Working adults have inadequate cover if critical illness strikes, says study

SINGAPORE - Working adults are strikingly short of insurance coverage to meet their needs if critical illness occurs, according to a study.

It found that people here have policies that would meet just 20 per cent or so of their needs if such illnesses occur, leaving a worryingly large gap of 80 per cent.

The Life Insurance Association (LIA) said on Thursday (April 26) that people need coverage to provide for family needs during the assumed recovery period of five years for a critical illness or until the insured person can return to work or adjust his lifestyle needs.

But its study found that Singaporeans have only met a fraction of this.

An average working adult has critical illness cover of just $60,000, well under the LIA recommendation of about $316,000 which translates to about 3.9 times the average annual pay of $81,663.

Critical illness coverage generally comes in whole of life policies or riders on top of other life insurance policies.

This is the first time the LIA survey has included an analysis of the critical illness protection gap.

It told a briefing on Thursday that it added it to its protection gap study because of the increasing likelihood of people surviving and recovering from chronic conditions and living longer but with more years in poor health.

LIA deputy president James Tan said: "Individuals in Singapore are living with an average of eight out of 82 years spent in ill health, and this is coupled with a relatively low take-up of critical illness protection policies that help cushion the financial impact."

LIA president Patrick Teow added that it is planning to implement targeted solutions to help consumers better allocate their resources to ensure adequate protection for themselves and that of their loved ones.

Besides continuing education efforts, plans are underway to introduce an industry-wide digital calculator to empower Singaporeans to take more responsibility for their health and protection needs.

The study, which was carried out last year, used a measure called the protection gap to assess the extent of coverage. The gap is broken down into the death (mortality) and critical illness protection components.

The LIA says the mortality protection gap represents the financial gap to cover needs of dependants, such as loans, children's needs and funeral costs over a defined period in the event of death.

It estimated that the average protection needs against death of a working adult with at least one dependant amounts to approximately nine times the person's annual salary or around $739,000.

A working adult would likely have coverage of about $342,000 while CPF savings account for $94,566 and savings of $132,566. So the insurance protection gap for death works out to about $170,000 or 2.1 times annual income.

The largest mortality gap is among young working adults aged 20 to 34, possibly because they have just entered the workforce and have less disposable income and less priority on getting death coverage.

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