Critical illness insurance policy puzzles consumers

One of the problems with the critical illness policy is that it is being sold by agents who give policyholders the wrong impression that the coverage is wider than it really is. (A critical illness policy is one that pays out a lump sum upon confirmation that the policyholder has been diagnosed with one of the illnesses or conditions covered under the policy)

For example, the agent assures the policyholder that cancer is one of the critical illness covered but does not explain that it has to be the “right “cancer.

Given the popularity of the critical illness policy, Bank Negara should ensure that the consumer is told the truth about the coverage and limitations of the policy.

If consumers already find the life insurance policy difficult to understand, they will be even more baffled with the critical illness policy as it is peppered with medical terms.

Consumers concerned about rising medical bills are easily persuaded to sign up for the critical illness policy as the agents have convinced them that upon diagnosed with any of the 39 (previously 38) critical illness listed in the policy, they will get a pay out. Illnesses covered include stroke, heart attack, kidney failure, cancer, coronary artery disease, just to name the first 5 diseases on the list of 39.  The definitions of the 39 illness covered is standardised  for all insurance companies.

Unfortunately for the consumer, he is probably buying the policy from the agent who only has a very superficial understanding of the policy.

For example stroke is listed as the first critical illness in the list of 39. Thus a policyholder suffering from stroke is covered under the policy unless the stroke falls under the exclusion clause – “Specifically excluded are cerebral symptoms due to transient ischaemic attacks, any reversible ischaemic neurological deficit, vertebrobasilar ischaemia, and cerebral symptoms due to migraine, cerebral injury resulting from trauma or hypoxia & vascular disease affecting the eye or optic nerve or vestibular functions’.

Only a person with a medical background will be able to make sense of it, to the agent and policyholder it is medical gibberish.

Cancer  is listed as number 4 , but a policyholder with breast cancer will not be able to make a claim if the cancer falls under “ductal carcinoma in situ of the breast”, since “ carcinoma in situ” is one of the cancers excluded.
In layman’s term “ductal carcinoma in situ of the breast” means that the cancer has remained in the breast ducts and has not spread elsewhere (i.e. in situ).  Depending on the grade of ductal carcinoma in situ of the breast, the patient may end up having a mastectomy and undergoing radiotherapy, but her claim under the policy will be rejected.

It is thus misleading for the agent to tell the prospective policyholder that cancer is covered when there are as many as five conditions where it is excluded. The exclusion clauses are important because they reduce the coverage under the policy and therefore its value.

Thus the present practice of selling critical illness policy is not acceptable. By painting a rosy picture about a policy which they themselves do not fully understand, agents are misleading consumers to expect a pay out when they may not qualify.

To protect consumers and to clear confusion over the coverage and exclusions of a critical illness policy, Bank Negara should:-

• Ensure the use of clear, simple and friendly language so that the policy is easier to understand.

• Provide a toll free number whereby the consumer can get a proper explanation of the policy.  The person manning the phone should have a medical background or is especially trained for the job. The consumer should be directed to call this  number during the  policy’s  ‘free- look“ period.

• Extend the “free-look” period from 15 to 30 days as the policy is more difficult to understand. (During the free-look period the consumer can cancel the policy without being penalised).

Press Statement – 20 October  2011