After spending a large chunk of time thinking about life insurance – when I wrote my post about my decision to discontinue my Whole Life insurance in favour of getting a Term Life insurance and investing the rest – I started thinking about the other types of insurance.
I wanted to see whether there are other areas in which I’m either overpaying or lacking in coverage.
As this is a pretty complex and touchy topic, before I get into the post, a little disclaimer:
Disclaimer: I am not a certified financial planner nor an expert within the insurance industry (I make nothing from this post). I’m just a normal guy finding my way towards financial independence. I’m documenting my thought process around insurance in the hopes that you can learn from my experience. Before making any major changes or decisions regarding your personal insurance plans, please consult a qualified professional. I am also assessing this from the perspective of a person looking to retire early, so it may not make sense for those who are not following the same retirement horizon.
Now then, since insurance is a product that is meant to protect me from risk, I want to make sure that I’m adequately covered.
Overpaying for insurance is certainly annoying and slows down my early retirement plans but isn’t as bad as not having adequate coverage – which could be disastrous for my loved ones and myself.
How I assessed my coverage
So in order to assess the risks, I broke down my insurance coverage into a 2 by 2 grid based on (1) whether the current coverage is adequate and (2) whether I am paying too much for the coverage I have.
Pretty self-explanatory. The factor that contributes to the priority the most is whether the coverage is adequate, then once the coverage is good, only then we start looking at the price.
In the case of my whole life insurance and term life insurance, this is what that decision looks like on the grid:
I was essentially not getting enough coverage and also overpaying at the same time (according to my needs.) It was really the worst of both worlds, so I took action on that first.
What are the remaining insurance to be considered?
So with Life Insurance taken cared of, what was left? Looking at just the personal health-related insurance, here are the remaining core types:
- Personal Accident*
- Income Protection*
- Early Critical Illness (ECI)
The asterisks beside the insurance type indicates that I already have an insurance to cover that type – but I have yet to look at their adequacy. Here’s what that looks like on the grid:
Let’s break it down:
- I have a pretty good hospitalisation plan that covers me up to S$1,000,000 per hospitalisation up to A Ward stay at a private hospital. I don’t know if I’m overpaying for this though. So that’s why it’s on the left side, but could be on either the top or bottom box.
- I have both income and personal accident protection already, but without assessing them in detail, I’m not sure yet where they land. At least I know that I have “some” coverage here and won’t be completely hung out to dry if something happens.
- As for early critical illness, I know for a fact that I do not have any coverage here at all at the moment. Since I’m not paying anything for any coverage here, I guess I’m paying “just right” for this (haha.)
Given the chart, ECI stood out as the next best place for serious assessment.
Ideally, as a part of this assessment, I will be able to buy the right coverage to bring the ECI over to the left side.
Great, now I know to focus on ECI as a priority… but what is it? Why is it important to have?
Before I can make any value judgement, I needed to find out more about this type of insurance and understand it – so let’s take a look shall we?
Breaking it down
Here’s how I’ll be structuring the rest of the post. Depending on your personal understanding of the subject, you might want to skip around to the sections that you are most interested in:
- What’s the purpose of the ECI Insurance and why is it important?
- How my ECI insurance works
- Breaking down the cost-benefits of my ECI insurance
- How I decided to purchase my ECI
So with all that laid out, let’s get right into our very first section.
The purpose of ECI Insurance
If you’re like me, when you first heard of Early Critical Illness insurance, you might be wondering what it is and how it is different from the normal Critical Illness insurance that is already bundled in with your Life Insurance.
Well there’s quite a bit of difference. The first and most important difference is this, it provides coverage even when you detect critical illness early unlike normal critical illness cover in life insurance.
ECI Insurance provides coverage for much earlier stages of critical illnesses
You may be surprised to hear this. At first I thought that the normal Critical Illness insurance that comes bundled with my Life Insurance plans will pay out when a covered critical illness is detected at any time. This is, unfortunately, not true.
Normal CI insurance bundled with Life Insurance plans usually only pays out when your critical illness is already so advanced that you’re very likely going to die or become permanently disabled from the disease.
