Hello, Humans.
Money Maverick is back.
SOME of you know that aside from my investments, I’m especially passionate about Critical Illness.
In my experience as a Critical Illness Specialist, I often repeat some of the core factors for why I recommended a particular product. You can view some of my analyses on CIs here and here.
As part of comprehensive planning from belonging to a Financial Advisory, I can offer products from various companies - comparing and working out the best value buy for that specific client.
But it can be difficult for a consultant who is paid by commission to justify the choice of recommendation.
Especially if it doesn’t meet a client’s preconceived notions and idea of what kind of critical illness insurance policy they should get.
Structure alone can be a fairly long discussion: due to the various pros and cons for suitability to the client.
(E.g. Term till 65, or Term till 70 Whole Life, Whole Life with Multiplier, ILP.)
Speaking as a professional, it’s REALLY ultimately more important to look at things beyond price: which is sadly what many people will tend to limit their selection to.
A specialist focuses on value and justifies this value with expertise.
Here are some basic parameters I consider so that I can recommend the most appropriate Critical Illness policy for my client:
1) Age
2) Price (Cost of Insurance per year/month)
3) Surrender/Claim Values
4) Coverage Range
Especially because a lack of understanding can cause you a serious loss of money. SEE ALSO: Some Things You Thought Wrongly About Insurance That Could Cost You Thousands of Dollars More
1) Age
Age is a factor that has always affected the life insurance business. Some insurers cater better to certain ages due to their target market or resources.
As a result - if I'm offering plans for a elderly woman and her 30 year old adult son...
...The most favorable plan for the adult son, based on price alone (not to mention a whole bunch of really important factors) - could be vastly different from the most favorable plan for the elderly woman.
Let's say if I'm looking at Company A, B and C and both people wanted a whole life plan.
Company A could be better for the son. It could be the BEST, by far - in terms of features, price, etc.
But you'd be surprised how different the results could be when comparing for an older person.
Suddenly, Company B looks so much better than Company A you need to double check to see if the first purchase was correct.
Some people make the mistake of assuming a company is better based on their experience of purchase at the time. But aside from companies continually improving their products at different intervals, they tend to have even larger variations once you account for age.
2) Price (Cost of Insurance per Year/Month)
The cost of insurance is obviously an important factor for deciding a policy to buy.
Comparisons can be understandable when you consider the range of price.
Many consumers aren’t perturbed by a minor difference in price, if they have a consultant who they trust.
But let’s say you like both consultants equally.
(Or have equal indifference, which is really more likely).
If we look at that maximized difference for a whole life policy with Early Critical Illness – say, $210,000 (sum assured) worth.
Company A: $3000 a year for 20 years: $60,000 total
Company B: $3150 a year for 20 years: $63,000 total
I’m not sure how rich you are – the reader, reading this: but I could do a LOT with $3000.
3) Surrender or Claim Value
Applicable primarily to Whole Life or ILPs,
Let's take a closer look at the example I just went through.
Assume I'm from Company A, and assume the parameters for the plan are the same - it costs $3000.
The second from Company B costs $3150.
A simple example of a high value for money policy would be if the surrender values that my policy provided were higher, or equal to the opposing policy that you are offered at the time.
That would show that the policy I was offering was not only cheaper, but produced higher financial value – and it would be an excellent product decision.
(insert picture)
Conversely - if the opposing policy had a significantly higher surrender or claim value after the end of a multiplier, there would be more for the client to consider in relation to their priorities and wants.
For example - if it had made or paid out like $100,000 more than the policy that I offered despite mine being $15,000 cheaper – I would certainly have a harder time convincing you client to stick with me.
4) Coverage Range
Early Critical Illness policies are not made equal – and understanding this is really important.
Of course, every one of them has a baseline of CIs required by MAS – which has a history of updating itself (see link below) in order to best serve the local population.
We are mostly familiar with the LIA 37 Critical Illnesses (since updated from 30), but in order to stay competitive for Early Critical Illness or Multi-Pay policies, insurance companies will usually have a wider range of:
1) Critical Illnesses: E.g. Company A adds something like Elephantiasis coverage, while Company B doesn’t offer it.
2) Critical Illness Conditions: A company could both cover Polio, but perhaps one might have Early Stage and Intermediate Stage cover while another might only have Intermediate.
Some companies will have a higher number of Critical Illnesses, while some will have a higher number of conditions (across the Early/Intermediate/Late) spectrum, and if you’re lucky you can find a company which provides both.
As an example for how this can vary:
Company A: 37 Critical Illnesses, with 107 Critical Illness Conditions (35 Early, 35 Intermediate and 35 Late)
Company B: 45 Critical Illnesses, with 106 Critical Illness Conditions (30 Early, 31 Intermediate and 45 Late)
Understanding the difference will help you know which might be more extensive for YOUR specific situation.
Some Closing Thoughts
I will be releasing a Part 2 on this because it's pretty extensive:
5) Additional Features
6) Price: Cost of Insurance, Structural Costs
7) Sum Assured Scaling
8) Sum Assured after Working Age
9) Other Notable Factors
For the most part, I am always impressed (and a little incredulous) when people attempt to compare it themselves.
I work pretty hard at my job and it's taken months, even years to get to this point - so it would take a truly exceptional person to not purchase it wrongly.
I mean - let me toss out some questions, and some implications you can get from this (Part 1) alone.
What's more important - Critical Illnesses, or Critical Illness types?
What is the probability that I will get these Critical Illnesses? Is it necessary? Should I be paying for them at all even?
Are they increasing in the population or for my age or gender?
Can I get a larger range of illnesses at a cheaper price and how would a company go about doing that? Why doesn't another company have this, or that?
Should I have more Critical Illness Insurance after retirement, or less?
Are there other value reasons as to why some policies are cheaper, or more expensive than others - especially with some of the examples that I just saw?
Are there linkages to the various Critical Illnesses?
What will I do after an Early Claim, or what does that Early Claim look like?
Money Maverick
Investments are also available using CPF (Ordinary Account), SRS (Supplementary Retirement Scheme) and Cash.
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