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The Financial Wellness Coach: Critical illness cover ma...

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The Financial Wellness Coach: Critical illness cover may be just the medicine you need if you get a dread disease

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Kenny Meiring MBA CFP is an independent financial adviser. You can contact him at Financialwellnesscoach.co.za. Please send your questions to [email protected]

Question: I’ve heard that critical illness cover is important. I’ve done some internet research into it and have become very confused. Prices and benefits seem to vary immensely. What should I look out for and how do I go about choosing the right one?

First published in the Daily Maverick 168 weekly newspaper.

Answer:

Critical illness (also called dread disease) cover typically pays out a lump sum of money should you become ill with a severe illness.

Baby boomers like myself saw that a diagnosis of cancer was a death sentence for our parents. This is no longer the case.

Over the years medical advancements have resulted in more people surviving these medical conditions. But the survivors often end up in financial trouble.

Critical illness cover was developed by Dr Marius Barnard.

He had a follow-up consultation with a patient whose life he had saved. He was shocked by what he saw.

The medical costs had destroyed her finances and she could not afford to take off the necessary time to recuperate. She was existing rather than living.

Barnard believed that this was an insurable event and with the help of some insurance people, designed a product that evolved into the critical illness cover that we get today.

(A bit of trivia: Barnard was inducted into the Insurance Hall of Fame as a result of his creating this new field of insurance.)

In our current economy, with many people all working for themselves or on contract, becoming ill can really destroy your finances. Not only do you have medical bills, you also have to deal with your income stream drying up because you are unable to work.

I’ve seen a number of instances where the personal finances of a family have been devastated because of the illness of a parent or a child. Critical illness cover could have prevented this.

How ill must you be to warrant a critical illness payout? This is where the confusing range of products comes in. In short, you get what you pay for.

If you get cheap cover, you will typically have to be really ill to meet the stringent definitions for the benefit payment. The more reputable companies have very comprehensive critical illness products that cover you at various stages of illness.

I would strongly recommend that you chat to a skilled adviser here.

To help you know what questions to ask, here are a few features that you must look out for:

Is there a reinstatement benefit?

If you claimed for a heart attack, would you be able to claim if you had another one a few years later?

If you had a claim for skin cancer and then you developed lung cancer, would there be an additional payout?

How comprehensive are the benefits?

Will the benefit only be paid under very specific circumstances? Are only certain specific types of cancers covered?

At what stage of an illness will the benefit payout be triggered?

If, for example, you became ill with cancer (which can progress from stage 1 to stage 4), at what stage would you be paid out? Many of the cheaper policies only pay out when you are extremely ill. You would ideally like the payout to happen as early as possible so you can fight the disease hard in the early stages.

Is there a catch-all clause?

If your illness does not fall into a typical definition set, is there a catch-all clause that may trigger a payment? There are situations where you could end up in hospital for an extended period with a cluster of conditions that, on their own, may not warrant a payment, but taken together they could result in a claim. Covid-19 comes to mind here.

Are you covered for the whole of life or does the benefit stop at a certain age?

There are products on the market that cease when you turn 65. Don’t let the cheaper price fool you – the chances of you claiming after the age of 65 are high.  

If you have critical illness cover as part of your group benefits, be careful because this will typically stop when you retire.  

I recommend to my clients that they take out a whole-life critical illness policy that allows them to increase the cover in the future. You can keep the benefits low while you are working and then increase them when you have retired and lost the group cover.

You are much more likely to get a severe illness than to die. Whereas most people have some form of life cover, very few have severe illness cover. This can leave you financially exposed. DM168

This story first appeared in our weekly Daily Maverick 168 newspaper which is available for free to Pick n Pay Smart Shoppers at these Pick n Pay stores.

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