Do You Really Need Early Critical Illness Coverage?

I remember being a much younger person when early critical illness (CI) coverage was first introduced circa the late 2000’s. The first few companies to offer early CI coverage took out front-page ads and large murals outside train stations touting their new, revolutionary must-have protection plans.

More vividly, I remember a woman giving her testimony why early CI coverage was so important: she had three critical illness plans but had no coverage when she was diagnosed with breast cancer. The pain of the illness and treatment was so unbearable she was unable to get out of bed, much less work, and the loss of income was financially taxing, but her traditional CI policies wouldn’t pay out. The answer, seemingly, was early CI.

Actually, the answer is Disability Income

Can the payout from early critical illness help towards a loss of income due to an early stage CI? Sure, but that is like trying to dig a hole with a spoon. It works somewhat, but you might want to consider a shovel.

There is already insurance that specifically covers the loss of income due to a medical inability to work for a living. This shovel is called disability income insurance. On top of your hospitalisation coverage, this should provide coverage in the event of a critical illness, early or not, if one is unable to work due to the illness.

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Duration and quantum of coverage
Disability income provides a monthly payout the person for as long as the person is medically unable to work, up to the expiry of the plan (typically pegged at retirement ages like 60 or 65, and chosen when buying the plan). Early critical illness stops covering you when your payout runs out. A high sum assured is required to provide for a catastrophic rest-of-life disability, and that is very expensive to buy for early CI policies.

Coverage definition
Disability income covers the event, that is, a person’s medical inability to work, regardless of cause (well, exclusions like self-inflicted injuries, drug abuse etc. apply; read your policy contract). Early CI policies, much like their older sibling typical CI plans, covers specific definitions.

You probably wouldn’t want your hospital plan to specify what ailments you have to be hospitalised with in order to make a claim. You would want the plan to pay when you are hospitalised (medically necessary hospitalisations, to be reasonable), i.e. the event.

Pop quiz: does your early CI plan cover you for prolonged loss of income if you get a new, out-of-nowhere disease?

Evaluate it on a risk-impact basis

When a person is diagnosed with an early CI, there are indeed a few scenarios where disability income might not pay out. Having a single kidney fail or having early stage cancer might not really impair someone’s ability to work. Any treatment and/or hospitalisation costs would be covered by one’s hospitalisation plan.

From there, it seems likely that the illness worsens and becomes something a person can claim for his/her disability income insurance and/or standard critical illness plan, or he/she recovers from it and life regains normalcy. Where does early CI come in here? A consolation prize of sorts, albeit one that you have been paying for in the form of premiums higher than that of a normal CI plan.

I’ve talked about managing risks before, and having an early CI is indeed a rather high probability event, but the financial impact of it is arguably low, provided you already have a hospital plan, disability income insurance, and normal critical illness insurance.

Conclusion

The usual disclaimers apply, of course, and you should not take this as personal financial advice. Nobody ever got into trouble for recommending early CI plans, but I feel like I run the risk of someone not buying early CI and then blaming me when it does happen to them.

Insurance is almost purely a cost-benefit decision, and you decide whether it’s worth your money for the benefit you derive from it.

I do get why people with higher earning power who would be attracted to the better peace of mind they get by buying early CI policies. Just make sure you cover the truly important bases first.

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