Beware when a plan sounds too good to be true

By | September 12, 2016

Have you ever tried reading your insurance policy contract? How far did you actually go? Not very far, I guess.

Consumers are not trained to read the fine print of an insurance policy contract. And it is also not their interest to do so as they rely almost entirely on the financial planner to highlight to them the important parts.

Having said that, savvy consumers will ask pertinent questions about the product they are about to buy. But unless the financial planner is competent (and one from an IFA), he or she will not be able to point out the differences between the various plans in the market.

So when this client of mine was approached to buy a standalone triple critical illness plan (covers early, intermediate, major and special illnesses), he decided to check with me. I told him this is a product that I represent as well. But there are reasons why I’m not recommending it!

 Some features of the plan:

  • The basic sum assured can be ‘refreshed’ (or restarted) such that a maximum of 3 times the basic sum assured can be claimed.
  • ‘Refresh’ happens only after 12 months from the date of diagnosis of the immediately preceding critical illness for which a claim has been admitted.
  • Premium is ongoing during this 12 months despite the possibility of having zero or reduced coverage
  • Maximum claim limit for different stages: Early – $200k, Intermediate – $300k, Major – no limit
  • Payment term is ongoing either till age 75 or 100
  • Surrender value available with the age 100 option if surrender happens after age 75 or 60th policy anniversary

Taking a closer look at this
I had to read the policy wordings multiple times to make sure I got this right. This particular point needs to be singled out as I believe this is not explained clearly to my client.

Although the plan is marketed as an early stage critical illness plan, it is unlike the usual plans whereby one can claim for the major/intermediate stage of an illness even after an early stage of the same illness was claimed.  Here, when a claim has been made on a particular critical illness, no second claim is payable on the same illness, even when it has progressed to a more severe stage and when the plan has activated the ‘refresh’. (Plans from other insurers can allow for up to $200,000 early stage claim for a CI condition, and then another $200,000 for intermediate stage for the SAME CI condition and there is no claim limit for the major stage of the SAME condition.)

Is this for you?

  1. The rates of the plan is perceived to be ‘cheaper’ only when you assume you are able to trigger all 3 times of the ‘refresh’ feature. This also means that you need to contract a DIFFERENT critical illness (as compared to a different stage of the SAME CI) in order to claim for a second and third time. So, in order to fully benefit from the triple sum assured, you must first claim for critical illness 1 and then survive at least 12 months (while paying premiums at the same time) before contracting a totally different, unrelated critical illness 2 and then claim again, and survive at least another 12 months (yes, and still continuing to pay premiums) before finally contracting a third DIFFERENT critical illness 3 to claim the third time.Do you know of anyone who has managed to contract different critical illnesses over and over again and could time the occurrence such that it is beyond the 12 months interval and did not die in between?
  2. When compared to other more competitively priced options that also offer superior benefits, is this a worthwhile deal? The $500,000 example used in the marketing illustration makes the plan look very attractive. What if you were to buy a basic coverage of $100,000, $200,000? Does it still look as attractive?

Well, my point is this – when something sounds too good to be true, be inquisitive and dig deeper. Surely, you want all the facts laid out in front of you before signing on the dotted line.

If you are considering this plan, and want to make an informed decision, contact me and I’ll  share with you more.

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