Critical illness benefits: cover the unexpected costs

Money, unfortunately, cannot buy perfect health. But it can at least help to lift the large financial burden when dreaded and life-changing illnesses like cancer, strokes and heart disease strike. Not only is the cutting-edge medical technology used to treat these illnesses very expensive, but the recovering patient often requires costly lifestyle changes like modifications to the home to allow wheelchair access or the employment of a full-time caretaker. Being aware of the risks to which one is exposed, is the first step to making arrangements to mitigate these risks. However, many people live with a false sense of security that their medical aid will provide for all their healthrelated expenses, oblivious of some of the shortcomings of these schemes.

Why medical aid alone is not enough

Medical aids generallly cover in-hospital costs well. Dayto-day expenses come out of a member’s savings account, and while many members will identify with the situation of the savings account being depleted halfway into the year, these expenses are unlikely to cause financial ruin. The real problem comes in with ongoing, longer term expenses. Cover for chronic medication is limited to 26 conditions on basic plans and even the more comprehensive options do not cover everything. The cost associated with a critical illness can be significant. The lifetime cost of a severe stroke, for example, can amount to R500 000 to R1 million, taking into account initial rehabilitation and chronic medication. Also, many schemes require home nursing costs to be claimed from the member’s savings account. Once this account runs dry, the recuperating member becomes responsible for all nursing services outside a hospital. This will quite likely cause financial hardship, especially considering that the lifetime cost of a condition like Alzheimer’s could exceed R1 million.

No cover or premium guarantee

With medical aids, treatments are subject to the scheme’s approval, which is not guaranteed. Unlike critical illness cover, the premiums tied to medical scheme cover are not set in advance either. Historically, medical aid premiums have always increased at a rate higher than consumer inflation. In addition, the much debated NHI is on its way, leaving much uncertainty about which medical costs will be covered by the State in the future.

Not complete freedom of choice

Many medical scheme options allow their members access to limited medical providers only. Even those with freedom of choice still need to approve all treatment before they will pay a claim. New generation drugs typically take a long time to reach the South African market. Medical schemes have a rigid authorisation process and even if the drugs are registered in South Africa, the schemes will still decide on a case-bycase basis whether the case warrants the treatment. Access to cutting-edge treatment could therefore be prohibitively expensive.

When disability/income protection cover is not enough either

Disability income or capital disability products are excellent mechanisms to provide sufficient income protection should someone become unable to work due to illness or injury. But what if, for example, somebody suffers a stress-related stroke, becomes well enough to return to his career, but decides to scale down his work instead? While the quality of his health may increase as a result of this lifestyle change, his new income stream may not be able to support his family’s day-to-day living expenses. This is where critical illness (also commonly referred to as dread disease) cover becomes particularly relevant. Used correctly, it can address many of the seldom considered financial consequences when someone is diagnosed with a critical illness.

The chances of being struck by critical illness

Cancer, heart attacks and strokes are the diseases that originally formed the core of critical illness assurance. Combined, these three still account for more than 70% of all critical illness claims. The statistics are frightful. A 25-year old non-smoking male has a 24% chance of cancer, heart attack or stroke before age 65. This statistic increases to 49% for a 25-year old smoking male. And 34% of critical illness insurance claims for males begin prior to age 55. Today, in the United States of America alone, 4 000 men and women will hear the life changing words “you have cancer.”

The risk of becoming “uninsurable”

Clients often want to know from their adviser why they cannot simply wait until they are diagnosed with a dread disease before they purchase critical illness cover. Unlike medical aid cover, critical illness cover is underwritten. In other words, the insurer assesses the health of the applicant and can then decide to decline the application, in which case the client is deemed uninsurable, or it can load the standard premium instead. The principal is the same as when a client applies for life insurance cover, but has compromised health or engages in risky sport activities. The insurer is under no obligation to accept the application.

A comprehensive solution

Despite its limitations, a medical aid is still an essential part of every person’s financial planning. Critical illness benefits should never be seen as a substitute for medical aid cover. However, when offered to the client in combination, they form a great team to help take the financial pain out of poor health.

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