Is ECI plan necessary?

Hi anon,

Let's talk about the 'expensive' bit first, and then we'll examine the 'necessary' bit.

When you say 'expensive', there must be some benchmark with which you measure it against and found the ECI plan expensive. Now, since the purpose of an ECI plan is to provide a payout to you to take care of your ongoing living expenses and any other ancillary expenses that you may incur as a result of being diagnosed with early stage CI, then the alternative to an ECI plan is to have a sum of liquid money set aside for such purposes. Investments do not count because the value of your investments will fluctuate. People often forget about downside risk, and even if you don't lose monies in the short term, if a market crash and a cancer diagnosis come together (which happened to my manager's client last year during circuit breaker), I don't think you will too happy about liquidating at a loss.

Now then, let's say you are 30, male, non-smoker, and wish to have $100K to support yourself in such an event till age 70. You can either have $100K in your bank right now, never touching it, or you can get one of the following options

• Early CI only term plan covering your for 40 years - I found a quick quote at $890/yr for 40 years

• Whole Life $50K SA x 2 plan with pure ECI rider - $1864.5/yr for 20 years

• Standalone term plan with ECI rider covering you for 40 years - $579/yr for 40 years

• Multipay Plan covering you for 40 years - $1310/yr for 40 years

Now, if you paid this premium (doesn't matter which one you choose), and even if you chose the whole life plan, if you are down with an early stage critical illness in the following year, you get the payout of $100K. No questions asked.

That's how insurance works. You fall sick, you get the payout. I don't think you can turn $1864.5/yr into $100K within one, five or even ten years. There is simply no asset class that can give you the money in this fashion.

Saying that an ECI (or CI) plan is expensive, is like saying that the air bags of a car is expensive and you'd like a cheaper car without an air bag because you think that the seat belts, your brakes, and your driving skills should be enough. No one wants to use the airbag, but when a bus rams your car from the back because it couldn't slow down in time, you will appreciate the air bag.

So in terms of mitigating low probability, high impact event, it's quite unlikely that the premium of an insurance plan is 'expensive' relative to the actual financial impact. Just read this article about Wimbledon's pandemic insurance.

Now, about the necessity of an early CI plan. This is very subjective and open to a lot of debate. While I will say that CI coverage is important, especially for working adults, early CI (and multipay) is about enabling options.

Think of CI insurance as having an ice cream. You choose your type of plan (term/whole life), similar to how you tell the ice cream uncle whether you'd like a cup or a cone. You add your CI riders to the plan, like how you would choose one favour for your ice cream. And if you have a little bit more budget, you can add a second scoop to your ice cream. This is akin to adding some Early CI cover to your coverage. And lastly, if you are feeling generous, add a topping to it (i.e. multipay).

So budget does matter. Don't sacrifice other essential coverage just because you want ECI cover. If having a late CI plan and a hospitalization plan will cause you to utilize your budget fully (which should not be more than 10% of your income, when it comes to insurance), then don't get ECI cover. That's ok. Get your coverage in place first, and then focus on increasing your income so that you can have the option of getting your ECI cover later on.

But if you are looking at a CI plan that will cost you, say $200/mth, and an early CI plan that costs $230/mth, and that $30/mth isn't going to strain you, then I would say that you should give getting early CI coverage some serious thought. Obtaining your coverage is not via that $200/mth or $230/mth, it is actually via your current good health. You're just paying for it with cash.

I generally recommend my families and friends to get CI to ECI coverage of 2:1 or 3:1. Meaning if you are looking at 200k CI coverage, you can consider 100k or 70k ECI coverage.

My reasoning is that CI coverage should only be a form of income replacement to allow you the option to stop working and focus on recovering upon diagnosis. Note: Treatment costs should be covered by a good Health/Hospitalisation Plan instead. This is especially important during your prime working years of age 25 to 65. And as the name suggests, CI is called critical for a reason, you would be taking a critical hit per se, as your life would likely be affected in a drastic way, even upon 'recovery'. For instance, heart attack survivors might no longer be able to do certain activities, even after 'recovery'. So do get sufficult coverage for CI. The Life Insurance Association of Singapore (LIA) recommends 3.9 times your annual income for CI coverage.

ECI coverage on the other hand, is also a good to have for a more comprehensive coverage, though if one do get diagnosed with ECI, it is unlikely to affect one's life in the same drastic way as a CI. As such, it is good to have some form of ECI coverage, but less than your CI coverage. This is especially relevant since like what you pointed out, ECI coverage is indeed much more expensive than CI coverage.

If you indeed find ECI too expensive for the coverage you are considering, you can consider getting a term coverage until an earlier age, such as age 65, and it is usually much cheaper. Afterall, ECI/CI coverage is more or less only especially important during your prime working years of age 25 to 65. By the time you decided to stop working, you should have already gathered sufficient retirement funds for your day-to-day expenses (there's also your CPF Life payouts), and ECI/CI coverage then would be less of a need.

In addition, do get a good Health/Hospitalisation plan, just in case of an ECI/CI after that age, so at least treatment is well-covered, and you wouldn't have to tap into your retirement funds.

Best.

- Jeffrey (jeffreyleezq.com)​​​