As a relatively new entrant to the long-term insurance market, dread disease cover is often not top-of-mind when putting risk cover solutions in place. However, due to the high prevalence of dread disease, fear can lead to disproportionate spending on this benefit relative to death and disability cover. As a relatively expensive product, affordability is often the main driver in the decision-making process although in reality there are a number of factors that should be taken into account. Here’s what to consider:
Your medical aid plan option: A primary consideration should be the level of medical aid cover that you enjoy, keeping in mind that the purpose of dread disease cover is to provide financial assistance in the wake of a diagnosis to help with the financial burden of dealing with the disease. A dread disease payout, which is tax-free, is designed to cover out-of-pocket medical expenses such as medical appliances, home adaptations, travel costs, private nursing and other expenses that you’ll likely need to self-fund.
Gap Cover: Gap cover is short-term insurance which, together with your medical aid, provides top-up health cover up to certain limits. Its role is to provide additional financial protection to medical aid members who receive in-hospital treatment to ensure that they’re not saddled with large out-of-pocket expenses following a hospital event. Having said that, keep in mind that a dread disease diagnosis does not necessarily require hospitalisation or surgical intervention, but rather out-of-hospital treatment or therapies which are generally not covered by gap cover. In such circumstances, a dread disease payout can offer considerable financial relief and peace of mind.
Disability cover: Capital disability cover, which provides a lump sum payout in the event of permanent disability, generally serves a specific purpose in one’s portfolio such as providing capital to pay off a home loan or settle debt. Further, keep in mind that a dread disease diagnosis does not necessarily translate into permanent disability, meaning you would not qualify for a capital disability payout. If you have an income protection benefit in place which pays out in the event of temporary or permanent disability, note that this benefit is designed to replace the income you’ve lost as a result of the illness and, as such, may not be sufficient to cover the additional costs associated with your illness.
Affordability: Your ability to afford dread disease cover both now and into the future is paramount, so pay particular attention to your premium pattern and how you can expect your premiums to escalate over time. Importantly, ensure that your dread disease cover keeps pace with the rising costs of inflation so that the value of the benefit does not lose comparative value over time.
Your health status: Naturally, your current health status is an important factor to take into account, together with any specific illnesses you may be concerned about. That said, while some illnesses may be hereditary, many are a function of poor lifestyle choices such as smoking, bad nutrition and a sedentary lifestyle. Further, certain illnesses such as dementia and Alzheimer’s disease are a function of ageing and are not necessarily hereditary. The reality is that no one knows what illness they are likely to suffer from in the future, so choosing a dread disease benefit that covers the most common illnesses is always advisable – keeping in mind that all insurers provide cover, in varying degrees, for the big four diseases being cancer, heart attacks, strokes, and coronary artery bypass grafts which account for between 70% and 90% of all dread disease claims.
Your age: Generally speaking, the younger you are, the more affordable your premiums will be. This means that, if you’re relatively young and in good health, you can benefit from taking out dread disease cover with favourable underwriting premiums. However, if you lock yourself into a product with a high premium escalation, you may be forced to cut back or cancel your cover later, which is counterintuitive. Many insurers offer age-rated premiums which start off relatively low, but which rise sharply as you age. To counter the effects of this, some insurers soften the curve by starting out with a slightly higher premium which is used to cross-subsidise the cost of future cover, allowing for a smoother premium increase over time. This is a complex area of financial planning, and it is always advisable to speak to an independent financial advisor who can guide you through the selection process.
Your insurability: The extent to which you are insured will also have bearing on your decision to take out cover. During the medical underwriting process, consideration will be given to any pre-existing conditions which, in turn, may result in premium loadings or outright exclusions. Loaded premiums may make the cover unaffordable while exclusions may lead you to question the overall value of such cover. With this in mind, your age and health status have enormous bearing on your ability to secure this type of cover, so securing some form of severe illness cover while you are young and healthy is optimal.
Your support system: The extent and dependability of your support system will have direct bearing on your need for dread disease cover. A spouse and family members who live in close proximity can play an important role when it comes to assisting with childcare, home care, transportation, shopping, household management and general logistical support. In the absence of a support system, you would likely need to outsource many of these functions in the wake of a diagnosis, so be sure to understand how you will be supported should you fall ill.
Emergency funding: Access to emergency funding is a key factor to consider. Remember, claiming for dread disease cover takes time and it’s important to ensure that you have immediate access to cash in the wake of diagnosis to assist with the medical costs involved in diagnosis. Depending on the nature of your policy and diagnosis, you may be required to undergo further medical testing or obtain additional medical reports before the claim will be paid out, which makes emergency funding essential.
Choosing the right dread disease cover involves carefully evaluating your health needs, understanding the terms of the policy, and considering your financial portfolio in its entirety. By assessing coverage options, comparing insurers, and consulting with a financial advisor, you can make an informed decision that provides peace of mind and financial security in the wake of a diagnosis.
Have a fantastic day.
Sue