Your own Life Insurance may have slightly different way to determine what qualifies for the critical illness payout, but here are the ones that’s defined in my Life Insurance plan:
For the detailed definition of what constitutes severe critical illness, we are asked to refer to Life Insurance Association (LIA) of Singapore’s “LIA CRITICAL ILLNESS (CI) FRAMEWORK 2014.”
Here’s an excerpt for “Major Cancers”:
(Source: LIA CRITICAL ILLNESS (CI) FRAMEWORK 2014)
Based on the above, so many things are excluded that, basically, it only covers things that is in a stage that is severe enough to likely kill you soon. Anything else – if you discover cancer too early or when it’s “pre-malignant” or “having borderline malignancy” – are not covered. You gotta wait until it becomes clearly “malignant.”
That’s wonderful, thanks. I’ll wait for this thing to make me more dead first before coming back for our next appointment.
Why is this important?
As critical illnesses are extremely bad news, we want to be detecting them earlier so we have a better chance at dealing with it and recover from it before it kills us.
Therefore after we get to a certain age, we should be doing regular health checkups to – hopefully – catch these illnesses before they become serious and treat it early.
With advancement in healthcare and technology, we will continue to be able to detect these critical illnesses earlier and earlier and deal with them better.
Then when they are discovered, we’d like to be able to:
- Afford to take time off to go for treatments.
- Afford the cost of the treatments.
- Afford to go in for constant checkups and monitoring.
These costs may not be fully covered by the hospitalisation insurance, and neither will it be covered by the normal Critical Illness insurance since the illness is not yet advanced enough to be classified as “severe stage.”
Enter the ECI to fill the gap
This is the space that ECI insurance is meant to fill. If we are able to find and diagnose critical illnesses early, the ECI insurance will pay out to help us cover the costs necessary to deal with the treatment and the aftermath.
This allows us to focus on getting treatment and the recovery without having to also worry about whether we can afford the treatment and recovery or not.
We should never be in a situation where we think “damn, I caught this too early and my life insurance doesn’t cover it… should I wait until it becomes more serious so that I can qualify?”
That would be pretty messed up. The ECI insurance that we buy should protect us from having that type of dilemma.
Now that we understand where ECI insurance fits, let’s take a detailed look at how it works and what it covers.
How my ECI insurance works
When I spoke to my financial advisor about getting an Early Critical Illness plan, started walking me through the features of the types of coverage that I should be getting in my ECI insurance.
ECI insurance – unlike life insurance which just pays out when you die, are permanently disabled, or have late stage critical illness – functions differently in order to provide better coverage for people with early to intermediate stage critical illness.
So afterter looking through the insurance agreement, I’ll attempt to explain how it works and why its structure fits better with the entire life-cycle of early, intermediate and late stage critical illness.
Overview of my ECI insurance
|Premium||S$1,288 per year (fixed)|
|Payment & Protection Term||36 years (till 70 years old)|
|Payout||Multiple payouts based on conditions|
One important feature that I want to highlight right out of the bat is that the ECI insurance allows multiple claims and will payout multiple times if the need arises. This is meant to cater to the likelihood of recurrence of critical illness once you have one.
Note: I will be breaking down how my ECI insurance works and it may not be true for you depending on your insurance provider so make sure you do your own research into your own insurance package to fully understand the coverage structure of your insurance.
Let’s get right into it.
Protection Layer 1: Early & Intermediate Stage Critical Illness Protection
The first protective layer is the “Early or Intermediate Stage” critical illness protection.
The purpose of this layer is to provide you a payout when you detect critical illnesses in its early stages before it becomes more serious.
Note: For details on which exact diagnosis falls into each of the categories, you will have to refer to the insurance policy agreement. The policy will also provide the exact terminology that your doctor should be aware of to put into your diagnosis to make sure you can make a proper claim. That will be important when you attempt to claim.
Limited to 2 claims, 100% of sum assured each, and only once from each type of illness – it will pay out even if I am diagnosed with more than one critical illness. This is great given that in many cases, if you have a critical illness, you may be at risk of developing others as a result.
With my sum assured at S$100,000, the total payout from this layer is S$200,000.
In addition to providing a payout for early and intermediate critical illness, this ECI plan also provides late stage critical illness protection as part of its next protective layer.
