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Critical illness insurance - also known as dread disease insurance - pays out a lump-sum upon confirmed medical diagnosis to help cover all or part of the costs associated with a specified critical illness. It can be sold as a standalone policy or as an attached rider to a life insurance policy.

You need to read your policy carefully as the illnesses covered vary from insurer to insurer. Some commonly covered illnesses are:

  • cancer
  • stroke
  • heart attack
  • kidney failure
  • major organ transplant
  • multiple sclerosis

Do you need critical illness insurance?

In considering whether you need critical illness insurance, you have to consider a number of factors, for example:

  • Could you support yourself or your dependents financially if you suffered from one of the covered illnesses?
  • Does your employee benefits package provide cover for time off work due to sickness?

There is no point in taking out critical illness insurance if you are already suffering from a critical illness because pre-existing medical conditions will not be covered. You may be refused cover if you have consulted to see your doctor about a health problem that later turns out to be critical, or if you have had tests done for the condition. Therefore, it is important for you to disclose fully and accurately when you apply for the critical illness insurance.

Things to note

Before you purchase critical illness insurance, remember that:

  • it is not a catch-all policy that provides financial back-up if you are unable to work due to any other illnesses, but only covers certain specific medical conditions;
  • the coverage of critical illness varies and you have to read your policy carefully. Check the exclusions carefully and be minded that some illness will not be covered after you reach certain age.
  • the policy term of critical illness insurance is usually in long-term horizon, generally 10 years or more. The insurers may offer level premium rate throughout the payment term, however, they may have the right to review and adjust the premium rate from time to time.
  • it may stipulate how long you must survive from the date of first diagnosis, called survival period, in order for the entitlement of benefits;
  • while most critical illness policies cover cancer and heart attacks, not every single incident where cancer or heart disease is detected will automatically trigger a payment, depending on the definition of each serious disease under the policy. Ask your insurer to ensure you understand the coverage and exclusions;
  • some insurers offer what is called alternative forms of critical illness insurance to the lump sum cash payment type. They pay health providers directly for the treatment costs of the illnesses covered, including the fees of specialists and procedures up to a certain amount per episode of treatment as set out in the policy. You'd need to ask your insurer if the policy you are interested in offers this alternative form.