The 2019 CI Revised Definition. What should i do?

Two weeks ago we wrote on changes that are happening. One big change was the revised 2014 Critical Illness (CI) Definitions. Many of our clients contacted us wondering how they should react to the changes. Some wanted to know if they should alter their coverage. Before we answer that question, we need to understand the situation.

The first thing to note is that in Singapore, there is a list of CI that is standardised; currently we have 37 CIs that are standardised (whether the 2014 or the 2019 definition). Older plans have 30, and still older have different definitions across insurers. The LIA site has all the differences mapped out between the 2014 and 2019.

Secondly, the LIA definitions only apply to severe stage CI; not the intermediate or earlier stages which are dependent on insurer’s definitions. Since the changes affect only severe CI, we will focus our discussion on severe CI.

Finally, as LIA says, the changes are so that the intended coverage is expressed clearer. As it stands, the changes have been effected. We are now using the 2019 CI definitions. Rather than be worried about the deadline, it is critical to consider the issue from a more holistic perspective.

Why do we need CI Cover?

The first question we need to ask ourselves is why do we even need CI cover? What is the purpose of CI cover? The CI type insurances we are focusing here are the ones that pay a lump sum in event of specified illnesses. Should you be unfortunate enough to be struck down by a CI and meet the claim conditions, the insurer will pay out a lump sum.

According to Yahoo News, over 90 per cent of all severe stage claims received by life insurers in Singapore are for the following five critical illnesses:

• major cancer

• heart attack of specified severity

• stroke with permanent neurological deficit

• coronary artery bypass surgery

• end-stage kidney failure*

Each of these conditions, as you can tell, are severe and unfortunately, sufficiently common that most of us would know someone who has had such conditions. But most clients would counter that the hospital bill would be covered under a good shield plan (which it will, and rightly so, so please ensure you have a good shield plan). If so, why do you need the lump sum?

The lump sum is not so much for the treatment, which in many cases will be covered by the shield plan.The lump sum helps a person adjust to a new life. The reality is money is something that helps us buy choices.

Consider a scenario if you had a heart attack. It might call for lifestyle changes which entail different choices. You might choose to work lesser; this will reduce your income. You might choose to take taxis, or even choose to buy a car, to reduce the chances of catching infections. Survivors may choose to live life a bit more comfortably; going for holidays or luxury restaurants. All these choices cost money, which lump sum payouts help.

Medical treatment also leads to different choices. If you had cancer, you might want to get treated via TCM or herbs, or other alternative medicine. These are traditionally not covered by most shield plans; but they will cost money. Even a simple diet change to organic or healthier diet, can cost quite a bit. These choices require money.

Certainly, not everyone will want such drastic changes, or even need. But it is a lot better to have what you don’t need than to need what you don’t have.

Ok so, how does the definition change affect me? Is one definition list better than the other?

Well, now that we know what it covers, does the definition affect you? Do note that the revised definition affects only the new policies**. So existing policies are subject to their own definitions. In that case, should you buy a new policy?

Firstly, the revised definition is not something we can avoid. It has happened. Secondly, the purpose of the revision is to be clearer of the intention; it helps us be clear on what is covered. When it comes to planning, it is always better to know what is covered then to rely on uncertainty. So while vagueness can sometimes mean that the claims may be admitted, certainty helps to build clarity as to what gaps may exist.

Finally, change happens all the time. With CI, we went from 30 to 37 to a revised list. Whole life plans evolve over time to take into account new information. Total and Permanent Disability plans used to cover only till a certain age but some insurers provide lifetime cover. New products get developed. Does it mean we should rush out to buy new plans? The truth is when changes happen, it is a good reminder that we should re-look into our financial plans and re-evaluate them holistically. By rights, we should do this regularly, but if we use changes in plans as indicators, that would also help. But the change itself should not be the reason to buy; it should only remind us to check in with our plans.

What should I do?

So how should you act? Go back to the purpose of CI. It is meant for lump sum payout. Do you need such coverage? If you do, then it is important to look into how much you need, and calculate the shortfall. Consider this shortfall in context of what you have. In fact, any insurance plan must first consider your entire financial portfolio. Such plans are meant as protection, and there is an optimal amount balancing between protection and other financial needs. While every planner will have their own guidelines, and guidelines are helpful in estimating, specific conditions that apply to individuals may deviate from the guidelines.

Secondly, consider the scope of coverage. If for example we realise that the revised definition now covers a specific area clearly, and we believe we are at a higher risk in that condition, that does warrant a closer look. But be warned, insurance is sold on the basis of full medical declaration; if you are at a higher risk, and you know it, that may complicate matters. The time to buy insurance is before you think you need it. Because once the risk is there, insurers may choose to engage in sub-optimal offers, such as loading or exclusions. The best time to buy insurance is when you are healthy.

Thirdly, differences. Because of this, some of us will hold plans that cover CI across different definitions, if we’ve bought plans over time. At point of claim, we might find that some plans will pay while others do not. That does not mean that the plans are bad; it just means that the claim conditions are different.

Conclusion

Acting on the change is not necessarily a bad thing; but the bigger question is why act. If the action is in response to a gap, that is a fine thing. But if we choose to buy plans due to FOMO, we run the risk of acting inappropriately. Furthermore, while the plans themselves are not bad, what we want is an optimal outcome. Changes will come; the market demands for better plans and the companies respond. Value is continually created.

*Changes to Definition of ‘Critical Illness’ in Life Insurance Policies

https://sg.news.yahoo.com/life-insurance-changes-definition-critical-012117489.html

**Insurers have their own deadlines, though LIA has set 26 Aug as the final deadline, some insurers may have opted for earlier deadlines. In any case, always check with your insurer as to which definition is your CI cover under.