Recently as the deadline for the change in Critical Illness definition looming, more people are taking an interest to re-look at their insurance coverage. One interesting clause that not many end consumers are aware of is the 90 days waiting period for all CI coverage.
What exactly is this 90 days waiting period?
Essentially, when you purchase a critical illness coverage, regardless if it's a standalone plan or a rider attached to another plan, there is a clause that critical illness claims can only be accepted 90 days after the date of inception. The rationale for such a clause is typically to prevent cheating the system. The last thing an insurer wants is for people to profit from insurance such that they purchase a critical illness plan when they feel something is wrong with their well-being and sees a doctor a few days after their plan gets in-forced. Imagine doing so and making a claim a month later. This would totally be against the spirit of insurance which is to protect against unexpected events that unfortunately happen.
Is it important?
Usually, it's simply good to know. I mean if you have zero critical illness coverage and you are going to buy it anyway, you just have to accept the clause and live with it. There's no such thing as I want to be covered for standard critical illness (based on Life Insurance Association guidelines) coverage but only want to buy from the insurer without that clause. I haven't found such an insurer yet despite carrying over 14 life insurers on my platform!
It is important to know of such a clause if you are doing a replacement of policy. This is because the 90 days waiting period will apply to all new critical illness coverage. To further explain this, sometimes people may choose to replace their existing policies with new policies for various reasons. Just to name a few possible reasons include:
not buying the right policy that they wanted initially (eg mistaking an ILP for a life policy or not knowing term plans exists) and wanting to re-direct the premiums to something more suitable at the current juncture
paying too much for too little coverage due to the pricing of old plans (eg, taking over plans that their parents bought for them) and wanting to re-direct premiums to a more suitable coverage based on insured's life stage now
it can also be as simple as special discounts to new plans given by insurers that makes more financial sense to lump a bigger sum assured into one plan instead of adding on additional coverage with a new plan while keeping the old plan
Ultimately, reasons vary on a case by case basis but the key information to note would be the pros and cons of making this decision. For starters, if you have pre-existing conditions, please stay put with your old protection plans unless the insurer of the new plans can offer similar terms.
So if anyone chooses to replace their policies particularly those with critical illness coverage, then the 90 days waiting period is an important clause to note. This is because replacement of policies entails a fixed process that can ensure that the client's interest is properly taken care of. Assuming the rationale for replacement is legitimate, then generally replacement of policies basically requires the new plan to take effect and the old plan to cease. When the new plan takes effect, the 90 days waiting period kicks in. This means that if a critical illness claim is made during the first 90 days of the policy inception, the CI benefit won't be payable.
If the insured has already cancelled the old plan, this means that he/she would not have any coverage during this period and thus no claims can be made.
Therefore, if one wants to properly replace their existing policy, there is a need for them to keep their old plans in force until the 90 days waiting period of the new plan is over. This basically means that the policy owner would need to pay for the new plan and also pay for the old plan during this period.
Only on the 91st day from the date of issue of the new policy will the CI benefit take effect. It is thus highly recommended that if one is unwilling to pay for 2 plans concurrently during this period, to not replace their policies. An alternative option is always to add on to your existing policies if your coverage is insufficient.
Can I just cancel my old protection policy straight away after my new protection policy take effect?
Technically you can because the first and second plan are not directly linked. However, just because you can does not mean you should. I repeat, it's not recommended! This is because cancelling the policy straight after the new policy takes effect will result in a period of 3 months where you will have to go without critical illness coverage. This is a risk that anyone who choose to cancel their policies straight away will have to undertake.
A lot of times, people will be tempted to take a 3 month risk on this option as they may suddenly become unwilling to pay premiums for a policy they are going to cut off. After all, most of the time, replacement is done because they want to get better benefits at lower cost. As mentioned, this option is not recommended because nobody can tell when we will fall sick. If we can, then all of us should buy insurance just 1 year before we fall ill right? Why bother incurring additional premiums paying for coverage as early as possible? The fact is, we cannot tell when we fall ill that's why we should get insurance as early as possible.
If a person can successfully replace their policy without putting his/her interest in detriment, then this person should not be penny wise pound foolish and jeopardise their entire financial well-being for 3 months of premiums. After all, if you did not replace your policy, you would still need to pay the premium. Mathematically, an additional 3 months premium paid for long term cost savings or more coverage for similar premiums is definitely worth it as long as the new solution benefits are equal or better than the old solution.
Summary
In short, there is a 90 days waiting period for all critical illness coverage. If you are thinking of doing any policy replacements, do take note of this clause and keep your existing coverage till your new policy is fully effective. Do not try to scrimp on the premiums by cancelling your old coverage prematurely because you think nothing will happen in 90 days. The reason you bought insurance in the first place is to protect yourself financially should anything unforeseen happen. It would be totally not worth it if you tried to save 3 months of additional premiums, something unexpected happens and you lose out on a 6 figure payout. Lastly, CI definitions are changing on 26 Aug 2020. This should also be an added consideration in the future if you wish to replace your policies after 26 Aug 2020.
If you are currently thinking of re-looking at your critical illness coverage, please speak to a trusted advisor. You can drop me a message if you would like me to help you with it.
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Disclaimer: The content created are based on my personal opinions and may not be representative to everyone or any organisation. If you have any doubts or queries pertaining to insurance or investment, please seek professional advice from a trusted adviser in an official setting. You may also reach out to me if you do not have a present adviser using the message box under 'Let's Talk'.
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