How you can benefit from a severe illness benefit

Medical doctor with specimens

Being diagnosed with a dread disease or severe illness is a life-changing event and can have a serious impact on the quality of your life. Severe illness is not selective and can affect anyone, although factors such as age, gender, lifestyle, and family history can contribute to your chances. Statistics reveal that you are far more likely to contract a dread disease than die prematurely or become disabled, making living with a severe illness a reality for many of us. Being a relatively expensive form of long-term insurance, the cost of dread disease cover may be prohibitive for many. That said, this form of cover can play an important role in helping you to survive financially in the wake of a diagnosis.

Dread disease cover is an insurance benefit that offers a lump sum, tax-free payment in the event that you are diagnosed with a severe illness. Most dread disease benefits cover cancer, stroke, heart attacks, and coronary artery bypass graft surgery – with these four illnesses accounting for between approximately 70% and 90% of all claims. However, cancer remains the leading cause of dread disease claims, with cancers and tumours accounting for around one-third of all severe illness claims. The 2019 National Cancer Registry (NCR) estimates that one in every 27 women is at risk of being diagnosed with breast cancer in their lifetime. Their data shows that breast cancer treatment, especially where the disease is identified early, can be highly effective with a survival probability of 40% in this country. When it comes to men, prostate and colorectal cancers have proven to be the top two invasive cancers according to their 2019 report. Again, being treatable diseases (especially in the case of early detection) many people find themselves living with these diseases – often at a high financial cost – which is where dread disease cover can play a critical role.

In terms of benefit structure, most insurers offer dread disease cover as either a standalone benefit or a supplementary benefit to your life cover. As a standalone benefit, it is particularly attractive to those people who do not want nor require life cover. Most insurers also provide the option of purchasing dread disease that ceases at the insureds age 65 or as whole-of-life cover that continues for the duration of your life as long as the premiums are being paid.

In terms of costs, dread disease cover is relatively expensive, although the cost of the cover depends on each individual’s personal health circumstances. Generally speaking, the younger you are when you take out the cover, the lower your premiums are likely to be. Your premiums will also be affected by the extent to which your benefits escalate each year, bearing in mind that linking your cover to annual inflation will help ensure that your cover doesn’t lose value over time. If affordability is an issue, you may choose to implement a nominal level of cover and increase it steadily over time until you reach a level that you are comfortable with. When applying for dread disease cover, ensure full disclosure on the application form and don’t leave anything out, no matter how insignificant it may seem to you.

When it comes to determining the most appropriate quantum of cover, it is advisable to view the benefit in relation to the other healthcare-related benefits that you have in place, such as medical aid, gap cover, income protection, and capital disability, as these all play a role in insuring you against ill-health or disability. Remember, while medical aid is designed to cover the actual costs associated with hospitalisation, healthcare service providers, and medicines, the proceeds of a dread disease payout can be used to cover any expenses that arise as a result of your illness such as home and vehicle modifications, wigs, travel-related expenditure, alternative therapies, and private nursing. For those with a dread disease diagnosis, it is often difficult to anticipate the expenses that may arise going forward, and this type of cover may provide much-needed financial relief for the whole family.

Navigating the labyrinth of dread disease cover can be a minefield, primarily because no two insurers provide the same set of benefits, making like-for-like comparisons almost impossible. Some insurers differentiate their offering by including over 300 illnesses or conditions, while others include intricate methods of calculating disease severity for claims-paying purposes. On the other hand, certain insurers offer very comprehensive cover for cancers, but a more limited list of other diseases. Most independent financial advisers will have software that they can use to generate meaningful cost and benefit comparisons which will narrow down your choices and make selection easier. Before choosing an insurer, it is essential to do your research and speak to an independent advisor who can assist you with choosing the most appropriate cover.

While old-style dread disease policies provided a lump sum pay-out on the diagnosis of a limited number of listed events or conditions, modern dread disease cover has kept pace with advances in medical diagnosis, the discovery of new illnesses and the associated treatment thereof, the result of which is that claims pay-outs are dependent on the severity of the disease and not on diagnosis. As such, modern dread disease cover generally allows for multiple claims as and when the disease or condition progresses to the next stage. This means that dread disease cover often has a partial benefit payment system which is linked to the severity of one’s illness and the insured will not necessarily be paid out 100% of cover when claiming upon initial diagnosis. In certain circumstances, the insurer may perform an assessment referred to as ‘activities of daily living’, which is an internationally recognised system for determining the impact of a condition on the insured’s life so as to assess a level of payment for the illness. Therefore, upon diagnosis and claiming, the level at which the insured will be paid out will be directly linked to the severity or stage of the illness.

When taking out dread disease cover, it is important to understand what exclusions and/or waiting periods apply and to pay attention to the fine print. In general, alcohol and drug abuse can result in exclusions from such cover, as well HIV and AIDS-related illnesses. Self-inflicted injuries and attempted suicides are also generally excluded from cover. Some insurers can impose waiting periods in respect of condition-specific claims involving, for instance mental health conditions. It is also important to find out whether your policy includes a survival period for a dread disease claim, for example, a 14-day survival period which practically would mean that if you suffer from a heart attack and pass away seven days later, the policy would not pay out as your death would have occurred within the 14-day survival period.

A dread disease lump sum payout can provide a financial lifeline to a family who is facing mounting healthcare costs as a result of a severe illness. The funds can be used to cover the costs of new treatments and technology that are not yet covered by medical schemes, income lost as a result of illness, to assist with the costs of special dietary requirements, alternative treatments and therapies, travel costs, home care, and private nursing. Having said that, being a relatively expensive benefit, it is important to consider dread disease cover holistically and to prioritise your healthcare and other risk insurance needs accordingly. Ideally, speak to an independent advisor who can help you find balance in your overall risk portfolio in terms of appropriate cover and the relative costs thereof.

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