Invest your savings in a low cost investment fund

Hi Mr Tan, 
I have read your article on not buying Critical illness insurance. Recently my insurance agent has been advising me to embark on a 15 year limited Critical illness Insurance of coverage 100K, premium of 4.6k per year. I will be paying only for 15 yr, but the coverage will still continue. The return is 131.5k (total premium paid is 70.3K) after 30 yrs should I surrender then.

I have told my agent that Medishield or private shield should be enough to cover should a critical illness strike, this is what he said:


1) Shield covers hospitalization but does not cover all kind of medications as well as recuperative treatments, for eg.TCM, hospice care, medical equipment, and all miscellenous charges.  For eg, it does not cover shots of Herceptin which cost $4k per shot to kill cancer cell. This shot need to be administer 17 times, once every 3 weeks to tackle breasts cancer.

2) Many long term illnesses like heart attack, stroke, paralysis, brain diseases total permanent disability and cancers require long term medication and aftercare. These if not hospitalised will never be taken care by Shield plans.

3) Shield requires co-insurance. Co-insurance can be a huge amount. For eg, chemotherapy is charged on a package by doctors depending on different conditions. On avg, it comes in 8, 12, 16,24 cycles which avg cost around $25,000 -$60,000 over a 2-3 month period. A min 10% co-insurance will be at least $2500 to $6000 every 3 months. If chemo treatments consistently needed, they can come up to more than 32K -50K per year just on co-insurance and misc expenses.

 I would really like to have your comments on this.

REPLY
If you invest $4,600 for 15 years in a low cost investment fund and is able to earn 5% p.a. the accumulated sum at the end of 15 years is $104,000 and at end of 30 years is $216,000. The chance of making a critical illness claim in 30 years is likely to be less than 10% and this is likely to occur towards the end of this period (when you get older). For these people, the accumulated sum may be more than the payout under the critical illness policy.

The chance of surviving 30 years without a claim is more than 90%. For these people, they will get the projected sum of $131,000 and lose $75,000 (compared to $216,000). Both figures are not guaranteed.

The people who benefit from a critical illness policy are those who contracted it within the first 15 years, and the chance is small. I would prefer to take this chance than to have a 90% chance of losing out on one third of the accumulated savings.

It is better to buy a rider to cover critical illness for 15 years (and you can get it from a policy under SAFRA, for example)  and invest your savings  in a low cost investment fund., If this cover is not available at a low cost, it is better to take the risk of not having a criticial illness cover.