Saving my ILP - Part 3

In Part 2, I compared the cost of insurance under an Investment-Linked Policy (ILP) Whole Life plan versus term insurance and deliberated that maybe it will not be cost effective to sign up for a critical illness (CI) and early critical illness cover because the cost forms approximately 1/3 of the benefit payout.

I went ahead to sign up a 20-year term insurance plan for death and terminal illness & permanent disability (TPD) $500,000 combined coverage so that I can reduce the proceed with my plan to reduce the insurance components in my ILP. As insurance have a no-claim 90-day clause, I had to sign up for the new insurance first then reduce the coverage for the ILP after 90 days. I decided to stick with Prudential purely out of convenience.

I learnt that the insurance items are actually sold as a bundle to look cheaper, which means if I were to claim $500,000 for TPD, the policy will be terminated, and there will be no death benefit. If I were to add on a CI benefit, the CI benefit paid out would be deducted from the total death benefit sum. For example,  If I buy $500,000 death and TPD, and add on $300,000 CI coverage, after I claim the CI benefit of $300,000, I will be able to claim the balance of $200,000 for death of TPD. If I do not opt for this bundled plan, individual plans will be more expensive. This explains why the CI cost was lower in the term insurance comparison in Part 2.

I further enquired about buying CI term insurance and found out that the minimum benefit is $250,000. From this aspect, the ILP is "better" than term insurance because ILP sells CI benefits at a minimum benefit of $80,000. This new development actually sent me back to my drawing board to re-assess how much I should really spend on CI. I also checked that if I were to be eligible to claim CI benefit, and I also have early CI coverage, I would be able to claim early CI as well, even though the illness could qualify as CI. It was also possible to just buy early CI without CI as a standalone policy. There is also a chance that you do not claim CI at all if the cause of death was not attributed to critical illness. At this point, buying early CI may be a better choice as the chances of claiming the benefit is higher, so I dived into the cost comparison for these components.

Cost to insure $1,000 benefit vs Age

I decided to plot a graph to see how the cost to insure for every $1,000 benefit increases with age. I asked my insurance agent what convinced him to part with his money to buy early CI insurance that costs probably half the benefit payout in the event of a claim. He said that it was a "job hazard" because he gets to see what types of claims get processed. If you work in the Accident and Emergency department of a hospital and see young people admitted for all sorts of illnesses, your perception of reality gets skewed a little. It is psychological.

Looking at statistics published by Ministry of Health, I first took a look at the death statistics. There were approximately 19,000 deaths in 2013. Cancer taking top spot accounting for 30% of deaths is sometimes publicised as 1 in 3 die of cancer but this is blown of a proportion because you need to be in the 19,000 sample pool first. 19,000 out of a 5,000,000 population is 0.38%. Of course the nearer one is to the average life expectancy (Male 80 years old, Female 85 years old), the higher the chance.

Hospital admissions count was approximately 483,000 in 2013. Assuming a 5 M population, this represents 9.66% of the population. This should be sufficient to convince anyone to buy hospitalisation insurance.

At this point, Assuming the worst case scenario that all hospital admissions are for CI, the probability of a CI event can be safely assumed to be <10%. Next we look at admission percentages. For the age group of working adults 15 to 64 years old, it is approximately 50%. This will mean that probability of working adults being admitted is <5% (10% x 50%). If we further assume that cancer occurrences are 1 in 3, probability of a working adult being admitted because of cancer is probably <1.5% (5% x 0.3).

Maybe there could be other ways to insure against income loss due to illnesses. I may source for other insurers to check the costs too.