Ask Melanie

Ask Melanie: Critical Illness Cover

Melanie Nutbeam, a certified financial planner based in Hong Kong, addresses common personal finance queries. Send your questions to

PUBLISHED : Monday, 19 November, 2012, 12:51am
UPDATED : Monday, 19 November, 2012, 1:54am

I read Fiona Bishop’s article “Life after a stroke” in the SCMP’s Family Post where she said her husband’s critical illness policy provided an unexpectedly large financial safety net for their family when he suffered a stroke at 43. What does this policy cover and how much cover is needed?

A critical illness policy pays you a lump sum if you’re diagnosed with a serious illness, or suffer a major trauma, as defined in the policy. The lump sum is yours to spend as you wish. You can use it to pay for home nursing, overseas treatment, and rehabilitation. One of my clients had a heart attack at 42 and received his lump sum payment within six weeks.

By then he was back at work, with a stent and a modified  lifestyle, and cleared his mortgage. This reduced stress, accelerated his savings, and allowed for early retirement.

You probably already have a medical insurance policy but that’s not enough. These only make provision for hospital and outpatient costs, not the costs of coping with ongoing care and treatment when the hospital sends you home. In Fiona Bishop’s case her husband was discharged from hospital in Hong Kong nine days after his stroke. He subsequently spent five months in rehabilitation in Ireland while she had to move the family to a new home here. He was off work for nine months and now works four days per week. Their lump sum helped cover costs and gave them more options. That in itself reduces family stress.

Often, people think of financial consequences for their family if they die, but not of the financial stress and setbacks of surviving a serious illness or trauma. Or they have income protection insurance which provides a monthly payment of up to 75 per cent of their income but no lump sum. Luckily, the Bishops had arranged critical illness cover. You should review any existing life and income protection cover to see how critical illness cover complements it. A combination of each should reflect your circumstances. Single people, for example, might reduce life insurance cover in favour of critical illness cover.
Planning for the unexpected is an art. Statistics indicate one out of four men and one out of five women suffer a heart attack, cancer or stroke before age 65. The cover you “need” should be gauged against existing accumulated assets, liquidity, objectives and health history.

The cost will depend on how much cover you arrange and on your age, sex, health, recreational pursuits and policy benefits. Most policies cover about 30 illnesses, including “the big three” – cancer, heart attack and stroke. Deafness, blindness and loss of limbs arising from accidents are standard inclusions. Policy features can include guaranteed premiums, although usually for a set period because increasing lifespans  and advancing medical technology mean claim payments have risen. Most insurance companies now reserve the right to increase premiums but offer the option to reduce cover accordingly. Watch out for policy exclusions and definitions of illnesses that might exclude family proclivities. Watch out, too, for any waiting period before making a claim and the period for which you must survive an illness after diagnosis before a claim will be paid – usually up to one month.

Provide full disclosure when completing your application or claims may be fruitless. Review your cover regularly, especially if it’s in a foreign currency. The policies mentioned are all straight insurance policies designed to meet their prime objective. Remember to pay your premium (autopay is helpful) otherwise the cover will lapse.

The views presented are of a general nature. For specific advice, talk to a professional planner. See the column archive at