In Part 1, I described some basic parameters that I use in order to recommend a policy to the client.
1) Age
2) Price (Cost of Insurance per year/month)
3) Surrender/Claim Values
4) Coverage Range
Some clients can be more complex. Of course, we consider FAMILY background as an important factor, but for general situations, there are also further considerations for the selection of the 'Best' plan for specific individuals of different social economic statuses.
These include:
5) Additional Features
6) Price (Cost of Insurance in Total/ Structural Considerations)
7) Sum Assured by Price (Size)
8) Sum Assured after Working Ages
5) Additional Features
Insurance companies have gotten particularly creative with their list of additional features.
While typically not the reason people buy critical illness policies (or SHOULD), some popular emerging additional features include:
Typically Seen in Whole Life Policies:
a) Guaranteed Issuance Offer feature – the right to purchase additional policies without medical underwriting during specific life stage events, such as Marriage, Getting a Home, your first child. Some Term policies have started to provide this as well.
b) Retrenchment Benefit – An increasingly popular feature, it allows some of your premium to be waived upon proof of retrenchment.
c) Maturity Benefit – Often overlooked but likely in demand in the next 20 years, a Maturity Benefit will pay the client in full if the client outlives the definition of ‘Whole Life’ at the time, which is typically 99 years.
On a personal note, I would point out that our average lifespan was considerably lower 15 years ago, so it would be quite likely for me to see the definition of ‘Whole Life’ extended beyond 100 years in my lifetime.
Typically Seen in Term Policies:
a) Return on Premium - a type of life insurance policy that returns the premiums paid for coverage if the insured party survives the policy's term.
b) Additional Death Benefit/Insurance – amount payable to beneficiaries of the insured individual once the insured passes away. In this context, despite not being a life insurance policy - some CIs will give an additional benefit upon death out of goodwill or structure.
c) 'Higher of’ Benefit - CI costs can be drastic, to the point that premiums can exceed the amount that the company was insuring you for at the point. This is especially likely if you had loading and are of old age. Imagine paying $20,500 for 10 years and being insured for only $200,000 without any claims.
Some people would feel bitter about that - and as a result, term policies are increasing coming up with this feature where the benefit, or an enhancement of (b), would occur so the client experiences higher benefits.
6) Price: (Cost of Insurance in Total, and Structural Considerations)
It’s also important to compare price fairly and distinguish between a yearly amount and a total amount. One client complained that my yearly amount quoted was too high:
I quoted: $2800 a year.
Her friend quoted: $2280 a year.
Seems reasonable obvious what to choose from…except that mine was a 15-year whole life policy and her friend’s was a 25 year pay, whole life one.
My policy was $520 more expensive for 15 years, for a total of $7800.
Her friend’s policy was $2280 more expensive for 10 more years, for a total of $22,800.
Based on affordability alone, purchasing my plan would actually save her $15,000 despite the insurance and insurance values lasting the exact same tenure.
Obviously there could be an opportunity cost using that money upfront to purchase insurance, but that’s a consideration that is often overlooked.
7) Sum Assured by Price
Did you know that insurance gets cheaper the more you buy of it?
It might sound a little odd, but it's no different from why a jug of beer costs less per 100ml than a single pint.
Here’s a simple illustration to get my point across.
In scenario A, every $1 purchases $761.03 worth of life insurance.
But in scenario B, due to purchasing in bulk - every $1 purchases $1021.45 worth of life insurance instead since the amount purchased at once is larger. The difference between that and $761.03 is significant.
Certain companies structure this more favorably than others.
8) Sum Assured Needs After Working Ages:
I covered this in detail in what I call Theory of Foresight.
Basically, a decent amount of white paper suggests that contrary to what some people believe, you actually need your CI policy to last for your whole life and be a substantial amount because your costs are actually higher after retirement, not lower.
So the Sum Assured needs to be carefully considered – but obviously, that means you need to balance need with cost again.
For the most part, CPF and Careshield and various studies on mortality tend to support this to some degree, but not substantially enough to have the entire Financial Industry up in arms.
But you have to balance costs as well as needs in regards to your personal situation, which a consultant can help do for you.
Other Notable Factors:
· Definitions
Way too complex to get into today, some critical illness definitions – particularly on the early and intermediate stages – are better than others, making them clearer defined or easier to claim from (e.g. less tests required).
· Credit Ratings: Some insurance companies have better credit ratings, suggesting their financial strength is stronger when it comes to important things like processing claims, for example.
· Investment Returns: Sometimes Par Plan Returns (Whole Life), sometimes fund returns (ILP) or even straight up, the risk pooling funds (Term) that make up the strength of the company. You can read a little bit more about that here and here.
· Gender: Women typically experience higher costs for Critical Illness policies than Men. You could run any head to head comparison for the same age group above 21 and see this – which falls in line with some of the research here.
Conclusion
If you've read Part 1 as well, hopefully you can see that comparing a policy is far more complex than simply checking prices. Part 1: https://www.moneymaverickofficial.com/post/how-an-early-critical-illness-specialist-does-a-comparison-part-1
The value of a consultant, especially an Early Critical Illness Specialist – is integral in making sure that you have the best policy – for YOU.
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Money Maverick
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