - $210k. Having a larger ECI payout would be beneficial to combating your medical/misc expenses as opposed to not having enough.

I prefer to err on the side of caution - it's a good mindset to have.

The insurance trends are ever-changing so what worked for your parents a decade ago will likely no longer be as effective for you. Insurability does not last forever. The future is in long life spans and those who lacking proper planning might have to spend their sunset years in poor health.

Let's make it so that you're not one of them.

Money Maverick

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