What is Critical Illness Insurance?
What is critical illness insurance?
Critical illness insurance is an insurance product designed to cover severe illnesses. The covered critical illnesses include but are not limited to cancer, heart disease, severe coronary artery disease, stroke, benign brain tumors, and kidney failure.
If the insured is unfortunately diagnosed with a specified critical illness as stated in the policy, they will receive a lump sum compensation that can be used for any purpose.
In other words, the insured can use the compensation to pay for medical expenses and to compensate for the loss of income during the treatment period, ensuring the quality of life for themselves and their family is not affected.
Critical Illness Insurance vs. Medical Insurance
Although critical illness insurance and medical insurance both fall under “personal insurance”, they have significant differences in terms of specific functions, coverage scope, and compensation methods.
|Critical Illness Insurance||Medical Insurance|
|Purpose||Mainly used to protect “expenses beyond medical costs”||Reduce the cost of medical treatment for each visit|
|Areas of Coverage||Specified severe illnesses stated in the policy||Hospitalization and surgical expenses due to illness or injury|
|Compensation Method||Lump-sum compensation||Reimbursement based on actual expenses|
Types of Critical Illness Insurance
To meet the changing market demands, the types of critical illness insurance have become more diversified. Here, let’s talk about the four most common types of critical illness insurance:
Savings vs. Term
|Term Critical Illness Insurance||Savings Critical Illness Insurance|
|Premiums||Relatively cheap||Relatively expensive|
|No. of Claims||Usually 1 to 2 times with 100% compensation|
|Usually 5 times with 100% compensation each time|
|Premium Payment||Monthly/ Annual payment||Annual payment for a specified number of years, such as 10, 15, or 20 years|
|Coverage Period||Usually 1 year, 5 years, or 10 years||Lifetime (up to 100 years old)|
- 1The calculation is based on a non-smoking male insured at the age of 35 with a coverage amount of HK$1 million; the data is calculated based on the average guaranteed cash value of 8 savings critical illness insurance policies (18-20 years premium payment period) available on the market as of September 1, 2020.
Single vs Multiple
|Single Critical Illness Insurance||Multiple Critical Illness Insurance|
|Premium||Relatively cheap||Relatively expensive|
|No. of Claims||1 time||2 times or more|
|Long-term Coverage?||Not possible, can only claim once, even if the critical illness recurs, no compensation will be received||Possible, allows multiple claims, even if the critical illness recurs or other critical illnesses are developed, compensation can be obtained|
|Product Design||Relatively Simple||Relatively complex, usually with additional claim provisions for the 2nd claim onwards|
|Coverage Scope||Specified severe illnesses as stated in the policy|
Coverage Scope and Sum Assured of Critical Illness Insurance
As the name suggests, critical illness insurance focuses on “critical illnesses”, so the coverage scope is limited to the specified diseases stated in the policy terms, mostly including severe illnesses such as cancer, stroke, heart disease, kidney failure, and so on.
Unlike medical insurance, critical illness insurance allows for flexible selection of coverage amounts.
Policyholders can choose an appropriate amount based on their needs and financial situation. Since the treatment for critical illnesses generally takes 2 to 3 years, during which patients may be unable to work normally, it is recommended to insure an amount at least 2 to 3 times their annual salary to cover family expenses including living expenses, support fees, stocks, property mortgage payments, etc.
Regarding exclusions, critical illness insurance policies in the market generally do not provide compensation for the following circumstances:
- Diagnosis during the waiting period
- The insured person fails to survive for at least 14 days from the day of diagnosis or completion of surgery
- Pre-existing conditions before the insurance application
- Human Immunodeficiency Virus (HIV) and AIDS
- Drug use, suicide, and illegal activities
- Participation in any armed forces or peacekeeping activities
- Activities related to nuclear, biological, and chemical events
- Activities related to war and terrorism
Premiums of Critical Illness Insurance
The premiums for critical illness insurance can vary greatly depending on the coverage scope, number of claims, and product design:
Comparison of premiums for Regular Critical Illness Insurance
|Lowest premium||Highest premium||Difference|
|Regular Critical Illness Insurance||HK$279.8/month*||HK$713/month*||155%|
Comparison of premiums for Multiple Critical Illness Insurance
|Lowest premium||Highest premium||Difference|
|Multiple Critical Illness Insurance||HK$279.8/month*||HK$2,422/month*||766%|
- *Assuming a non-smoking male insured at the age of 35 with an average premium of HK$1 million coverage over 10 years
Factors to Consider When Purchasing Critical Illness Insurance
1. Why Do You Need Critical Illness Insurance?
While critical illness insurance is important, you must first understand your own needs in order to choose the right critical illness insurance that suits you.
If you are unsure which evaluation criteria to apply, the following questions can help you clarify your needs:
- What severe illnesses are you most concerned about?
- If you unfortunately become ill, how much funding do you need annually to maintain your daily needs?
- Are you worried about the recurrence of critical illnesses?
- How much premium can you afford?
2. Types of Insurance
In addition to being classified as pure protection or linked to savings, critical illness insurance can also be further divided into single and multiple coverage. Different types of critical illness insurance plans have their own advantages, and there is no absolute good or bad choice.
Instead of following others, policyholders should start from their actual needs and objectively compare which type of critical illness insurance plan is most suitable for them.
For example, if you don’t mind locking your funds and want to save regularly while purchasing protection, you can consider savings-linked critical illness insurance. However, if you focus on protection and cost-effectiveness, pure protection critical illness insurance with “low premium, high coverage” is more suitable for you.
Many insurance companies offer premium rebates, premium reductions, and other benefits to attract new customers to purchase insurance, allowing policyholders to enjoy cheaper premiums in the first year.
However, critical illness insurance is a long-term health protection, so when choosing a plan, policyholders should not focus solely on the first-year premium but should consider changes in the next 10 years to ensure that they can still afford the premium even if it increases.
4. Coverage Scope
Currently, there is no uniform standard for critical illness insurance in Hong Kong, and different insurance companies may have significant differences in coverage scope based on the requirements of their customer groups.
It is worth mentioning that a broader coverage scope is not necessarily better. For example, if you purchase critical illness insurance that provides coverage for a large number of specified critical illnesses, many of them may be rare diseases with a very low chance of occurrence. In such cases, paying additional premiums may not be worthwhile. On the other hand, some critical illness insurances promote unlimited claims, allowing policyholders to make claims for the same critical illness multiple times. However, consider how likely it is for a person to suffer from more than 5 critical illnesses. In the end, the insurance coverage may be of little use.
Therefore, when comparing products, it is advisable to first compare the items covered, then review the exclusions and claims criteria, and understand your own needs. Only after ensuring that you can obtain sufficient and suitable coverage should you proceed with the insurance application process.