Standalone versus Investment-Linked Plan (for medical insurance)

This post is on standalone versus investment-linked plans for the medical insurance plan.

While searching for the best medical insurance for my toddler, I was unsure whether to choose a standalone medical plan or a rider attached to an investment-linked policy (ILP).

So, I gather as much information as possible from insurance providers, insurance agents, and reputable financial websites. I also asked around for personal opinions from others, especially parents on their choice of the medical insurance plan for their kids.

I thought it might be useful for others who wish to choose the best medical insurance plan for themselves or their loved ones.

If you are undecided about whether to choose a standalone medical plan or as a rider attached to an investment-linked policy, do read on.

Table of Contents

• Standalone medical insurance or as a rider attached to an investment-linked plan?
  • Pros and cons of a standalone medical insurance
  • Pros and cons of medical insurance attached to an investment-linked plan
• My personal opinion on a standalone medical plan or a medical rider attached to an investment-linked plan
• Final thoughts

[Disclosure: This page may contain affiliate links. I may receive a small commission when you click on those links, but it will not cost you anything extra. I only recommend services I use now, have used in the past, or would use if there was a personal need.]

Standalone medical insurance or as a rider attached to an investment-linked plan?

Firstly, if you are new to the insurance industry, you might have no idea what is standalone medical insurance and what is a medical rider attached to an investment-linked plan.

Basically, standalone medical insurance purely covers health and medical as stated in the policy. This means no other elements such as savings or investment are involved in the policy.

While medical insurance as a rider attached to an investment-linked plan means that the policyholder needs to have the main policy which covers the life and/or total permanent disability (TPD), and then attached with medical insurance as a rider.

An Investment-linked plan is a hybrid of insurance protection and an investment component where you get to enjoy the possible returns of investing in various investment funds that suit your risk appetite.

AIA

From my reading and research, there is no direct answer whether standalone medical insurance is the best or whether a medical rider attached to an investment-linked plan is the best.

It all depends on factors such as:

• your budget
• the age of the life-insured
• health risk of the life-insured
• individual risk appetite
• financial habits
• other factors such as self-discipline, financial knowledge

What I did was list down the pros and cons of both standalone medical insurance and medical rider attached to an investment-linked plan.

From here, I am able to have a better picture of the benefits that suit me and my toddler best.

Pros and cons of a standalone medical insurance

First, let us start with the pros and cons of standalone medical insurance.

Pros of a standalone medical insurance

These are the pros or advantages of standalone medical insurance:

1. The premium can be cheaper

For the same entry age, a standalone medical insurance premium can be lower compared to the premium when attached to an investment-linked plan.

The reason is that the premium for standalone medical insurance is only taking care of the medical insurance itself. While for a medical insurance rider attached to an investment-linked plan, part of the premium goes to the investment pool.

2. Simple and straightforward

As the name sounds, standalone medical insurance is simple and straightforward. It only covers the health and medical element stated in the policy.

There is no attachment to an investment plan.

3. Flexible

A policyholder holding standalone medical insurance is not locked in with a specific plan or insurer. Usually, the premium is based on yearly.

So, there is always an option to shop for a better deal from other insurers before the next renewal.

4. Can buy online

At the time of writing, one can buy a standalone medical insurance plan online. In other words, one does not need to go through insurance agents or visit the insurer’s office.

In the near future, I foresee, more and more insurers going to make their standalone medical plan available online.

Cons of a standalone medical insurance

And now, the cons or disadvantages of standalone medical insurance are as below.

1. Payment is burnt

Since a standalone medical insurance plan is straightforward for covering the specified medical and health issue within a particular period, payment is being burnt if no claims are made.

If you are someone who thinks that, the payment is to buy peace of mind and to take care of financial risk, you will not mind the payment burnt.

2. Yearly renewal required

As mentioned above, standalone medical insurance requires yearly renewal. Therefore, one must remember to renew annually to ensure continued protection.