Protection Layer 2: Severe Stage Critical Illness Protection
This layer is meant to handle critical illness when it has become more severe or if I was not able to catch the illness early enough.
The payout is limited to 300% of the sum assured less any claims already paid out from layer 1. Therefore the total payout from layers one and two is S$300,000.
After a claim is approved from Layer 2, subsequent premiums for this insurance policy is waived. The likelihood of survival long after a severe stage critical illness is low so it makes sense that they stop charging me for my premium after this point.
At this point, even if I make a partial or full recovery, there is a high likelihood of relapse, recurrence of old diseases (like cancer and heart attack) or a development of new ones as my body would be quite weak from the previous onslaught of a dreaded disease.
The good news is that the policy does not expire or end when a layer 2 claim is paid out as it still provides Layer 3 and Layer 4 protection for recurring illness.
Protection Layers 3 & 4: Sustained Protection for First Time & Recurrent Critical Illness
Once I have some form of critical illness, like a heart attack and stroke, even if I seek treatment and recover, there’s a higher chance that the illness will be recurrent and happen again. It is also more likely for me to get other forms of critical illness once I have had another illness.
The job of layer 3 and 4 are to keep protecting me once I have already been diagnosed with the illnesses that triggered layers 1 and 2.
I am able to make a claim for both first-time illness and recurrent ones, so it doesn’t matter if I’ve already claimed for the illness before in other layers or I’ve just been hit by a new critical illness.
However, in order to receive a payout under this layer, I must wait at least 2 years from the claim on the previous layer. Although I am allowed to make 2 claims (1 for layer 3 and 1 for layer 4) I must wait at least 2 years between each claim.
i.e. If I have a heart attack in 2017 and a stroke in 2018 where I already have claimed for the heart attack, I will not be able to claim for the stroke.
Do note that because of the 2 year waiting period, this layer has a lower chance of being paid out (and I’m sure the insurance company knows this) as if layer 2 has already triggered – with a severe critical illness – it’s likely that I won’t live long after that. It will be very rare that I will trigger layer 3, let alone layer 4.
These 2 layers pays out a 150% of sum assured per claim each, therefore the maximum payout for this layer is an additional S$300,000.
Once the layer 4 claim has been paid out, the policy terminates.
Special Benefits: Protection from Some Other Diseases
This benefit is akin to having some magical accessories that specifically protect against certain ailments.
I can claim 20% of the sum assured if I am diagnosed with one of the qualified diseases, but I am only allowed to claim once per disease. Claims from this special benefit does not reduce sum assured nor the death benefit.
Although not the main point of this policy, the small payout in case of any of these other conditions is a welcomed bonus.
The maximum payout per claim under the special benefits is S$25,000.
Lastly, this policy also pays out upon death, but not much.
Since I’m not buying this insurance policy for the death benefit, I don’t really care too much about whether it has a death benefit or not.
Although it’s not much, S$5,000 is still money, so I’ll take it.
Now all the above protection for critical illness sounds pretty good, but how should I make a decision on whether it’s all worth the money or not?
How I down the financial cost-benefits of my ECI insurance
Directly comparing the payouts with the cost of the premiums
So first things first on analysing the cost-benefits. Let’s take a look at how much the premiums would have grown into if I had invested them instead of paying for this insurance.
Here are the numbers we will use for comparison:
- Investing S$1,288 per year over 36 years at 7% p.a. and 8% p.a. to compare 2 different rate of returns.
- Layer 1 Claim #1: S$100,000
- Layer 1 Claim #2: S$100,000 (cumulatively S$200,000)
- Layer 2: S$300,000 (includes any Layer 1 payouts)
- Layer 3: S$150,000 (cumulatively S$450,000)
- Layer 4: S$150,000 (cumulatively S$600,000)
Graphed out, here’s what this looks like over the 36 years of the term of the insurance:
Alright, so what does this mean? Let’s break the chart down:
- Throughout the term of the insurance coverage, investing the premiums instead will never be able to provide the same level of financial support as the ECI insurance, if all the layers are accounted for.
- If I am diagnosed with a severe state critical illness at any time during the insurance term, the payout will provide more financial support than investing the premium.
