Understanding Critical Illness Insurance

By Ming-Foo Looi 28 February 2011

Many of us at some time or other would have heard or been advised to purchase a Critical Illness, or Dread Disease, insurance policy. Isn’t it true that in almost all of those instances, we would have been asked to consider purchasing this policy to take care of our medical expenses?

The cost of medical treatment is expensive.  Like many other things, these costs too are not spared from the spiraling effects of inflation.  Indeed, with the advent of new and better medical procedures, often aided by technologically superior equipment, costs of medical treatment have escalated tremendously.  In a way, access to such treatment without government and/or public welfare assistance may well remain an unfulfilled wish on the part of most ordinary folks. Take for instance, a major heart operation in a private medical facility today may cost between RM50,000 to RM100,000.  A course of treatment for cancer could set us back anything in excess of RM100,000.  These are two of the most common diseases which are afflicting many Malaysians.  According to statistics, 1 in 4 would suffer from some form of cancer, and 1 in 3 a cardiovascular (heart) disease.  Frightening statistics … but fortunately medical advancements have ensured progressively higher survival rates among those afflicted.  A key denominator is this equation, therefore, lies in the financial ability to meet the costs of available treatment. Dr. Marius Barnard who assisted his brother, Dr. Christiaan Barnard, to perform the world’s first heart transplant, found that patients who successfully underwent major surgery may have survived physically, but financially, they are dead.  This was because having spent almost all of their life savings on medical treatment; they inevitably find themselves with nothing left to live on!  Such were their predicament and the same holds true even to this day for many who had undergone major surgery or treatment. Realising this, Dr. Marius Barnard began promoting the concept of “living assurance” to insurance companies in South Africa, thus giving birth to Critical Illness insurance in 1983. This new concept soon spread to other parts of the world, allowing people who own such policies to be paid upon diagnosis or meeting the conditions of one of the specified critical illnesses. The Critical Illness insurance policy was created to address a specific purpose, and that was to provide financial support to policy owners after undergoing a major medical treatment.  With the funds, policy owners can then continue meeting their ongoing financial commitments, such as mortgage repayments, their personal and family expenses, and home modifications or special arrangements required as a result of the illnesses. Their life savings can then be left untouched to serve their retirement needs or to meet the other financial objectives planned for. But one may ask, what about the costs of treatment, then? The answer to this is to ensure that one has in place a good hospital & surgical policy which should take care of all hospitalisation and surgical expenses.  In fact, one should not rely on a critical illness policy to meet medical treatment expenses, simply because:

• only on diagnosis or satisfying the conditions of specified critical illnesses can one make a claim successfully.
• one may be admitted for treatment for a medical condition which may not be one of those specified critical illnesses.
• whilst it is accepted that treatment of a critical illness (which is usually very serious in nature) will be costly, it cannot be assumed that treatment of other illnesses or injuries, especially if hospitalisation or surgery is involved, would not involve a substantial sum of money.

Therefore, to be prudent, one should really consider having both – a good hospitalisation and surgical policy to provide for medical expenses and a critical illness policy to meet those expenses after undergoing treatment.  For some who are more fortunate, their employers may have provided them with adequate hospitalization & surgical benefits, in which case, they would only need to consider investing in a critical illness policy. Critical Illness policies are available:

• on a stand-alone basis, i.e. payable only on diagnosis of a critical illness.  Some policies require a survival period e.g. 30 days before a claim can be admitted and becomes payable.  Some other stand-alone policies may even pay on death or total & permanent disability, in which case there would not be any survival period.
• as a rider to a life policy, where the sum insured for critical illness is equal to or is a part of the total sum insured of the basic policy.  In the event of a claim for critical illness, the critical illness sum insured is paid leaving a balance (if any) on the basic policy which will be payable on maturity, death or total & permanent disability, i.e. on meeting the conditions of the basic policy.  This is usually known as an acceleration feature of the policy.
• attached as an additional and separate benefit to a life policy.  This means that upon diagnosis of a critical illness, only the sum insured for critical illness is paid.  The sum insured of the basic policy remains intact and will be paid upon maturity, death or total & permanent disability.

There are, of course, variations of the three types mentioned which one may like to have incorporated when designing one’s insurance programme. In summary, a critical illness or dread disease policy is not a medical insurance policy per se.  The purpose of such a policy is to cover living expenses during the period of recuperation.  Therefore in order to have a well planned health insurance programme, one must ensure that one has in place an adequate hospitalisation & surgical policy to take care of medical treatment expenses, and a critical illness policy to provide the financial support which becomes critically necessary to meet ongoing and additional living expenses.