By the way, generally, the insurer will send a reminder to the policyholder on policy renewal.

3. Protection ceased if no payment was received

One important thing to take note of about standalone medical insurance is that protection ceased when no payment is received. In other words, if no payment is received, there is no coverage provided.

For example, for whatever reason, the premium is not updated in the system, and coverage stops.

4. The need to shop around for better deals

This point can come as both positive and negative. Positive because one can evaluate his existing policy and get better deals from the current offering. Negative because one needs to spend time and effort to shop, compare and evaluate the new offerings.

If you have knowledge of the insurance industry, this should not be a problem for you.

Nevertheless, one can just renew the policy with the existing provider.

5. Possibility of heavy individual premium loadings

Due to yearly renewal, there are possibilities that the insurer has the right to impose individual premium loadings. In other words, the insurer can have the right to quote you a higher premium.

Especially if there have been big claims made in the previous year.

Unless it is stated clearly in the policy terms and conditions, one can always clarify before enrolling in a standalone medical plan.

6. Premium hike at the next age band

The medical insurance premium is based on the age band. If you refer to any medical insurance proposal, you will notice there is a trend in the premium.

As the policyholder age, the risk of medical and health issues also increases. Therefore, the insurer has to increase the premium. Usually, this happens at the next age band.

7. No waiver of premium feature

As of the time of writing, most standalone medical insurance plan doesn’t have a waiver of premium feature.

“A waiver of premium rider is an insurance policy clause that waives premium payments in the event the policyholder becomes critically ill, seriously injured, or disabled. Other stipulations may apply, such as meeting specific health and age requirements.”

Investopedia

Since there is no waiver of the premium feature, in the event of illness, the policyholder will still need to pay the premium for continuous coverage.

Pros and cons of medical insurance attached to an investment-linked plan

Below are the pros and cons of medical insurance attached to an investment-linked plan.

Pros of medical insurance attached to an investment-linked plan

The pros of medical insurance attached to an investment-linked plan are as below:

1. Some sort of fixed premium

Compared to a standalone medical plan, the premium is sort of fixed premium. So far, my PRUhealth medical plan attached to my Prulink Assurance plan has increased the premium twice in 20 years.

Another reason for the considerably fixed premium is that the policyholder is covering the cost of insurance in the early years of owning the policy.

From another point of view, in medical insurance, no one can assure their premium is fixed unless it is stated in the policy. Simply because of the increasing cost of the health and medical industry.

2. Accumulation of cash value

Since the medical insurance plan is attached as a rider to the investment-linked plan, a portion of the premium is invested in the selected fund(s).

So, as the year goes by, the policyholder will be able to see some return on investment as cash value. Of course, this is not guaranteed unless it is stated in the policy.

Because similar to any investment, there’s a risk involved. The cash value accumulation depends on the types of funds invested, the stock market, and economic conditions.

3. No policy renewal is needed

A medical rider attached to an investment-linked policy does not require renewal. As long as you pay the premium, the protection is on.

4. No additional tasks are needed (comparing proposal, analysis)

Since there is no renewal, there are no additional tasks such as comparing the new proposal needed or performing analysis from different providers.

5. Possibility of Premium Holiday

When you have sufficient cash value accumulated from the investment part of your policy, you can go on a Premium Holiday.

This is when you can temporarily not pay your premium but are still covered by the policy. And the Premium Holiday duration depends on the amount of cash value available.

6. Waiver of premium benefit

Generally, the investment-linked plan usually offers the waiver of the premium rider.

So, when a policyholder opts to have the waiver of premium benefit together with the medical insurance plan, in the event of illness, the premium is waived.

This means, in the event of illness, the policyholder does not need to pay the premium but still enjoys the medical coverage. Of course, the terms and conditions for the waiver of premium benefits differ from one insurer to the other.

Thus, do refer to the insurer before you sign up for any plan.