- It would take 26 years at 7% p.a. (when I’m 60 years old) or 24 years at 8% p.a. (when I’m 58 years old) for investing to provide the same financial support as the first payout from layer 1. Thus if I have my first diagnosis before I turn 58 or 60, I would be better off with the insurance policy rather than investing the money.
- It would take the 7% p.a. investment 35 years (69 years old) and 8% p.a. Investment 32 years (66 years old) to be able to cover as much as the second payout of layer 1.
To really visualise this, if we highlight the area on top of the chart that is above the investment lines and the areas that is below the investment line:
The green areas are when the ECI plan provides a better financial support than investment. The red areas are the times when investing the money instead would make sense.
Important: I will note that since there’s low likelihood of surviving to claim layer 3 and layer 4 payout, I won’t weigh the value of those 2 layers as heavily as the first 2 layers.
Like every insurance, I hope I never have to make a claim, but when I do, it’s always more financially beneficial to do so earlier rather than later.
So before I can make a call whether the above trade-off makes sense or not, I have to also see how likely I will have to make a claim and how old will I likely need to make claims against this policy.
What’s the likelihood of being diagnosed with a critical illness?
This is going to be very hard to figure out, but let’s give it a shot.
The incidence rate of illness really depends upon the type of illness we are talking about. Let’s take a look at the most common critical illness in Singapore and see which ones are the most likely:
(Source: Ministry of Health)
Based on the above, the top 3 groups of causes that fall under critical illness are:
- Heart Disease
Let’s take a look at the statistics for each in turn.
According to the Singapore Cancer Registry Annual Registry Report 2015 from the National Registry of Disease Office (NRDO), cancer is a leading cause of death in Singapore and “the lifetime risk for developing cancer in the Singapore population is approximately 1 for every 4-5 people.”
As I also have a family history of cancer, this risk is also likely to be slightly higher for me.
I believe because of this, the cancer protection alone is probably worth the entire plan for me.
However, let’s also take a look at the other 2 groups of illnesses.
According to the Singapore Myocardial Infarction Registry Annual Report 2016 from the NRDO, “Ischaemic heart disease was the third most common cause of hospitalization in 2015.” The incidence rate of acute myocardial infarction is also increasing, even when accounting for age.
Also that “the average age at onset ranged from 67 to 70 years and it increased gradually over
the years. About 7 in 10 of the patients were aged 60 years or above.”
If you believe that you may have a higher risk of getting heart disease, you may want to make sure you are protected here.
In the case of stroke, the NRDO has this to say in the Singapore Stroke Registry Annual Report 2016 : “Cerebrovascular diseases including stroke, were the 9th most common condition of hospitalisation, the 4th most common principal cause of death, and the leading contributor to the burden of disease in Singapore.”
With regards to the age of incidence of stroke: “The average age at stroke admission was 68.2 years old in 2016. Before 2012, the highest proportion of stroke patients were aged 70-79 years. Since 2012, the highest proportion of stroke patients was amongst those aged 60-69 years.”
As we age, the more likely we are to be susceptible to stroke. If we have heart disease or high blood pressure, the likelihood increases even more.
Making the decision to get the ECI based on the above information
Given the financial analysis and based on reading up on the above and other critical illnesses, my belief is that the likelihood is pretty high for me personally to be hit with at least one of these throughout my lifetime.
My main fear is cancer which can strike at any time, plus a family history of early onset of the disease, it makes me much more cautious.
In my case, I believe it’s more of a matter of when, not if so an ECI insurance makes perfect sense for me up until age 70.
Normally coverage goes to age 60, why did I choose to increase it to age 70?
Good question. Since the risks increase as I age, the insurance premium also increases to adjust for the risk. So why did I decided that the increase was worth the increase in premium?
Well because if you look above, the average age at onset of heart disease and stroke are nearer to 70 years old rather than 60. If I want to make sure that this insurance will cover me in the times in which it’s going to be most likely, it won’t make sense to stop the coverage at 60.
I feel that the premium increase for going from age 60 to 70 is still reasonable. I believe stopping at 60 will mean I will be paying around S$1,000 per year for coverage compared to the current S$1,288 per year. Still not too bad.
However, it’s another story all together if I want to push the coverage age up to 75 or 80 years old.
Why stop at 70? Why not get ECI protection until 80 or even 100 since the risk increases as you age?
