Can your finances survive you falling ill?

Statistics show that many of us will endure a major illness such as a heart attack, cancer or stroke in our lifetime.

It was South Africa’s Dr Marius Barnard, the brother of the world-renowned Dr Chris Barnard who, as far back as the 1980’s, was the inspiration for the introduction of dread disease cover. Dr Barnard recognised that the survival of such a medical event had long-term and significant financial implications. He then came up with the idea of insurance cover specifically aimed at financial alleviation of post-event costs, some of which can stretch over many years.

Major critical illnesses

According to industry experts claims due to cancer, heart attacks, strokes and coronary artery bypass graft surgery (the four main critical illnesses), make up between 70% and 90% of all dread disease claims. Cancers and tumours account for approximately 30% of this total.

What is dread disease cover?

Dread disease cover is an insurance benefit that offers a tax-free, lump sum payment in the event that the insured is diagnosed with a severe illness. Most insurers offer dread disease cover as either a standalone benefit or an additional benefit to life cover. The majority of insurers provide the option of purchasing dread disease cover as term cover up until the insured reaches the age of 65, or as whole-of-life cover that continues up until his/her death. Transparency, simplicity, ease of understanding, and ease of doing business are very important when it comes to dread disease cover.

Cost implications

While dread disease cover can be expensive, the cost varies according to the personal health circumstances of the insured. Generally speaking, the younger you are the more affordable the premiums will be. It is important that your cover keeps up with annual inflation in order to ensure that you are sufficiently protected when the time comes that you need to claim.

Why do you need dread disease cover?

Dread disease cover is an important part of your holistic financial plan as, together with medical aid and gap cover, it will safeguard your financial wellbeing in the event that you suffer a critical illness.

Even at mild severity levels an illness can have a huge impact on one’s life. It is important to understand that the role of medical schemes are to cover the direct medical costs relating to an illness, such as hospital costs and the cost of medical professionals, and as such do not provide funds to assist with the effects of a serious illness on your personal finances and your ability to earn an income.

What level of cover do you need?

When deciding on the level of cover that you need, it is important to consider that 50% of all heart attacks are mild or minor, 40% of strokes result in mild damage, and 60% of cancers are stage 1. The conclusion could be reached that most claimants will fall into the mild severity category – for which severity products would typically pay only 25%. Furthermore, lifestyle adjustments that need to be made can be significant, even at lower illness severities, and survivors may not get the pay-out they need to meet some of these costs.

As modern medicine progresses, one can expect that people suffering from one of the four core dread diseases will survive and go on to live for a number of years following the event. Hence, the greatest need for victims is not only to survive the illness but also have the financial means to provide for post-event services such as rehabilitation and the remodelling of their home and workplace, to say nothing of potential loss of income during and after recovery.

Navigating the minefield

The scope and comprehensiveness of dread disease cover can be confusing as insurers each use different definitions, offer different levels of cover, and some also differentiate between severity levels of the illness. In order to ensure that you obtain cover that is optimal, given your personal circumstances, it is vital that you consult your financial adviser to discuss your options before making a decision.

The information contained in this article is of a general nature and intended for information purposes only. It is neither to be construed as financial advice nor to be regarded as a definitive analysis of any financial, legal or other issue. Individuals must not rely on this information to make a financial or investment decision. Before making any decision, we recommend you consult your financial planner/adviser to take into account your particular investment objectives, financial situation and individual needs.