TL;DR
Many Singaporeans purchase critical illness insurance (CI) thinking it's the best safeguard against unexpected health issues. But an increasingly relevant alternative—disability income insurance (DI)—may offer more practical, tailored financial protection. This article explores why some professionals, including actuaries, are choosing DI over CI, and how matching coverage to the timing and type of loss may actually provide more effective and cost-efficient protection.
In Singapore, the standard playbook for financial planning typically includes a hospitalisation plan (often an Integrated Shield Plan) and a critical illness policy. These tools are widely perceived to offer peace of mind should health take an unexpected turn.
But increasingly, professionals within the industry are encouraging a re-evaluation of that formula. Rather than focus solely on the payout amount, the real question should be: What type of loss are you trying to insure against?
Alex Lee, President of the Singapore Actuarial Society and a practising actuary, offered insight into his personal insurance portfolio in a recent episode of The Financial Coconut podcast. He said:
“Principle number one of how I construct my insurance portfolio is to match the timing and the size of the loss that you're going to suffer.”
Lee’s portfolio includes an Integrated Shield Plan, a term life policy, and a disability income insurance policy—but notably excludes a standalone critical illness plan. That decision, he explains, is driven by the belief that insurance should mirror the financial consequences of a health event, not just the event itself.
| Feature | Critical Illness Insurance | Disability Income Insurance |
|---|---|---|
| Payout Type | Lump sum | Monthly income replacement |
| Trigger Event | Diagnosis of covered illness | Inability to work due to disability |
| Duration of Payout | One-time | Until recovery or policy end |
| Purpose | Medical and lifestyle expenses | Replaces lost income |
| Coverage Risk | Under/Over-insurance risk | Aligned with income needs |
Critical illness insurance offers a lump sum payout upon diagnosis of specified illnesses. While this sounds ideal in theory, the practical use of that lump sum varies widely. For example, if the illness requires a long recovery period, the lump sum might not last. If the individual passes away shortly after diagnosis, they may have paid more in premiums than they benefited from.
Lee questioned this structure:
“What happens if you outlive that lump sum? Then you’ll be a bit stuck. And what happens if you actually pass on quite quickly after the critical illness? Then you may be actually over-insured.”
This highlights the central issue with lump sum policies: they are inherently imprecise. They don't scale with the actual loss over time—especially for working adults whose main financial exposure lies in lost income, not just treatment costs.
Disability income insurance offers recurring monthly payments if the policyholder is unable to work due to illness or injury. It also covers scenarios where the person can work only in a reduced capacity, earning significantly less than before.
In Lee’s example, medical bills would be handled by his Integrated Shield Plan. But if he couldn’t work, the DI policy would provide ongoing financial support, aligned with his salary.
This structure avoids both over- and under-insurance. It provides support only as long as needed and does so in a format that reflects the actual financial strain—lost income over time.
According to the Life Insurance Association’s (LIA) Protection Gap Study 2022, the average working adult in Singapore has an income protection gap of 80% in the event of critical illness. This suggests that most people are significantly underprepared for the financial impact of a long-term disability or illness, despite owning CI policies.
Moreover, CI policies are often bundled with savings or investment components, leading to higher premiums and reduced clarity around actual coverage.
DI policies, in contrast, are typically sold as standalone protection products and are therefore more cost-efficient for the specific purpose of income replacement.
There are several reasons DI insurance hasn’t caught on widely in Singapore:
Limited Awareness
CI insurance has been heavily marketed for decades. DI insurance remains relatively unknown to the average consumer.
Commission-Based Selling
CI policies often come with higher commissions, making them more attractive for advisers to sell.
Perceived Complexity
DI policies require more explanation—especially around claims criteria and benefit duration—making them harder to sell quickly.
Emotional Appeal of Lump Sums
A one-time payout offers a sense of control and freedom, even if it isn’t the most practical solution.
To determine which insurance is better suited to your situation, consider:
Do you already have an Integrated Shield Plan for hospital bills?
Are you supporting dependents or repaying loans that require a stable income?
How long could you sustain your lifestyle without an income?
Would a lump sum or monthly income give you better peace of mind?
Insurance is not a one-size-fits-all product. For working professionals in Singapore, especially those in their prime earning years, disability income insurance may provide better value and more precise protection.
Choosing the right insurance isn’t just about the largest payout—it’s about aligning your coverage with the risks you’re most likely to face. And for many Singaporeans, that risk is not medical bills, but the sudden loss of income.
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