In order to increase the coverage age from 70 to 80, the premium per year will increase to closer to S$2,000 per year, which is very steep, with no corresponding increase in sum assured. This changes the financial formula significantly.
Here’s the same chart above with the S$2,000 premium line added in:
As you can see, the invested premium starts penetrating the layer 2 payout level near the end of the term. If we extend this out until I am 80 years old, the invested premium will outperform even the S$600,000 total payout until layer 4.
At that point, it might just be better to invest the funds myself instead. Especially since layer 3 and layer 4 will likely never get paid out if I die from what allows me to claim from layer 2 in the first place.
Aside from the huge increase in annual premium, here are other reasons why increasing to 80 may not be needed:
- Similar to my previous analysis of life insurance, as we age past 70, our need to support dependents may be much lower, we are no longer earning income, and thus the need for getting a lump sum insurance payout is much reduced at that point.
- At that age, we would also already have financial cushion due to our own investment portfolio to draw on instead of relying on the insurance payout to support the treatment. Once we are diagnosed with these critical illnesses at that age, the likelihood of survival is low and long term survival is even lower at that point. Our retirement portfolio should be able to be used as a source of funds for the needed treatment and care instead of the insurance payout.
Remember, insurance is meant to reduce risk, not to eliminate it all together (if you want to do that you’ll be paying through your nose for the privilege.)
So think about your risk factors and what you need to protect. In my case, I believe that having this protection after the age of 70 is not worth the amount of premiums that I will need to pay.
[Update 27-Apr-2019] What about instead of getting a Multi-pay ECI, get a single payout at double the sum assured?
Since the insurance company is able to lower their risk exposure by spreading out their payments based on when we are diagnosed with a critical illness, the multipay version of the insurance can provide a cheaper insurance premium.
However, what if instead of getting S$100,000 for the first critical illness and another S$100,000 for the second illness, we get all S$200,000 on the first diagnosis instead? Would that be more worth it for us?
After asking my FA for a quotation, this is the detail of the single payout ECI plan with double the sum assured:
|Premium||S$2,331 per year (fixed)|
|Payment & Protection Term||36 years (till 70 years old)|
|Payout||Single payout on ECI diagnosis|
As you can see, since the plan pays out double the amount and only once and on the first diagnosis of ECI, the premium is more than S$1,000 higher per year.
Although that looks pretty bad, let’s see how that plays out if we invested the premium instead:
Based on this premium, the breakeven point – if invested at 7% p.a. – is around 27 years. At 8% p.a. the breakeven point is a bit over 25 years.
So with this plan, if I am hit with an ECI before I turn 60 years old, the plan would be a better financial choice. If I am diagnosed with an ECI after that, I may be better off if I had invested the money instead since the funds would have grown to be worth more than the sum assured.
Compared with the multi-pay plan break even age for the first layer of 24 (at 8% p.a.) and 26 (at 7% p.a.), it’s surprisingly similar!
However, note that this plan only pays out once. If I am diagnosed with another ECI after the first one, this plan does not pay out anymore while the multi-pay plan will pay again. At this layer, the multi-pay plan will only underperform investments at age 66 (8% p.a.) to 69 (7% p.a.) years old.
So based on the idea that a critical illness has a high likelihood of recurrence, the multipay is a better financial value, which a breakeven point at a much older age.
Here are the summary of the findings
- If the first diagnosis of an ECI is before the age of 60, then either ECI plan is financially advantageous.
- If the first diagnosis of ECI is after the age of 60, then investing the premium would be better for both plans.
- If there is a second diagnosis of a new ECI before the age of 66-69 then the multi-pay makes financial sense. The single pay plan doesn’t make sense here.
- If I am diagnosed with a late stage critical illness or have any recurrence of ECI at any time before the age of 70, then the multi-pay plan provides the best protection.
There you have it, the thought process I had behind my decision to purchase my ECI insurance. I hope it was reasonably easy to follow along.
Personally I think this is a great type of coverage to have given the overall risk of being diagnosed with some form of critical illness throughout our lives.
However, this is just the way I went about rationalising my decision. I’d like to also know if you agree or disagree with what I’ve talked about here.
Do you think ECI insurance makes sense for you? Do you currently have one? Why and why not?
