When was the last time you have had your critical illnesses (CI) coverage reviewed by your financial consultant? If you have not done so recently, it might be a good time now to review your critical illnesses coverage as regulatory changes is going to bring about a revision in the definitions of the critical illness policy that you purchase after Feb 2015!

What are the main changes?

In August 2014, the Life Insurance Association Singapore (LIA Singapore) released its guidelines for all the insurers that will

• Revise standard definitions for the severe stage of 37 common CIs
• Increase flexibility for more medical conditions to be covered

According to the LIA Singapore press release, the first change is to “reflect advances in clinical practices, medical science and technology” while the second change is in consultation with the Competition Commission of Singapore so that “Singaporeans will benefit from the introduction of more innovative products catering to varied and more specific needs”

As it stood, a standardised set of definitions for Critical Illnesses were introduced in 2003 to provide greater transparency for policyholders to easily assess and compare the different plans available. Policyholders will also be given greater assurance in claims results with a reduced incidence of one insurer paying a claim and another rejecting it due to differences in definition applied for the severe stage of the 37 common CIs.

In addition, while it has been common knowledge that CI policies cover 30 common CIs, what is less well known is that there is a list of 37 Critical illnesses that insurers can pick and choose from to cover for their CI policies. Hence there is a need for more flexibility for more medical conditions to be covered.

Fear not though, as the Top 10 CIs that are covered by all the insurers cover 98.5% of all CI claims in men and 99.2% in women*.

*Source: Gen Re Dread Disease Survey(2004 – 2008 results) by Frank McInerney, 8 November 2012.

Ten leading causes of Claims for CI

How will it affect me?

As a result of liberalising the number of CIs that can be included, one of the reputable insurers has already fired the first salvo by introducing 36 CIs to be covered in its latest term policies. However, as indicated in the table above, at least 98.5% of all the common CI claims are already included in the top 10 CI conditions and hence the value of increasing the cover by another 6 or 7 CI is debatable at the very least. In addition, the insurers could well covertly increase the premiums of their new policies without adding much value to policyholders.

The revised definitions apply to only 16 of the 37 CI conditions but it includes 7 of the top 10 conditions (Except for Kidney Failure, Motor Neurone Disease and Multiple Sclerosis) or over 95% of the claims.

A disclaimer, as I am not medically trained, I am not able to precisely pinpoint how these definitions would affect the claims. However, a cursory look at the revision shows that the number of exclusions for the main CI condition, Major Cancers, has increased.In addition, the requirements for proof of the condition has become more precise, thus potentially requiring more diagnostic tests to confirm malignancy before a claim can be admitted. In the past, the diagnosis only needed to be supported by histological evidence of malignancy and confirmed by an oncologist or pathologist.

How these new definitions would affect claim procedures remain to be seen but anecdotal evidence suggests that CI policies in the past seem to have less stringent criteria for claims, especially for cancers. Hence, it would be a good idea to review your CI needs now before the changes were to take place.

Why Critical Illness policies?

Critical illness insurance pays out a lump sum in the event that the life insured is diagnosed to be suffering from one of the critical illnesses or has undergone a surgical procedure covered by the policy.

With many Singaporeans having a comprehensive medical plan, one of the commonly asked questions by clients is why a CI plan is still necessary. Whilst it is true that medical insurance covers for up to 100% of all hospitalisation expenses, there are still other expenses associated with critical illnesses that are not explicitly covered by the medical insurance.

Firstly, it provides for costly medication that might not be covered under the standard medical insurance. I was talking to a pancreatic cancer specialist in the private practice about 2 months ago and he shared with me that certain drugs administered by them that have proven effective in treating cancer conditions were not considered standard drugs and were not covered by most insurance. These drugs could cost the patients up to $10,000 per month and the treatment cycle could be over 12 months! A payout from CI policies would be timely to allow patients a peace of mind without fretting over how their medical conditions would affect their financial situations.

Secondly, medical insurance also does not provide for alternative treatment. An acquaintance of mine was diagnosed with severe blockage of the arteries a few years ago. Although a heart bypass could be administered to treat his condition, his age and health condition meant that the surgery presented a huge physical risk to him. In the end, he decided to seek alternative treatments in India and has managed to recover almost 50% of his heart function, a surprise even to his own doctors!

Lastly, it provides cash to allow people to pursue a less stressful lifestyle while they recover from illness, or use it for any other purpose. Having the funds gives the patient greater choices and confidence that their condition can be properly treated and takes the psychological fear away which will also increase the chances of survival when faced with a difficult condition.

Are Early Stage Critical Illness policies important?

Another of the common concerns amongst policyholders is that CI policies payout only when the conditions are so severe that “one is almost dead”. This is certainly not true, as medical advancement has improved the treatment outcomes for many CI conditions and there are now more policies that provide payouts at less severe stages.

I have always been a firm believer that the typical advanced stage CI policies are more important as they provide contingency funds when serious conditions develop. Nonetheless, the advent of medical technologies has resulted in many CIs being detected at a much earlier stage than before, resulting in a better treatment outcome for patients. This also means that the chances for the critical illnesses to develop to a more advanced stage that will fit the definition is reduced.

There is hence a place for some early stage critical illness cover, though this coverage need not be too high as the seriousness of the conditions are not as high. In addition, the higher premiums for these policies due to the relatively more relaxed definitions make these policies a very good to have, only after the advanced stage critical illnesses coverage are sufficiently addressed.

A good early stage CI plan will address the main concerns of many clients who feel that payouts for advanced stage CI might be too late to improve their quality of life. It will also increase the possibility of claims from only 30 conditions to up to 100 conditions depending on the insurer. As the benefits and cost vary according to the different insurer, it is best to speak to your professional adviser before deciding which is the most suitable solution for your needs.

Example: End Stage Lung Disease

Contributor – Lee Song Yong PIAS Financial Adviser Representative, Chartered Financial Consultant ®

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