How is Critical Illness Plan different from Hospitalisation Insurance?

What is hospitalisation insurance?

Hospitalisation insurance reimburses your medical bills when you are hospitalised. It can also pay for certain outpatient expenses that are linked to the condition which requires hospitalisation, such as fees for consultations leading to diagnosis and follow-up visits after getting discharged.

All Singaporeans and Permanent Residents are eligible for MediShield Life¹, a basic health insurance plan, administered by the Central Provident Fund (CPF) Board, which helps to pay for large hospital bills and selected costly outpatient treatments, such as dialysis and chemotherapy for cancer.  If you want more coverage than that provided by MediShield Life, you could consider an upgrade to an Integrated Shield Plan (IP)², an additional health coverage provided by private insurance companies designed to complement with MediShield Life. 

However, many people make the mistake of thinking that since they already have MediShield Life and possibly Integrated Shield Plan, they no longer need to worry about their finances if they fall ill. This causes them to overlook critical illness insurance, which might actually be necessary to fill the gaps in their protection.

What is critical illness insurance, and how does it differ from hospitalisation insurance?

Getting afflicted by a serious illness often leaves people unable to work, leading to great financial insecurity for themselves as well as their families. Critical illness insurance is designed to provide much-needed financial support in such difficult times. The payout is usually a lump sum to ensure that your needs and those of your family continue to be met during your recovery period.  Unlike hospitalisation plans, critical illness insurance does not reimburse your hospital bills, although you can choose to use some or all of your payout towards paying medical expenses.

How critical illness insurance works

When you are diagnosed with a critical illness covered by your insurance plan:

-  You receive a payout based on the policy terms in the contract.

-  The payout can be used to provide additional support during your recovery stage. For example, to replace your lost income, support your household expenses or pay for medical expenses.

Critical illness protection can be obtained either by purchasing a standalone critical illness insurance plan, or by purchasing another form of insurance that also offers critical illness protection, such as life insurance with critical illness coverage. Some insurance plans also give you the option to add supplementary critical illness insurance protection by purchasing an optional rider.

Why do you need both critical illness insurance and hospitalisation insurance?

Now, you might be thinking, since I already have public health insurance, do I still need critical illness insurance? The answer is, probably yes. According to a 2018 report³, the average Singaporean is only covered for 20% of their critical illness needs, leaving a worrying large gap of 80%.

When assessing whether you need critical illness insurance, think about the financial consequences of a serious illness. If you are currently working, lost income is one of the biggest financial setbacks you and your family could suffer. If your savings are insufficient to support you and your family should you no longer be able to work, that is a big sign that you need critical illness insurance.

Even if your household can make ends meet without your income, you should consider critical illness insurance if the loss of your income would nonetheless have an impact on your family's quality of life. Being diagnosed with a serious illness is stressful enough without having to worry about making big lifestyle downgrades.

In addition, even if you have hospitalisation/health insurance with an IP, you might still have to co-pay a portion of your medical bills, minimally 5%⁴ of the total bill. This can really add up if you are suffering from a serious illness that requires a long period of hospitalisation or is expensive to treat.

Scenarios to show the difference for individuals with and without critical illness insurance

Example 1

William has MediShield Life with an IP. He is the sole breadwinner in his family and he is diagnosed with late-stage cancer which resulted in him being unable to work. He sought treatment and incurred a total of $120,000 in medical bills of which he used his MediShield Life with IP to cover up to 95% of the medical bills. He then had to co-pay 5% ($6,000) of the medical bills. His family had to struggle financially with this co-payment and loss of income in the household.

Example 2

Bruce has MediShield Life with an IP and additional critical illness insurance. Like William, he is a sole breadwinner and is diagnosed with late-stage cancer which resulted in him being unable to work. Similarly, he managed to cover 95% of medical bills using his MediShield Life with IP. However, unlike William, Bruce also received a lump sum payout of $100,000 from his critical illness policy which he used to co-pay the remaining 5% of medical bills and the remaining sum to cover the loss of income for his household. This eased the financial burden on his family and helped them focus on Bruce's recovery.

Footnotes:

1. https://www.moh.gov.sg/cost-financing/healthcare-schemes-subsidies/medishield-life

2. https://www.moneysense.gov.sg/articles/2018/10/integrated-shield-plans

3. https://www.straitstimes.com/business/banking/working-adults-have-inadequate-cover-if-critical-illness-strikes-says-study

4. https://www.moh.gov.sg/news-highlights/details/co-payment-in-integrated-shield-plans-for-specific-hospital-categories-and-breakdown-of-average-claims-made-through-full-riders-of-integrated-shield-plans

7. Between 40 to 70 years old and pass the underwriting questions to qualify.

8. Premium is based on 40 year old, non-smoker, male with sum insured of S$25,000, paying annual premiums.

Important Notes

The products are underwritten by Manulife (Singapore) Pte. Ltd. (Reg. No. 19802116D). This advertisement has not been reviewed by the Monetary Authority of Singapore. Buying health insurance products that are unsuitable for you may affect your ability to finance your future healthcare needs. This material is for your information only and does not consider your specific investment objectives, financial situation or needs. It is not a contract of insurance and is not intended as an offer or recommendation to purchase the plan. You can find the full terms and conditions, details, and exclusions for the mentioned insurance product(s) in the policy contract. If there are any differences between the English and Chinese versions of this material, the English version will apply. This policy is protected under the Policy Owners’ Protection Scheme which is administered by the Singapore Deposit Insurance Corporation (SDIC). Coverage for your policy is automatic and no further action is required from you. For more information on the types of benefits that are covered under the scheme as well as the limits of coverage, where applicable, please contact us or visit the LIA or SDIC websites (www.lia.org.sg or www.sdic.org.sg).

We recommend that you seek advice from a Manulife Financial Consultant or our Appointed Distributors before making a commitment to purchase a policy.