7. Guidance and support by an agent or life planner

As of the time of writing, one can only enroll in an investment-linked plan through the insurer’s registered agent or life planner.

The advantage of having an insurance agent or life planner is that there is someone to provide guidance and support should you need assistance related to your policy.

But, of course, the level of guidance and support differ from one agent to the other. So, make sure you choose your agent wisely. Because an insurance policy can be a lifelong relationship.

And since you are paying the agent commission, you deserved good service from them.

Personally, after dealing with a few insurance agents, I now choose my agent by on my own criteria for a good insurance agent.

Cons of medical insurance attached to an investment-linked plan

Below are the cons of medical insurance as a rider to an investment-linked plan:

1. Higher premium

Medical insurance attached to an investment-linked plan comes with a higher premium. Simply because it is a more comprehensive plan with additional benefits compared to a standalone plan.

2. Hard to switch

Once a policyholder decided on an investment-linked plan, it is recommended to stick to the plan. Mainly because there could be financial losses if you switch a medical rider attached to an investment-linked plan.

For further details, read my sharing on:

• important considerations before switching medical insurance plan
• 6 don’ts with medical and health insurance

3. Possibility of the need to top-up premium

Despite there is cash value accumulated from the investment part, there is still a possibility of the need to top-up premium. Especially if the return from the investment is very poor and the policyholder enters an older age band.

Even though the possibility is low, the policyholder needs to be aware of this. So that the policyholder can learn to monitor the cash value and investment performance.

And at the same time make preparation should he really need to top up the premium.

My personal opinion on a standalone medical plan or a medical rider attached to an investment-linked plan

And these are my personal point of view on what situation standalone medical plan may be the more suitable option:

• young (because you get a lower premium)
• no dependent (does not need a waiver of premium feature)
• limited budget
• only want medical insurance coverage
• has proper financial planning (remember to renew policy)
• has the discipline to invest the premium difference himself
• does not require assistance from an insurance agent

While medical insurance as a rider to an investment-linked plan may be a better option for the situation below:

• has dependents such as family members (waiver of premium can be an important feature)
• has a sufficient budget for insurance coverage
• wish to have a comprehensive plan such as critical illness, personal accidents, and other benefits
• prefer someone else to manage the investment
• need assistance from insurance agents
• parents who wish to have payor benefits for their child’s policy

Again, the situation and the choice can change from time to time. For example, a young graduate who just joins the workforce may opt for a standalone medical plan.

A few years later, when he gets married and plans to start a family, he may think of a more comprehensive plan such as an investment-linked plan with a medical rider.

Then, at retirement when he has a less financial commitment, he might think that a standalone medical plan fits him better. Provided his health condition allows him to do so.

Alternatively, you may want to take a look at a medical plan that grows with you such as Prudential Medical Booster. You can choose from two medical plans, namely PRUValue Med and PRUMillion Med. If you want to know more details, fill in the contact form at the bottom of the page. A wealth planner shall contact you soon.

Final thoughts

With the sharing above, I hope you can have a better picture of the differences between a standalone medical plan versus a medical rider attached to an investment-linked plan.

No matter what is your decision, I hope that you are able to find a suitable plan for yourself or your loved one. With the rising medical cost, medical insurance is a very important part of our life now.

The basic part is to make sure the premium is affordable to you and comes with sufficient coverage.

If you are looking for ways to reduce insurance costs, you might be interested to read my sharing on how to lower health insurance premiums.

Lastly, in case I’ve missed out on important points, feel free to share your comment below. Let’s help each other to get the best medical insurance coverage based on our unique needs.

[Disclaimer: I am not a certified financial planner. My sharing is purely based on my own research and personal experience and intended as educational material. In order to make the best financial decision that suits your own needs, you must conduct your own research and seek the advice of a certified financial planner if necessary.].

Image Credits

Image by ar130405 from Pixabay