Signing up for your first insurance policy, or reviewing your current coverage?
When it comes to medical insurance, there are a lot of products in the market. To many of us, it’s not always clear how these insurance products complement each other, or how they fit into our lifestyle.
This is especially true when it comes to hospitalisation and surgical insurance (widely referred to as a medical card) and critical illness insurance. If you already have a medical card (or if your life insurance policy has a medical rider), you may be wondering if you need a critical illness insurance.
Here’s what you need to know.
Medical card vs critical illness insurance
A medical card and a critical illness insurance differs in terms of function, coverage and payout. However, both are eligible for tax relief. Here are their differences at a glance:
| Medical card | Critical illness insurance | |
|---|---|---|
| Function | Covers the costs of treatment or surgery when you are admitted to a hospital | Gives you a lump sum payment if you are diagnosed with one of the covered critical illnesses |
| Coverage and payout | The payout covers the costs of medical treatment or hospitalisation only | Patient can use the lump sum payout for anything they want (e.g. pay off some of the costs associated with illness, but were not incurred in the hospital) |
| Tax relief | Eligible | Eligible |
Read on for a more in-depth comparison.
How do they work?
Don’t have any insurance coverage at all? Start with a medical card. Everyone needs a medical card – if you’re not adequately insured, large medical bills could bankrupt you or put you in debt. A medical insurance policy will help pay for the costs of medical treatment or hospitalisation.
In contrast, a critical illness insurance policy gives you a lump sum payment upon diagnosis of any of the critical illnesses covered. It also pays upon death or disability.
What are the payout terms?
With a medical card, the payout doesn’t go directly to you. Instead, the payout will be used to cover your hospital bills.
A critical illness insurance policy will give out a lump sum payment, which you can use for anything you want. This is useful, because some of the costs associated will illness and hospitalisation are incurred outside the hospital.
For example, say a patient has been admitted for heart valve surgery. She could use a critical illness payout to cover the following:
- Any loss of income she incurs while recuperating
- Dietary requirements or supplements she many need after the surgery
- Her family’s costs of commuting to and from the hospital
On the other hand, if she only had hospitalisation and surgical coverage, she may have to fork out for these costs herself.
What types of critical illness policies are there?
Critical illness policies come in a few different flavours:
- Basic critical illness. This covers a set of critical illnesses (depending on your policy, this could range from 36 to 50+ critical illnesses) at late stage conditions.
- Early-stage critical illness. This generally pays out a lump sum upon diagnosis of a covered critical illness at early or late stage conditions.
- Multiple critical illness. Under this policy, you’ll be able to make multiple claims throughout the policy term. But you’ll need to check the fine print – some policies allow you to make multiple claims on the same critical illness if it relapses, while some policies will allow you to make claims for different critical illnesses.
Is there any tax relief?
Yes, they are both eligible for tax relief.
When filing your income tax relief, you’ll want to pay attention to these categories:
| Relief type | Limit |
|---|---|
| Life insurance and EPF INCLUDING not through salary deduction | RM6,000 |
| Insurance premium for education or medical benefit INCLUDING not through salary deduction | RM3,000 |
If your medical card or critical illness insurance are standalone policies, you can claim up to 100% of your total premium paid under the medical benefit category.
But if your medical card or critical illness insurance is attached to your life insurance policy, you can claim up to 100% of your total premium paid under the life insurance and EPF category, or up to 60% of your total premium paid under the medical benefit category.
If you’re unsure, it’s best to check with your agent or insurance provider.
Do you need both a medical card and a critical illness insurance?
When it comes to insurance coverage, you’ll have to make sure that you at least have a medical card, or a life insurance policy with a medical rider. Having a medical card can help you avoid being saddled by high treatment and hospitalisation costs.
Once that is taken care of, you can consider getting a critical illness plan. Consider the following factors:
- Affordability. While you should make space in your budget for insurance, it shouldn’t make it hard for you to service other financial obligations.
- Coverage. How much coverage do you need? The general rule of thumb for minimum coverage is three years’ worth of your annual income.
- Dependents. Do you have any dependents (elderly parents, children, etc.) that rely on your financially? Consider how they may be affected if you are diagnosed with a critical illness, and whether or not you would need a critical illness payout to help with managing your financial obligations.
- Family history. Do you have a family history associated with any of the critical illnesses covered, which may increase your chances of being diagnosed? If so, getting a critical illness plan could provide peace of mind that in the event of a diagnosis, you’ll have a financial safety net to fall back on.
The bottom line? A critical illness insurance policy acts as a second layer of protection. Getting it is not as crucial as having a medical card, but it certainly goes a long way in providing a financial safety net in the event of illness, death or disability.
