Buy a modest amount of critical illness cover

Dear Mr Tan,

I really enjoyed your blog. You are very knowlegeable not only in terms of insurance but also investments. Contrary to what other people say, I think you are one of those expert investors.

I would like to ask your opinion about the i-term insurance. I attempted to buy one but was distracted/dissuaded by the NTUC advisers.

The reason given was there was a difference in the definition of terminal illness as described in the I-term insurance and critical illness in other insurance products.

The insurance payout is for terminal/"sure death" illness in I-term insurance. But the definition for "critical illness" is less "serious illness".

Is this true?

REPLY:

The critical illness policy provides a wider definition. If you contract a critical illness, the sum assured is payable immediately. The premium for critical illness is more than 10 times of i-term (and 20 times of decreasing term).

My personal preference is:

* buy decreasing term insurance to provide the death and permanent disability insurance (restricted cover).

* invest the difference in a low cost, well diversified investment fund.

* buy a medical insurnace plan (like Medishield) to cover the cost of treatment of critical illness. If this is insufficient, it can be supplemented by my savings (which will be quite large after 10 or 20 years)

* (optional) - buy critical illness cover for $50,000.

I hope that this tip is helpful to you. Read this FAQ to get a comparison of premium rates.