I’d love to hear your perspective, so feel free to put your thoughts in the comments and I’ll respond! If you’d like you can also tweet me @firepathlion to get in touch with me that way!
Until next time.
41 thoughts on “Why I just bought an Early Critical Illness (ECI) Insurance”
Wow, I enjoy the concept to select between just right and paying too much and also the projection between buying insurnace vs investing for a return.
Could you share with me how you plot the excel graph.
Hey Pac Thor! Thanks for reading, you can refer to the Google Sheets I used for the chart here: https://docs.google.com/spreadsheets/d/1lWqrkWC3ZVZv2UjeGRDv4qK0cMkFBixoYYuha3_nryA/edit?usp=sharing
I think you’ll need to make a copy in order to play around with it 🙂 Let me know if you have any questions!
Really appreciate your write up, it really puts things into perspective. Can i request for access to this sheet so I am able to adjust the numbers to what I have been quoted? Currently it states that I need to ask for access.
The quotation given to me was:
150k payout, 2 times for same condition
up to 5 times for different conditions
Costs: 1792 annually for coverage up to 65, 2962 annually for coverage until 75. Quite a fair bit more expensive than the plan you discussed in your post
Hi Ashwath! Thank you so much for reading and I’m sorry it took a while to get back to you. If you are able to view the spreadsheet, you should be able to go to “File > Make a copy” so that you can copy the file into your own Google Sheet so that you can have full control of your own version of the sheet to try it out! Let me know if that works.
Keep in mind that my post was over 3 years ago at this point so the costs and the plan structure will likely be different!
Hi, v detail with regards to yr thought process. Super like it.
Keep it up…i think its a great pcs to help people. I appreacite yr effort n enjoy reading it.
Hi Jas! Thank you for the kind words! This makes my day ☺️
Hey FPL, great article! On term/life insurance, I don’t have any yet as I’m covered under my company’s health benefits for now, will think of getting it if i leave the company and no longer covered (do you think its a good idea?) However I’m not covered for early critical illness so might look at getting sone coverage.
Hey! Thanks for reading! Are you sure your company provides life insurance? I believe most companies only provide health and accident insurance for employees with the ability to claim for minor doctor visits and medications, however death isn’t usually provided for. If they do then that’s great! In terms of whether you should get life insurance or not, it really depends on your situation. Do you have dependents and others who depend on your income in order to survive? If you are disabled, will you need the insurance to provide you with enough cash to allow you to live with a good enough standard of living? These types of things are very dependent on an individual’s needs so I can’t give you a blanket statement. At the end of the day you should probably consult a financial advisor and think through their recommendations!
what policy are you using for $1288/year ? I got a quote recently and its much higher for the same payouts
Hey! Mine is an AVIVA MultiPay Critical Illness Plan III. Could the price difference be due to age? I am turning 34 this year.
Hi my ANB is 33 (which means Im at least 2 yrs younger than you). and this is the policy I plan to get as well. I noted you covered till 70yrs old, and based on my quotation, I was recently quoted $1446 to cover me for 37 years. How come ah?
I love the detailed calculations and pictures on this post.
However, please don’t ask any critical illness to come at you (your title picture) 🙂
Good health and prevention is most important
HAHA now that you point it out, that wasn’t the best meme to use *facepalm*! Thank you for reading, Gee! You are certainly right! One of the keys to a happy life is maintaining good health.
Wow, this is really comprehensive and interesting for those who are number-savvy. There is actually claims statistics from NTUC that shows the critical illness claim rates per month. If you were to add the probability of claiming per population into the calculations, it might make the article even more rock solid to determine whether or not one should get CI. https://www.income.com.sg/claims/claims-statistics tha
Hey NIL! Thanks! Great find and a great idea! I’ll take a look into this!
HI Firepath, may I know how you managed to get Multipay ECI for $1288 annually?
I’m in my early 20s, a non-smoker with no significant medical issues and I got quoted 1100+-
That seems very high for your age and profile. Which company is the ECI from and do you know the product name?
