Common Insurance Policy Mistake

Recently, I have done some Policy Review for a few of my friends. Just for the sake of understanding their existing insurance/takaful policy coverage. What surprises me, there is a common mistake which is apparent in their existing policies. Before I divulge further, let me just define a few relevant terms for better understanding of the issue in hand.

I will use the terms defined in AIA insurance/takaful policy. The terms might be different between insurers but they carry similar meanings. 

Death Benefit - If the Person Covered dies while this Certificate is in force, We shall pay to You or the Nominee(s), as the case may be, the full Face Amount plus Account Value. 
Lump Sump Advance Payment for Critical Illness (CI) - In the event the Person Covered's survival following a diagnosis of CI or surgery for any of the Covered Surgeries, we shall advance in one Lump Sum the benefit amount of this Supplementary Contract.
Continuation of Supplementary Contract - If there is payment of a claim under a Supplementary Contract providing any type of accelerated or advance benefit payment of the Face Amount of the Basic Certificate and this resulting in the Face Amount being reduced to 0 such Supplementary Contract and all other Supplementary Contracts providing any type of accelerated or advance benefit payment of the Face Amount shall automatically be terminated. 
Typically, an investment linked life insurance consists of a few components such as Death Benefit, CI, Personal Accident (PA), Waiver of Contribution and Medical Card. The plan can be adjusted according to the insured needs.

What I've discovered recently while doing policy review with my clients are the Death Benefit provided in their policy is of the same value with CI. No matter how a policy is written or termed, Critical Illness lump sum payment will be deducted from the Death Benefit i.e the Life Sum Assured. The insured will be paid a lump sum payment upon diagnosis of any one of the listed 36 critical illnesses. Upon payment of this CI benefit, the balance Death Benefit will be ZERO (0)!!

What this means is that, the policy will be terminated since no Death Benefit exists anymore. When the policy is terminated, all other benefits will also be terminated since these benefits are attached to the Life Policy. This includes the insured Medical Card benefit. It has to be said that when one is diagnosed with CI, it does not mean that person will die immediately. If he undergoes proper medical treatment, there are possibilities that he will recover and live a normal life again. But when he is given a lump sum payment similar to his Death Benefit due to CI diagnosis, he loses his Medical Card benefit since the policy will be terminated. The lump sum money he received will now have to be used to pay for medical expenses to recover from the CI. Mind you, medical expenses is never cheap especially if you are recovering from critical illnesses. Instead of using the money as a source of income during this trying time, he will have to use the money to pay for hospital expenses instead.

This is a rather common mistake that I've discovered in my client's existing life policy. To know whether your policy has the same mistake, just take out your existing policy and refer to the Death Benefit and Critical Illness benefits. Some policy define its Critical Illness benefit as Crisis Shield. Whatever it is, the same thing applies. If your Death Benefit and CI benefit are the same, you probably received the wrong advice when you took up the policy. Try to ask your agent to revise the policy such that its CI benefit is lesser than the Death Benefit.

If you find difficulties in understanding your existing policy, not to worry. I do provide FREE Policy Review for your existing policies. Just give me a call or fill in the Contact Me form. It's really important to structure your policy correctly. Do it right first time!

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