Planning to get yourself covered by insurance? Or considering whether to accept the sales pitch from your financial advisor?
Here are five insurance terms you need to know before committing to any insurance plans for the rest of your life.
The deductible is the initial amount you need to pay yourself for claim(s) made in a policy year before any policy benefits are paid out.
That means that any claim amount that falls below the deductible will not be paid for by the insurance company. Instead, you will need to bear the cost on your own.
However, once your claim amount exceeds the deductible, the insurance company will pay you the difference between your claim amount and deductible (the amount you will receive = claim amount – deductible).
Why is there such a clause?
The deductible is often included in insurance plans where an individual might make more than one claim, for example, hospitalisation or motor insurance plans.
The deductible prevents you from making claims on small amounts so as to ensure that you are only making claims that you really need (larger claims).
Co-insurance is not to be confused with deductibles. Co-insurance is the amount you need to co-pay/share (with the insurer) after you have paid the deductible. Co-insurance is usually expressed as a percentage.
How does it work?
For example, you bought a hospitalisation plan with $3,000 deductible and a 10% co-insurance. Let’s say you need to make a claim of $20,000 on a hospitalisation bill. The actual claim amount you will receive is $15,300.
($20,000 – $3,000 deductible – 10% of $17,000) = $15,300
3. Definition for cancer
Cancer is a very generic term that we use to classify anything that involves mutation of cells.
However, to make claims for cancer from an insurance company, you will need to fulfil the strict medical definition of cancer.
According to Life Insurance Association of Singapore, cancer is a malignant tumour characterised by the uncontrolled growth and spread of malignant cells with invasion and destruction of normal tissue.
In particular, the Life Insurance Association excludes the following as definitions for cancer:
- Carcinoma-in-Situ of the Breasts, Cervical Dysplasia CIN-1, CIN-2 and CIN-3
- Hyperkeratoses, basal cell and squamous skin cancers, and melanomas of less than 1.5mm Breslow thickness, or less than Clark Level 3, unless there is evidence of metastases
So, don’t commit to an insurance plan thinking that you are fully covered for all forms of cancer unless it is stated within the contract.
Underwriting is the evaluation of your health condition to assess the risk and exposure that the insurance company is exposed to.
It is then used to determine whether you are entitled to premiums for standard life or sub-standard life.
If you have had health conditions in the past, the insurance company can choose to either exclude you from a particular claim (e.g. heart attack) or choose to classify you as a sub-standard life. As a substandard life, you will still be able to make claims.
However, you will need to pay a higher premium compared to those that have been classified as standard life.
A rider is an add-on on top of the basic insurance plan. Riders provide additional benefits to you at an additional cost.
Since riders are added on to the basic insurance plan, they are often cheaper than if you were to buy a new insurance plan that provides the same benefits as the rider.