From Tokio Marine(Tokio Marine Multicare), which has a similar structure as your Aviva plan, and and for Manulife Ready CompleteCare
Both were to cover me up til 75 and for coverage of 100K
Actually , usiing this website as a baseline, your current rate is quite cheap
It is likely due to the age in which you wish the coverage will extend. 75 is quite old for an ECI insurance, whereas mine only covers me until I turn 70 – which makes it cheaper. This is due to increased risk after you turn 70 and above.
Ah I see, thanks for the info
Hi, thanks for writing the article. This is super helpful. Are able able to share a bit more on income protection policies and required coverage analysis etc
Hi, yes I was struggling to think if I need to cover till 70,75 or beyond. Its difficult to put a definite number to it.
It felt “affordable” and “worthwhile” to pay till 75yo when I look at difference in annual premium amt as it is. But when I did the below sums, based on total lifetime premium amt I need to pay, its alot then! 🙁
Based on my annual premium price (until 70 vs 75), and multiply by the number of coverage years till below age, its a Diff: $17,604 (Avg $3520.8/yr for that additional 5 yrs of coverage).
Is paying $17.6K extra for that additional 5 years of coverage worthwhile? :-/
And to add on to my above comment:
My question was, “Is paying $17.6K extra for that additional 5 years of coverage worthwhile?”.
But at the same time, if I “really” prefer to get till 75, can I justify and calculate based on $17,604 to pay in the policy lifetime for that extra 5 years, its about $419/yr extra for that peace of mind?
If you think about it, it’s not really just $17.6K more because if you assume that the extra cost would have been invested instead of paying for the premium, over the time between now until you turn 70, it will have grown to a much larger number. So assuming that the cost for the 75yo coverage is $1,693 per year, that’s $247 more than the 70yo coverage. If we invest that at 8% return per year for 37 year (when you turn 70) that amount of investment each year would turn into a whopping $50,158 by the time you turn 70.
So at that point, for an extra 5 years, you’d have “lost out” on more than 50K. Now is that worth it? I don’t know, it’s a decision you’ll have to make. I mean, if I were to get a critical illness between 70 and 75 I’d definitely think paying 50K more for that extra coverage is worth it. But how likely will you get early critical illness… right between 70 and 75? That’s something you’ll have to make an educated assumption about. This can be done maybe based on your family history, how predisposed are you etc. In my case, I think if I were to get something, it’s more likely to be earlier than 70…. and if I get something after that… I’d have investments that could cover some of the cost. I’m unlikely going to be working anymore so I won’t be “losing income” and since I still have my hospitalisation insurance, that should cover a lot of the major surgery and hospital-related bills. I felt that the extra 5 years was not really worth the additional cost. You’ll have to make that choice based on your own personal risk tolerance and personal situation.
Hope that helps! As for the difference in cost, I’m not sure 😐 it could be due to a lot of other factors other than age? Maybe other lifestyle choice difference? I was 33 at the time of purchasing that as well… so maybe they also adjusted the price? Not sure.
After spending some time comparing early CI plans options, I like the MultiPay Critical Illness III as well. However, they gave me an exclusion for 2 cancers due to family history, which is a huge headache cos part of the reason why I think this multi-pay policy is attractive is so that I can mitigate these cancer risks.
Wondering if you can share your experience with your FA and if any exclusions apply to you due to family history? (of course, whatever you are comfortable in disclosing)
Hi Kate! Apologies for the delay in my reply. Interestingly, I also disclosed family history of cancer, however there was no exclusions that were applied to my plan as far as I can tell. So I’m not sure what causes the difference in exclusion – possibly the type of cancer involved?
thanks for the reply! yeah, i guess different types of cancer for different gender is considered by insurance companies.
i just checked with Tokio Marine and am applying for the TM Multicare at the moment. for those who are interested, my FA mentioned that TM is less strict than Aviva in terms of exclusions but premiums are higher. appreciate your sharing FPL!
Hi FPL, thank you for this article, really opened my eyes to the need for CI. Do you think it is advisable for me (21M) to purchase a CI plan before the change in definition, or should I purchase a CI plan when I start working at 25?
I do have sufficient savings currently if I were to purchase a CI plan at this point of time, and I was wondering if it is better to lock in the cheaper premiums at my current age. However by doing this, I understand that I would be losing out on the potentially investable capital that I would have paid for my premiums.
I would really appreciate your insight on this, thank you!
