Critical Illness Coverage Is Important

If you have friends (or frenemies) who are insurance agents, they have probably asked whether you have an insurance policy. And you’ve probably answer (whether truthfully or not) that yes, you have “many” policies.

Well, most of us do have some basics covered with medical insurance, some death, total and permanent disability (TPD) coverage, and maybe even some critical illness coverage (if the police was purchased in the last decade).

When asked what insurance you think the average Malaysian needs the most but does not have, most actually answer “medical insurance”. Maybe this perception comes from seeing long queues and packed wards in government hospitals.

However, the truth is that more than 90% of Malaysians are lacking in Critical Illness coverage.

What is Critical Illness (CI) insurance? - As a simplified explanation, you receive payment (in part or full depending on the severity) when you are diagnosed with any of the following 36 Critical Illnesses:

• Cancer (63.8%)
• Heart Attack (9.4%)
• Coronary Artery By-Pass Surgery (5.9%)
• Stroke (5.5%)
• Kidney Failure (2.9%)
• Other Serious Coronary Artery Diseases (2.7%)
• Brain Surgery (2.3%)
• Fulminant Viral Hepatitis
• Major Organ / Bone Marrow Transplant
• Paralysis / Paraplegia
• Multiple Sclerosis
• Primary Pulmonary Arterial Hypertension
• Blindness
• Heart Valve Replacement
• Loss of Hearing / Deafness
• Surgery to Aorta
• Loss of Speech
• Alzheimer’s disease / irreversible organic degenerative brain disorders
• Major burns
• Coma
• Severe Cardiomyopathy
• Motor Neuron Disease
• HIV Due to Blood Transfusion
• Parkinson’s Disease
• End Stage Liver Failure (Chronic Liver Disease)
• End Stage Lung Disease (Chronic Lung Disease)
• Major Head Trauma
• Chronic Aplastic Anemia
• Muscular Dystrophy
• Benign Brain Tumour
• Encephalitis
• Anglioplasty and other invasive treatments for major coronary artery disease
• Bacterial Meningitis
• Loss of independent existence
• Systematic Lupus Erythematosus (SLE) with Lupus Nephritis
• Full Blown AIDS

Why do I need Critical Illness coverage? - History lesson: Knowledge on Critical Illness coverage is still somewhat lacking in Malaysia. Critical Illness insurance (originally known as Dread Diseases) was first launched in 1983 in Africa.

In Malaysia, 36DD (no, not cup size but 36 Dread Diseases) started in the 90s.

Back then, every insurance provider had their own definition of what was “Critical”. But as we entered year 2000, the Life Insurance Association of Malaysia (LIAM) was formed at Bank Negara Malaysia’s request and the list of 36 Critical Illnesses was largely standardised.

This was further streamlined in 2016 by LIAM. One big misconception is that we already have medical insurance and as such do not need Critical Illness coverage.

In actual fact, medical insurance coverage (a definite must) is used to cover the cost of hospitalisation, doctor’s fees, surgery and medication. In other words, it all goes to the hospital and doctor.

However, Critical Illness insurance is payable to YOU. This means you get much needed funds when you need it most i.e. during and while recovering from a critical illness.

After a person is diagnosed with a critical illness, the now recovering individual will be out of work for quite a while. If you are employed, by Malaysian labour law, you are given hospitalisation leave of up to 60 days only (slightly over two months).

But full recovery from a critical illness takes an average three to five years before you are up and running again. And it may take even longer to find employment.

At the same time most of your living expenses and bills are still ongoing (food, home loan, car loan, utilities, child/parent support, etc).

Thus your money from your Critical Illness Insurance is important for the following reasons:

• Income replacement for the full recovery time (aka lifestyle maintenance/loan cancellation).
• Funds available to opt for alternate/additional treatment possibly outside Malaysia.

How much Critical Illness coverage is required? - It is recommended that critical illness coverage is equivalent to five years of your annual income. At the very least, it should cover two and a half years of your annual income.

• Median Malaysian salary: RM5,000 (Source)
• Annual income: RM60,000
• Recommended: 5 years annual income equivalent: RM300,000
• Minimum: 2.5 years annual income equivalent: RM150,000
• But how much Critical Illness coverage do we have as Malaysians?
• Above 90% of Malaysians have less then RM100,000 in Critical Illness coverage (most actually have below RM50,000).

The cost of Critical Illness coverage - “I am enlightened and know that Critical Illness coverage is important and good for me. However I am concerned about costs, I have expenses and I need to think of saving up for my future as well.”

Congratulations for saving up for your retirement. You are already ahead of the pack if you are keeping expenses below 60% of your take home pay and saving at least 10% of your income (the more the better, of course).

Insurance costs should be at no more than 10% of your income (but probably more than 5% or you would be under-insured which means you are actually at risk).

Critical Illness coverage is actually affordable especially if purchased relatively young (40s and below) when you have not been afflicted by any critical illness yet.

Monthly cost estimates for RM150,000 Critical Illness coverage (by default comes with RM150,000 Life and Total and Permanent Disability coverage together):

• Age 20: 100 per month
• Age 30: 100 per month
• Age 40: 200 per month
• Age 45: 200 per month (for RM100,000 coverage only)
• Age 50: 300 per month (for RM100,000 coverage only)

How long before I can make a Critical Illness claim? - The waiting period is normally 60 days from the date of the policy coverage for critical illness.

The severity of early/intermediate/advanced stage of critical illness also affects when you can submit a claim depending on your insurance policy.

Source: MyPF (is on a mission to help simplify and grow Malaysians’ personal finances through financial education)