Dreading the Unknown!

DR DREAD....

Fear of the unknown has been with us since time immemorial. Team building specialist David Roppo says, “You can’t rise from the ashes if you refuse to walk through the fire”. That may be so but surviving a dread disease makes that walk difficult without financial support. None of us like to consider the consequences of a severe illness however a lack of planning will make the journey a difficult one.

It is estimated that one in five people will suffer from a serious illness at some stage in their life, and one in eight will contract cancer before the age of 65. Deciding on whether or not to take out dread disease cover is a difficult decision for many as it can be costly. Understanding how this cover works and what to consider when assessing the need for this cover in your insurance portfolio is vital.

The basics

Critical illness, also referred to as dread disease cover or severe illness cover, is offered by most long-term insurance companies, and provides financial protection in the event that you are diagnosed with a debilitating illness, whether terminal or not. It takes the form of a tax-free, lump sum payment on diagnosis of a listed illness and must be made by a registered medical professional. With advances in medical science, we know that humans are living longer but sometimes with severe, sometimes terminal, illnesses. This makes dread disease cover more relevant than ever before. Statistics show that that you are far more likely to con-tract a dread disease than die prematurely or become disabled, so dread disease cover is worth contemplating as part of your overall risk portfolio.

What does it cover?

Most dread disease policies cover cancer, stroke, heart attacks and coronary bypass graft surgery, which are regarded as the Big 4 when it comes to dread disease, although cancer remains the leading cause of dread disease claims. However, it is advisable that you do your research into each insurer and determine exactly what conditions are covered and to what extent they are covered. As a rule of thumb, dread disease policies provide cover for conditions such as kidney failure, major organ transplants, chronic liver failure, loss of sight, rheumatoid arthritis and respiratory failure. Get a complete list of the conditions covered with a clear explanation of how the disease is covered.

Many insurers offer different levels of cover from basic plans that cover a handful of conditions to more comprehensive cover including a wide-ranging list of conditions. If there is a concern about a genetic family history of a specific illness be sure to check the conditions of cover before signing.

The better insurers also offer ‘catch-all’ benefits which could provide cover for diagnosis of a disease which is not listed in any other benefit category which results in an impairment. The level of payment in such a case is usually dependent on the level of severity of the impairment and may extend their dread disease offerings to include additional benefits such as ICU benefits, early cancer, cancer relapse benefits, and child critical illness benefits. Your financial advisor will be in a position to talk you through the pros and cons of these extended benefits and the costs thereof. With the help of your advisor you should be able to craft a package that will address your specific concerns.

Why do we need it?

As a lump sum payment, dread disease cover is designed to provide financial relief soon after diagnosis of a severe illness. Once the claim has been paid, you are free to use the money as you see fit. You may want to use the money to make home modification and lifestyle adaptations, settle debt or cover medical expenses not paid for by your medical aid. It can also be used to cover the costs of home care, travel costs for treatment overseas, or to supplement your loss of income.

What types of cover are available?

There are two, namely accelerated and stand-alone benefits. The type of cover you choose can have a significant impact at claims stage. If your benefits are accelerated, it means that the value of a dread claim will effectively reduce your life insurance benefit by the same amount. For instance, if you have life cover of R2 million, and you claim R500 000 from your dread disease benefit, your life cover will reduce to R1 500 000. On the other hand, stand-alone benefits do not have the effect of reducing your life cover and can be sold separately or in conjunction with life cover. Naturally, stand-alone benefits are generally more expensive than accelerated benefits as your insurer stands to pay out more in respect of claims.

For your information...

Unfortunately, not everyone will be able to secure dread disease cover. The underwriting of your application for cover will take into account your current health status including your personal medical history, HIV status, previous operations, mental health issues, and chronic conditions that you may have suffered from in the past. The insurer will also access your current life-style in terms of smoking, drinking, exercise habits and hazardous pursuits. Your application is likely to also include questions about your family’s health as many diseases are hereditary. Your age, gender and occupation will also play an important role in the underwriting process. The reality is that the likelihood of contracting a dread disease increases with age and the earlier you take out cover the better, as later in life you may be considered a high-er risk and may become uninsurable. If you have already suffered from a dread disease, you may find you receive an exclusion for this pre-existing condition, or your application maybe be declined entirely.

How long?

Most insurers provide the option to take out dread disease cover for whole of life. This makes sense because many diseases are linked to old age and your risk of contracting a severe illness increases with age. However, be sure to check the manner in which your premiums escalate on an annual basis because, if you have high premium escalation, your cover may be-come unaffordable over time.

What if?

A claim for dread disease is normally accessed according to a severity level and offer a percentage-based pay-out depending on the progression of the illness. This also allows for multiple claims as the condition worsens. For instance, if you are diagnosed with stage 1 cancer, the insurer will pay out 25% of your claim. If your cancer progresses to stage 4, the insurer will then pay out the remaining 75% of your benefit. On the other hand, most insurers offer a comprehensive or top-up version of their dread disease benefit which will pay out the full amount on diagnosis of the above mentioned Big 4. Bear in mind that lump sum payments in respect of dread disease cover are tax-free.

How much?

How long is a piece of string? Dread disease cover is generally quite expensive, so it is important to give careful thought to the cover you need. In determining the correct level of cover for your needs, give consideration to how com-prehensive your medical aid is, whether you have gap cover in place, and the extent of your disability insurance. Other factors include what type of support system (like family) you have in place should you fall ill, the level of your emergency funding and any discretionary funding that you have access to. Determining the most appropriate level of cover is a balancing act between your affordability and risk protection. Your financial adviser will be able to guide you through the process. It isn’t pleasant but the alternative is worse.....