Hey Ben! I think you should check on how much the premiums will be first and then take a look from there. Given that you are so young, it might be really advantageous to lock in the much lower premium (if they in-fact turn out to be lower) – but it really depends on what that is. Once you know the premium it’s easy to do a similar calculation to see whether it’s better or worse to get the CI or invest right now instead.
Ah I see, thank you for your insight! That makes sense, I’ll contact them to find out more!
Also, is there any reason why you chose the AVIVA Multipay CI over its competitors like the AIA Power Critical Cover and the Tokio Marine MultiCare? I am not really sure what to look out for when comparing between these similar policies.
Very comprehensive cover on ci. Anyway I’m 30yr old smoker I am considering purchasing a term insurance with a accelerated rider cost me about 1836/yr sa 250k for ci death and tpd. So instead of taking up multipay I shifted it to a single claim early ci with a lump sum For me I think multipay it’s much stringent when it’s come to claiming and what are the chances they u will strike up to six times different illness. And for the single claim is much cheaper. However I’m thinking whether should I cover till 65 or 75 for the ci. And also thinking whether should I get cancer standalone coverage like pru360 to add as a supplement to my term insurance with ci.
For the term ci covering up to 75 cost 2328/year. And whether I should get other form of coverage.
Hi John! The reason I took multi-pay was the explanation that if you hit an early CI, these illnesses tend to have knock-on effects on health and thus you may end up getting hit with other illnesses afterwards. For example, cancer might end up also causing heart attack or stroke etc. This seemed reasonable as the body is one complex system, one illness could lead to another so I felt it was better to have lower individual payout but multiple hit protection in my case. Of course this is completely up to what you feel is right for you.
As for 65 vs 75, in my case, I felt that the steep increase in premiums when extending the coverage up to 75 is not worth the extra few years of coverage (I cover till 70) because I expect if any ECI that will hit me to hit much earlier (knock on wood.) Of course as you get older, the chances of illness to come up increases exponentially which is reflected in the premiums. In my case, by the time I’m 70+ I am willing to risk self covering the ECI and let my death and TPD plan cover any other catastrophic illness.
As for a separate cancer coverage, since I am not an expert on insurance, I think it’s best for you to consult a qualified insurance professional – they should be able to give you a better way to assess the pros and cons.
Could you explain how you decided on a sum assured of $100,000?
I must admit that this one was pretty arbitrary. I wanted enough coverage that will allow me to miss work for a few months or up to a year during treatment while also not paying too much in premiums. I felt that $100,000 was a good amount. If I needed to fork out a bit more, I have enough funds invested and saved to make up the difference. It’s very hard to estimate the cost of healthcare and treatment since it really depends on what illness we have so I just went the straight forward living expense cover approach and rounded it up slightly.
Thanks for the great content!
Very comprehensive article, and it certainly help in terms of a framework to think about getting ECI coverage.
I would like to ask, a lot of literature out there deals with how much ECI/CI coverage one can consider getting, but not so much on how long to cover for (say, cover till 65). How can one go about thinking how long to get ECI/CI coverage for?
Will you relook and switch to the new Aviva Multipay IV,
up to 600% for ECI/CI and another 300% for Recurrent CI
Have you considered that the PV of $100k in 2051 (30 years later) is $47,674 given the average inflation rate of 2.5%. I struggle to see why it is worth it to still get the ECI please correct me if my thinking is flawed.
Thank you so much for reading and commenting! Your thinking is definitely not flawed, just that both investment numbers and the $100,000 were both meant to be nominal, before accounting for inflation, so if you assume 2.5% inflation the investment numbers are using 4.5% (7%-2.5%) and 5.5% (8%-2.5%) real returns respectively. Admittedly that’s very conservative rate of returns and the benefits for ECI will be worse if real returns were higher than this.
Ultimately, insurance is a protection against risk and is there to save us during times of extreme crisis – the value has to be weighted against the risk and in my case, given my family history, will make this worth it. Whether this is still worth it for you or not, or it’s best to invest the funds yourself, is a very individual thing. Though keep in mind that you’re exposing yourself to the risk of getting the EC before your investments can cover it.
Hope this makes sense!
Hi FPL, what are your thoughts on the Aviva CI Multipay IV as compared to your current plan?