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Sunday, September 18, 2016

Critical illness health insurance

Dr Larry Haverkamp
The Sunday Times
18 September 2016

A problem with business versus consumers is conflict. On the one hand, firms are tempted to boost profits by selling high-margin products.

The conflict is apparent in financial services like banking, investments and insurance. A reader wrote and asked me: "How about critical illness insurance? Is it worth the money? Should I buy it?"

My analysis is that critical illness health insurance is worth the money if you have a big budget. Like a Rolls-Royce automobile, it is a nice car, but do you really need it to move from point A to point B? It goes beyond the basics. That is the short answer: Here are the details:

The biggest reason not to buy critical illness health insurance is that it is double coverage. That is because you are already covered under MediShield Life and maybe under a private insurer's intergrated plan(IP) as well.

That makes it double coverage, which you can live without. But wait. Isn't double coverage health insurance disallowed?

Correct. But critical illness insurance is an exception.

The double coverage makes critical illness almost like gambling. If you fall ill, you win the lottery and collect a large one-time payout that you can spend however you like. You need not spend it on medical care since that is already covered by MediShield Life.

Critical illness covers 37 diseases. You can file a claim to collect if you fall ill from any of them. The more common ones are major cancers, heart attack of specified severity, coronary artery by-pass surgery, kidney failure and stroke.

Actually, your critical illness coverage can go beyond these 37 illnesses. Great Eastern Life, for example, has an add-on policy (a rider) which increases payouts and expands the coverage to 92 diseases.

But it is going to cost you. Like most things you buy, the basics are cheapest and add-ons - like extended coverage - are usually more profitable for firms and more costly for consumers.

It seems it would be important to covered under these illnesses but, as mentioned, you are covered already through your MediShield Life and possibly an integrated plan if you purchased one. Do you need an IP policy on top of MediShield Life? That is a hot topic that I will answer in the near future.

The rationale for double coverage of health insurance is that its purpose is to pay for lost wages.

OK. There is a certain logic to that. You have one insurance policy - MediShield Life - to pay for your medical costs and another to pay for lost wages.

The only issue is your wages may not be cut off when you fall ill. Many employers continue to pay wages if the time off is not too long, like for a month or so.

It also depends on the job. Lower income and hourly workers are more likely than salaried workers to have their wages cut when they miss work because of illness. Ironically, they are also the ones who are the least able to afford critical illness health insurance with its riders.

A side point worth considering is the employer has an insurable interest when employees continue receiving wages while on medical leave. It is reasonable therefore that employers - rather than employees - provide the insurance coverage.

Another side point: Could an unintended effect of critical illness insurance be that it could increase risk to the insured?

For example, I have a friend who had heart bypass surgery and made a claim under his critical illness plan. He was relieved that bypass surgery was one of the 37 illnesses covered under his plan but unfortunately. it covered triple bypass surgery and he only needed a single bypass.

So his claim was denied, and he had to pay with MediShield Life and his own savings. While it was a surprise, his employer continued to pay, so his costs were manageable.

He made the prudent decision. but it is an individual choice and someone on a budget might be tempted to delay the surgery. It is risky, but exactly how risky is not known for many diseases.

The joke at the time was he should have asked the doctor if he would please do two more bypasses since he was in there working on his heart already.

Then he could have collected on this critical illness insurance. Of course, it was only a joke since no doctor would do that, and my  friend didn't even ask the doctor.

A Sunday Times article from 2011 told the story of breast cancer patient Theresa Tan who had her critical illness claim rejected because hers was an early stage breast cancer.

She had three critical illness policies and was surprised to learn that all covered only later stages of cancer. All rejected the claims she made for her mastectomy surgery.

An adjunct professor at SMU, Dr Haverkamp contributes this column weekly to help our readers understand money matters better

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