Q How different is a critical illness plan from a hospitalisation & surgical (H&S) plan?

The critical illness cover is often mistaken as a policy to cover hospital bills. Such bills would be better covered by an H&S policy such as MediShield, or a private Shield 'as charged' plan which typically covers the entire hospitalisation bill except for specified amounts known as a deductible and/or co-insurance.

That means that if you have a critical illness cover with a sum assured of $200,000, that is the sum you will get upon diagnosis, even if your H&S fees for the illness total only $50,000.

A critical illness payout is useful for subsequent outpatient follow-ups, medication, therapy and alternative treatment like traditional Chinese medicine, said Mr Tan Siak Lim, Alpha Financial Advisers' business unit director. It also takes care of the potential loss of income from taking time off work for recuperation and recovery.

Most experts would advise consumers to have a basic H&S policy first before buying a critical illness cover. Another medical plan to consider is a disability income plan which pays a fixed regular replacement income if you are unable to work due to an illness or accident.

Q How much should an individual be insured for to cover critical illness?

As a guide, consider about two to five times the individual's annual salary, said Mr Eddy Cheong, head of risk management & special projects at wealth management firm Providend.

Mr Patrick Lim, associate director of financial advisory firm PromiseLand, suggested that family history may be a significant factor when deciding on the sum assured because some studies have shown that cancers are associated with genes. Another tip is to compute the actual health-care cost today with an assumed rate of inflation.

Q Which is better? A standalone critical illness policy or a cover that rides on a basic plan?

Mr Lim dislikes standalone plans as they typically require the insured to survive beyond 30 days from the day on which he is diagnosed with a critical illness. If he dies within 30 days, he will receive only the death benefit, which is usually a small sum of $10,000 or less.

With many illnesses such as a severe heart attack, severe stroke, massive brain haemorrhage and sudden death syndrome which result in a quick death, what good is a standalone critical illness plan, he asked.

Exceptions are Axa Life's Living Enhancer and HSBC Insurance's Vitalcare, which require a survival period of seven and 15 days, respectively, after diagnosis of a critical illness.

On the other hand, an 'accelerated' critical illness rider does not impose a survival requirement. Riders also cost less than standalone plans.

However, Mr Willy Lim, head of risk and an adviser with ipac financial planning Singapore, said that for bundled plans, the death benefits are usually needed till retirement, but critical illness needs to stretch beyond retirement. So it would not be feasible to keep a plan beyond the term that you need it, just because of the attached critical illness benefit.

Still, there are some people who need critical illness without death benefits, for example, singles with no dependants.

'This is where a standalone policy is most appropriate. However, if the term for the critical illness needs and other benefits coincide, then a rider makes sense as it is more affordable compared to standalone policies,' he added.

Q Should consumers go for the new critical illness plans?

Experts say consumers should weigh the benefits and costs of these plans.

While multiple claims or early payouts are a good feature to have, such plans come with a huge premium, said Mr Cheong.

'From a cost standpoint, I would think that the traditional critical illness cover should still form the significant portion of one's critical illness needs, and if budget allows, to supplement some portion with the newer critical illness plans,' he said.

Mr Tan suggested that consumers consider the probability of suffering from two or three critical illnesses and the ability to claim under the rules imposed by the policies.

In fact, PromiseLand's Mr Lim's first death and critical illness claim came from his brother Paul, who was also his client. The latter had died from kidney cancer in April 2007. Mr Lim said his brother's kidney cancer resurfaced less than five years after it went into remission.

As a result, both Mr Lim and Mr Tan believe that consumers are better off using the cost savings to buy a bigger traditional plan which is much cheaper.

This article was first published in The Straits Times.