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Finding the Right Amount of Critical Illness Coverage: How Much is Truly Enough?

The realm of critical illness coverage is shrouded in a perpetual question: “How much is truly enough?” 

When it comes to S$100,000 coverage, opinions vary widely – it might seem insufficient for one person, excessive for another, or perfectly adequate for someone else.

While there’s no one-size-fits-all answer, determining the optimal amount of coverage is crucial to ensuring your financial security during challenging times. So, the question arises: How can you determine if your existing critical illness coverage is truly enough?

Understanding Your Protection Gap: Bridging the Divide 

To determine whether your current coverage is sufficient, it’s essential to understand your protection gap. This gap is the disparity between your required protection and available resources. 

To put it simply, if you stop working, would you have sufficient resources to pay for all the ongoing expenses and financial obligations for you and your family? If the answer is no, then there’s a gap.

A simple formula can help you calculate your critical illness protection gap:

Critical illness protection needs – Resources available = Critical illness protection gap

Consider an example: A 30-year-old earning S$4,500 monthly, with existing coverage of S$50,000 and savings of S$70,991. Their critical illness protection gap would be approximately S$89,609. Evaluating this gap can guide you in deciding whether additional coverage is necessary.

I find the Critical Illness Cover Calculator by Great Eastern really helpful in calculating the protection gap and determining how much cover is sufficient.

How much critical illness coverage is sufficient? 

The adequacy of critical illness coverage is deeply personal and varies based on individual circumstances. The Life Insurance Association (LIA) Singapore’s Protection Gap Study reveals that, on average, Singaporeans and permanent residents require approximately 3.9 times their annual income in critical illness protection over a five-year recovery period. 

To illustrate, consider this example:

Annual IncomeCritical Illness Protection Needs

This calculation encompasses essential expenses such as household bills, outstanding debts, and lifestyle maintenance. Keep in mind that individual needs differ, and you may want to consult a professional or assess your specific requirements.

Do you really need critical illness cover? 

Critical illness coverage plays a crucial role in safeguarding your finances during challenging times. While government health schemes like MediShield or Integrated Shield Plans offer some coverage, they might not cover all critical illness treatments or provide lump-sum payments. Critical illness insurance provides you with a lump sum upon a successful claim, offering flexibility to cover treatments, expenses, or any other needs that arise.

What is the cost of critical illness treatment?

When facing the daunting prospect of a critical illness diagnosis, one of the foremost concerns that arise is the cost of treatment. Critical illnesses like cancer, heart disease, and stroke often necessitate extensive medical intervention, ranging from surgeries and medications to specialized therapies. These treatments, while crucial for recovery, can also place a substantial financial burden on individuals and families.

The cost of critical illness treatment varies widely based on factors such as the type and severity of the illness, the chosen treatment approach, the duration of care, and the availability of advanced medical technologies. For instance, cancer treatments may encompass surgeries, chemotherapy, radiation therapy, targeted therapies, immunotherapies, and more. Each of these treatment modalities comes with its own set of expenses, including hospital stays, doctor consultations, laboratory tests, medications, and post-treatment rehabilitation.

Moreover, the indirect costs associated with critical illness treatment should not be underestimated. These indirect costs may include transportation expenses to medical facilities, accommodations for out-of-town treatments, and caregiving services. Additionally, some treatments might lead to temporary or even permanent changes in lifestyle, impacting an individual’s ability to work and earn income.

Cost of Critical Illness Treatment
Source: FWD Singapore

It’s worth noting that hospitalization plans such as MediShield or Integrated Shield Plans (IPs) may provide partial coverage for hospital stays and selected outpatient treatments related to critical illnesses. However, these plans may come with co-payment requirements and benefit limits, leaving individuals to cover a portion of the medical expenses out of their own pockets.

This is where critical illness insurance steps in as a financial safety net. Unlike traditional health plans, critical illness insurance provides a lump-sum payment upon the diagnosis of a covered critical illness. This payment can be used at the policyholder’s discretion, whether it’s to cover medical bills, replace lost income, settle outstanding debts, or address any other financial needs that arise during the course of treatment and recovery.

When considering the cost of critical illness treatment, it’s important to evaluate not only the immediate medical expenses but also the potential long-term financial implications. Critical illness insurance offers peace of mind by mitigating the financial strain associated with these unexpected and often substantial costs. By providing individuals and families with a lump-sum payout, critical illness insurance empowers them to focus on their health and well-being without the added worry of mounting medical bills.

How much should you spend on critical illness insurance? 

The cost of critical illness insurance varies based on factors like age, health status, and coverage amount. While it’s essential to strike a balance between affordability and comprehensive coverage, compromising on coverage could lead to inadequate protection. Consider your budget and financial goals when determining the right amount to spend on critical illness insurance.

How much early critical illness coverage do I need? 

Early critical illness coverage is designed to provide financial support upon the diagnosis of specified illnesses. The necessary coverage amount depends on factors such as medical expenses, income replacement, and lifestyle maintenance during treatment and recovery. Assess your potential costs and financial obligations to determine an appropriate early critical illness coverage amount.

Selecting the Right Critical Illnesses to Cover 

The types of critical illnesses covered are equally vital. LIA has identified 37 late-stage critical illnesses, including major cancers, heart attacks, and strokes. It’s essential to review these illnesses and align them with your health history, family medical background, and personal preferences.

Top Critical Illnesses in Singapore
Source: Wellnex

Additionally, consider focusing on the three most common critical illnesses in Singapore: cancer, heart attack, and stroke. These conditions constitute 90% of critical illness claims, underscoring their significance. Some insurance plans offer coverage exclusively for these conditions or allow you to enhance existing coverage for a specific illness.

Unveil the Shield: Empowering Your Future with Critical Illness Coverage

While determining the precise amount of critical illness coverage is complex, understanding your financial needs, protection gap, and the types of illnesses to cover will guide you in making informed decisions. By striking the right balance between coverage and affordability, you can ensure your financial security and peace of mind in the face of critical health challenges.

Incorporate these insights into your existing knowledge to navigate the world of critical illness coverage effectively. 

Remember that consulting insurance professionals can provide tailored guidance based on your unique circumstances. Your financial well-being is worth the investment in comprehensive critical illness protection.

Learn more about choosing the best insurance policy to suit your needs, and understand how much insurance coverage you need for comprehensive protection.

Eugene Chai

With five years of financial experience (and maybe a few too many all-nighters fueled by cold brew and craft beer), Eugene tackles complex financial concepts and breaks them down for young adults. Featured on Investment sites and CNA's Money Talks, this self-proclaimed "Finance Whisperer" isn't your stuffy suit. He uses relatable narratives (think "adulting, but make it money") to turn numbers into your financial BFFs, guiding you towards smart choices with your hard-earned dough.

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