On average, Singaporeans live till the age of 82. However, as our life expectancy increases, there is a growing problem of Singaporeans spending our twilight years in illness. The average Singaporean spends eight out of those 82 years in ill health, which represents almost 10% of our lives. Yet, many Singaporeans are not financially prepared against the problem of ill health.
What is critical illness?
The Life Insurance Association (LIA) found in its latest study that Singaporeans have a critical illness (CI) gap. Based on the study, Singaporeans are found to only have 20% coverage of what we need if we get diagnosed with CI.
According to the LIA, there are 37 illnesses that are classified as CIs in Singapore. These illnesses are the most common illnesses that most of us Singaporeans fall prey to as we age. Some of these illnesses like cancer, stroke and heart attack are also the top killers of Singaporeans.
What is a CI gap?
A CI gap, or CI protection gap, refers to the situation where you have less CI insurance protection than what you would need if you get diagnosed with CI.
There are a few types of financial costs associated if you are diagnosed with cancer. Firstly, you will need to be prepared to pay for the enormous medical bill for your treatment. On top of that, you also have to continue paying off necessary expenses during your period of recuperation. You also need to find an income replacement as you take a break from work to let your body recover.
In the study commissioned by LIA and conducted by Ernst & Young, it was revealed that Singaporeans only have about one year’s income worth of CI protection in place. This is only 20% of what an average Singaporean would need to ensure that you and your families are well taken care of. The difference between the financial protection that is required and the financial protection that is in place is known as a CI gap.
The perils of a CI gap
1. Financial cost of dealing with CI
The first peril of a CI gap is the inability to afford treatment when you are diagnosed with CI. While the name CI might suggest that death is imminent, the reality is contrary to that belief. In some cases, early detection of CI and prompt treatment can still give you a high chance of recovery.
However, treatment for CI will not come cheap. According to statistics released by Ministry of Health, the cost of hospital admission for lung cancer will set you back by at least S$10,000. The cost of surgery and drugs will further inflate the cost of CI. If you have insufficient CI coverage, you will need to fork out these from your own pocket. The mental pressure could be detrimental to you if you still have to think about financial implications as you are recuperating.
2. You might lose your hard-earned HDB
As a Singaporean, most of you would go on to buy a home with your spouse. In the event of CI, you will be unable to continue earning an income while you recuperate. Without good CI insurance coverage, you will not only be unable to afford your household expenses, you might even be forced to sell and downgrade your home. Moreover, if you sell at an inopportune time, you can even lose your initial investment in your home.
3. Who will feed your loved ones while you are sick?
For those of you with dependencies like kids or elderly parents, there is added urgency to minimize any CI gap. With adequate CI insurance coverage in place, you can ensure financial stability for your family. You do not have to worry about the financial needs of your child or your parents in the event you are diagnosed with CI. You and your family will be able to continue living in the same manner without many adjustments while you receive treatment against CI.
What should you do if you have a CI gap?
While the idea of a CI gap sounds scary, the steps needed to address a CI gap is simple. There are two options that you can choose from: Buying a term insurance with CI rider or buying a pure CI insurance.
1. Buy a term insurance with CI rider
The first option of buying a term insurance with CI is meant for those who do not currently own any term insurance. Most insurers in Singapore offer a CI rider option that you can purchase in conjunction with your term insurance. The sum assured of the CI rider can either be adjusted or tagged to the same amount as your base term insurance plan. This is dependent on your insurer. In most cases, sum assured for CI rider should be equivalent to your base term insurance plan for a good financial protection coverage.
2. Get a pure CI insurance plan
Another option is to purchase a pure CI insurance. This could be good for people who have some existing CI coverage but need to increase it. The CI insurance plan will be an insurance plan that purely protects you against any of the 37 CIs. This contrasts with the term insurance with CI rider that protects you against the event of CI, total and/or permanent disability (TPD) or death. While pure CI insurance will come at a higher price than a CI rider, there are benefits to buying a pure CI insurance plan.
For example, early-stage coverage is a common feature for pure CI insurance plans than CI riders. For CI, when you catch the disease at an early stage, your chances of recovery increases exponentially. Early stage benefit allows you to make claims from your insurer upon early diagnosis of CI.
Know that you understand the dangers of a CI gap and what to do, we hope you’ll be better equipped to review your current insurance policies and to take additional steps if necessary.