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Understanding the difference between Terminal Illness and Critical Illness for Insurance



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In one of my previous articles, I touched on how to apply for exemption from CPF’s Home Protection Scheme (HPS). A reader wrote in and posted an interesting question on what I usually look out for when buying mortgage insurance. Today, I shall touch on the difference between terminal illness and critical illness. But before you proceed, it is important that you make the effort to understand my article before jumping to conclusion. Not understanding the thin fine line between terminal illness and critical illness could be financially fatal. And I do mean it.

Most people who do not work in the insurance industry are confused between terminal illness and critical illness. To be honest, I used to be one of those. But my understanding starts to improve a little bit over the years as I talk to many financial planners and they shared with me some useful tips. Of course, I don’t work in the insurance sector and is not a certified financial planner. So, what I am going to share here is based on the best of my knowledge and readers should not misconstrue it as a form of financial advice. If in doubt, always check with your financial advisor.

Fundamentally, a terminal illness means that a person suffers from an illness that is likely to cause death in the near future. Most insurance policies include this as part of the coverage. In fact, the CPF’s HPS include death, terminal illness and permanent disability as coverage for members insured under the policy.

Critical illness

On the other hand, critical illness refers to illness such as cancer, heart attack or stroke. Although such these illnesses are considered critical, they may not cause death. Although critical illness sufferers are not faced with life-threatening situations, they may not be able to carry on working. For most insurance policies, you need to buy riders to cover this critical illness portion. Thus, for those who purchased insurance policies that covers merely terminal illness, you are exposed to the risk of loss of income inflicted by a critical illness.

If you look carefully at the CPF’s HPS, the coverage does not include critical illness. Indeed, the premium can be deducted from your CPF Ordinary Account (OA). So, you don’t feel the pinch of paying for HPS. But what is the point of buying something that may not serve its intent? With cancer, heart diseases and stroke so prevalent in Singapore, it is naïve to think that HPS is sufficient to meet your family’s needs.

In my previous article, I shared that HDB owners who use their CPF OA to finance their property can apply from exemption if they have existing life insurance policies. But before you rush to apply for exemption, ensure that your family needs are addressed first and this is very important. Read through the term and conditions of your HPS and existing life insurance policies. Make the effort to understand the thin fine line between terminal illness and critical illness. If in doubt, check with your financial advisor.

Most Singaporeans’ top concern when it comes to buying mortgage insurance is the premium to be incurred. Of course, this is not wrong because one should always live within his means and buy things that he can afford. No point stretching yourself just to pay for something that may not even happen to you in the foreseeable future. But beyond affordability, ask yourself whether your family’s needs are covered.

The worst thing in life is finding out that you have purchased the wrong insurance policies when you need the money the most. In the event of critical illness, you may not be able to work but still have medical and living expenses to settle. Imagine a person who is covered under HPS but did not have any life insurance policies to cover the critical illness. When a critical illness strikes him, he would not be entitled to HPS pay outs. Furthermore, he could even lose his income because he would not be able to carry on working and still need to continue to finance his property. Very sad. Very tragic.

To be sick is one thing. To be sick and still need to face money issues is the worst thing that can happen to anyone. So now I reckon that you are able to appreciate the repercussion of buying the wrong insurance policies?

I know HPS is mandatory for HDB flat owners using their CPF OA to finance their properties. But this does not mean that you should blindly accept it as a fact of life and not make the effort to review your protection needs. In most cases, the HDB officers would just merely inform you that it is compulsory. They are not wrong because it is not their job to advise you on how to protect your wealth.

To be frank, education is always the best solution and this is what I hope to achieve with this blog. To spread awareness and increase financial literacy among Singaporeans.

Many Singaporeans shared that they have lost faith in insurance after receiving surrender value way below their expectations. They felt cheated and made accusations that they were misled into buying these insurance policies. However, we should try to understand the function of insurance and assess what would be the family needs first before we start to enter the market to look for the most suitable insurance products.

Most of us view insurance as a form of wealth building tool but actually insurance is primarily meant to serve as a form of protection against the loss of income. Hence, term life insurance policies often offer the best coverage at very affordable premiums.

I know most Singaporeans cannot get over the fact that there is no cash value for term life policies. It is like throwing away good money into the ocean to cover for an event that may not even happen in the future. Indeed, it can be quite a heart pain to continue paying the premiums for term life insurance policies and having no returns at all.

In fact, in the eighties and nineties, many whole life insurance policies were sold to Singaporeans. These policies may not meet their protection needs but they proved to be immensely popular due to the lucrative commission to be earned by insurance agents. When big money is involved, you can be sure that insurance agents are very motivated to push such policies to you.

Hope you find this article useful. Join me in my wealth building journey by subscribing to my blog. Do not be in the dark side because when it comes to personal finance, ignore is not bliss.

Read my other articles on CPF:

  1. Exemption from Home Protection Scheme (HPS)
  2. CPF’s Home Protection Scheme (HPS)
  3. The Dark Side of CPF Housing Withdrawal Limit

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Magically yours,

SG Wealth Builder

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Updated: August 29, 2017 — 11:03 pm


Add a Comment
  1. Terminal illness is generally accepted as likelihood of dying within 12 months, as certified by the insurers’ panel of specialists (and most other specialists too).

    Hence “critical illness” events such as moderate stroke, myocardial infarct, inability of 3 out of 6 ADLs, blindness, kidney failure, TPD, etc which may not be certified as “terminal”, but will certainly impact your earning capability i.e. job.

  2. Hi Sinkie,

    Yup, that’s right. So have you covered yourself for critical illnesses?


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