How To Choose The Right Sum Assured In Critical Illness Insurance?

A critical illness insurance plan pays you a lump sum amount if you are diagnosed with any of the illnesses covered. Life Insurance Association (LIA) has listed down 37 critical illnesses that need to be covered by every insurer in Singapore. Some of the illnesses covered include major cancers, coronary artery by-pass surgery, end stage kidney failure, irreversible aplastic anaemia, coma, severe bacterial meningitis, blindness, and loss of independent existence, among others.

As one can imagine, being affected by any of these conditions might have a large impact to a person’s and his/her family’s lives. One might need to stop work and seek medical treatment which may be costly. This brings us to an important question – how does one manage their financial needs and obligations and stay financially protected from being diagnosed with a critical illness?

The answer to that question lies in choosing the right sum assured in critical illness insurance. In this article, we will show you how you can do just that –

Step 1 – Calculate your debt

If you get diagnosed with a critical illness, you will need to figure how to pay your bills. Your diagnosis and treatment may impact your mobility or necessitate bed-rest and as such, you may not be able to work for a few months or even years. Yet, the bills, won’t stop pouring in. Calculate all your existing debt and choose a sum assured that  covers these expenses, at least for the next 4 to 5 years. According to LIA Singapore, it takes an average of 5 years for a person to fully recover from a critical illness and get back to their former routine. When calculating debt, make sure to include everything you can think of – your mortgage, car loan, and other personal loans (if any).

Step 2 – Next, figure your monthly household expenses

Once you have figured your loans and debt, you need to calculate how much it costs to run your home each month. Once you have that figure, multiply it by 12 months for the whole year. This way, you will know how much it costs to run your home for an entire year. LIA recommends that you keep sufficient funds to run your home for at least 5 years which is the average amount of time it takes for a person to fully recuperate from their critical illness and return to work or a normal life. This period can vary depending on the illness; however, it is best to be prepared with a sum assured that covers you for the longest period possible.

Step 3 – Factor in any additional medical expenses

It is important to remember that you will have to pay a certain portion of your healthcare charges on your own; even an Integrated Shield Plan does not cover your bills 100%. If you stop earning due to your illness, paying even a small percentage of your medical costs can be a burden. Hence, figure these costs in too when deciding on the sum assured you need in critical illness insurance.

Step 4- Add a bit more just in case

Once you have an idea of your debt and monthly outgoings, you will have a clearer idea of the sum assured you need in your critical illness cover. Now, it is not advisable to choose an amount that adds up exactly to the figure you reach. What if you suddenly come across emergency expenses that you didn’t account for? In order to stay prepared for any such contingencies, make sure to choose a sum assured that is slightly higher than the amount that exactly covers your expenses.

For example – If your household expenses and debt for the next 5 years adds up to around S$190,000, you may want to opt for a slightly higher sum assured, maybe around S$250,000.

Step 4 – Compare critical illness insurance plans

Once you know how much coverage you need, it’s time to select the right plan. Compare the premiums charged by different insurance companies for the same amount of coverage and choose the most suitable one.

Alternatively, you may consider a cancer insurance plan. Cancer insurance only covers cancer and not any other illness, however it is important to remember that cancer is the number 1 killer in Singapore. So, having a plan that covers all stages of cancer could provide some peace of mind.

By following these 4 steps, you will be able to get a critical illness insurance plan with the right sum assured. For any further help, you may want to contact a financial consultant.

Take care.