Be prepared — dread disease can strike any one of us
You might not have a family history of any serious diseases and be perfectly healthy, yet your financial planner will always recommend critical illness cover as an essential component of your financial plan.
It is an expensive benefit and therefore not always considered a priority. However, as financial planners, we know that a critical illness can have a serious impact on your finances.
We have learnt from our own experiences with family members and clients that cancer knows no age, race, economic class or family history. It can happen to any of us, even though we all prefer to think that it will never happen to us.
Statistics from Cansa indicate that the cancer risk for South African men is one in seven and for women one in eight.
The good news is that due to improved medical technology and treatment, cancer can be diagnosed at an earlier stage, and the survival rate has improved.
What is critical illness cover?
It is typically a lump sum that will be paid if you are diagnosed with a critical illness. All companies will cover the "big four" diseases: cancer, heart attack, stroke and the condition requiring an artery bypass graft. It is clear from the claim statistics of life assurance companies that these are the major causes of critical illness claims.
Every life company has its own unique benefits, but comprehensive critical illness should provide cover for illnesses, conditions or procedures involving all major body systems.
Diseases like Alzheimer's and Parkinson's as well as a loss of a limb or senses should also be covered under comprehensive critical illness.
In the event of a claim you may be able to claim against your critical illness cover and your disability cover, but remember that lump-sum disability cover only pays when you can prove your disability is permanent and you will not recover from it.
A minor cannot apply for critical illness cover, but most companies will include the life assured's minor children.
Why do you need critical illness cover?
• To help offset the shortfall on your medical scheme cover. The cost of treatment that is not covered by a medical scheme can be extensive (thousands of rands);
• To explore alternative treatments that are not necessarily covered by a medical scheme, and to have access to the latest medical technology; and
• For additional day-to-day living expenses, which could increase substantially because you might want to switch to a healthier diet and make serious lifestyle changes. Some life companies offer a critical illness income benefit to address this need.
It is difficult to establish the exact amount of cover you will need in the event of, for instance, a motor neuron disease. We recommend at least R1m of cover.
This cover can be for the rest of your life or until age 65. It is better to select the whole-of-life option, since you would probably need the cover more after the age of 65 than before that age.
It is also important to choose a policy in which your premiums do not increase with age, since the cover can become unaffordable when you are retired, and need it the most.
Critical illness cover can be standalone or accelerated. If the cover is accelerated, it means that your claim is an early payment of your life cover and will reduce your life cover, and you will not be able to claim again if your benefit is depleted. Even though an accelerated option is cheaper, it is not worth it due to the fact that you may deplete your life cover.
Standalone cover is recommended as you would be able to claim more than once for unrelated events. If, for instance, you have a Hollard Life policy you would be able to claim for related conditions 90 days after your first claim.
You can select between maximum cover and severity-based cover. Severity-based cover will pay out in stages, for example 25% for stage 1 cancer, 50% for stage 2, 75% for stage 3 and 100% for stage 4. It is best to get 100% cover for the majority of events.
All applications for critical illness cover are subject to underwriting, and it is possible for the life insurance company to exclude pre-existing health conditions or to load your premiums for a pre-existing condition.
If you do not have critical illness cover, give it some serious consideration.
It is devastating enough for a family to cope with a critical illness and the associated financial implications; and even more traumatic if there is no critical illness cover.
• Botes is an adviser at Ultima. She has 19 years' experience in the financial services industry