6 common mistakes to avoid when buying your first critical illness insurance

Looking to purchase your first critical illness insurance plan? Buying your first critical illness insurance plan is a big decision, as the right plan ensures that you have financial protection for the unexpected events in life.

In this article, we discuss 6 common mistakes that people tend to make with their critical illness insurance purchase and how to avoid them.

What are the common mistakes to avoid?

Mistake #1: Putting it off till you are older

If you wait until you are older, you may be missing out on health coverage for when you truly need it. Furthermore, getting insurance after a health diagnosis is challenging, especially if you have a condition like diabetes, which can lead to limited insurance options or increased cost of insurance.

The best time to purchase critical illness insurance is when you are young and healthy. As a young person, use this time to your advantage. Take these years to save, plan for life goals, and get covered for unforeseen health issues.

Mistake #2: Buying critical illness plan based on pricing only

In insurance, the policy that often grabs attention is the one with a lower premium cost. Wanting to save money on your insurance is understandable, but choosing a policy solely due to its lower cost might not align with the coverage you genuinely need.

The premium of an insurance policy is often directly proportional to the extent of coverage it offers. Lower premium may indicate less coverage, and a higher or more comprehensive coverage will typically come with a higher premium. Price point alone should not be the sole consideration factor. Rather, it is better to evaluate the coverage offered in addition to the premium cost.

Mistake #3: Choosing a plan based on a friend’s recommendation

While friends and family may mean well, it may not be the wisest approach to follow their suggestions blindly. What suits them may not be the best fit for you if it doesn’t align with your needs.

So, what are your insurance needs, then? It depend on factors like your financial situation, family, lifestyle, health history and critical illnesses you want coverage for.

Instead of hastily purchasing the same plan, take time to find out why it worked for them. Perhaps understand their needs and the reasons behind their choices – it can provide you with insights into whether it aligns with your own needs.

Just like how you consider other insurance plans, pause and ask yourself:

1. Is this plan as comprehensive or basic as I want?
2. Does this plan match my current lifestyle and health needs?
3. Have I considered about how it fits into my overall insurance portfolio?
4. Can I afford this plan?
5. Do I truly understand how this plan works?

If you answered no to any of these questions, perhaps it is time to reconsider.

Mistake #4: Not reading the policy document before buying

Don’t make the mistake of getting a policy without understanding the details. Think about it like shopping for anything else – when you buy items like electronics or clothes, you naturally check the details to know what you’re getting. The same applies for insurance. The last thing you want is to buy the policy, and then regret it later when you realise it’s not what you wanted.

It might be tempting to gloss over the policy documents handed to you during the purchase but resist the urge – you should take the time to understand what you’re paying for. Being informed ensures that you know your insurance and what it covers when you need it.

The best way to start is by reading through the policy contract and policy illustration. Use this as a basic checklist of things to familiarise yourself with when reading through the documents.

• Coverage
• Amount of coverage (sum insured)
• When the pay out will happen
• Exclusions
• Premium payment term (i.e. how long you pay the premiums for)
• Period of insurance (i.e. period of coverage)

Seek clarification on any aspects of the policy that may leave you puzzled. As the saying goes, “when in doubt, ask”.

Mistake #5: Overlooking the free-look period

Don’t overlook the free-look period in insurance policies. This crucial time lets you review and cancel without penalties if the policy doesn’t match your needs. All insurers in Singapore¹ grant a 14-day free look period, which starts on the day you receive your policy documents.

Mistake #6: Getting too little (or too much) coverage

Getting adequate insurance coverage is more important than you may think. Not having enough coverage exposes you to some financial risks if you are diagnosed with a critical illness and are unable to work during the recovery period.

The coverage should take into account your financial needs for a five-year recovery period when you cannot work². Your financial needs may include household expenses for your family, outstanding debt payments and lifestyle maintenance.

On the other hand, it’s possible to unintentionally have excessive coverage. This is a situation of being over-insured.  Getting more coverage than you actually need may put a strain on your expenses, akin to bringing out a larger umbrella than necessary for a light drizzle – it might offer more protection, but at the expense of unnecessary bulk. Hence, the coverage should be something you can comfortably afford for a long time.

To help gauge how much insurance one may need, the Life Insurance Association² has offered two general guidelines:

• Aim for critical illness coverage around 4 times your annual income
• Limit insurance expenditure to no more than 15% of income

You can also check out our article for more insights on how to gauge the right amount of critical illness coverage for yourself.

Being financially protected

Stay ahead of your financial planning so that you and your loved ones can focus on living life to the fullest, worry-free, knowing that you’ve got yourself covered if such a time unfortunately comes. FWD offers a suite of critical illness plans that caters to your coverage and protection needs. Find out more about FWD critical illness plans.