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Protecting yourself financially against future ill-health

When it comes to providing for future healthcare costs, there is, unfortunately, no silver bullet.

We all know and appreciate the costs of private healthcare which is why most of us take steps to protect ourselves financially. However, it is often difficult to prioritise healthcare expenditure or to assess the need for certain products in one’s portfolio. When it comes to providing for future healthcare costs, there is, unfortunately, no silver bullet – but rather a range of products that, depending on your unique circumstances, can be structured to provide you with the best chance of surviving financially should you fall ill.

Medical aid

What is it?

Medical aid is designed to provide financial cover for medical expenses for members who belong to a registered medical scheme, and who contribute monthly towards the scheme. All medical aids in South Africa must be registered in terms of the Medical Schemes Act and regulated by the Council of Medical Schemes. In a medical scheme structure – which is by nature not-for-profit – all member contributions are pooled and managed by a board of trustees in accordance with the scheme rules.

What does it cover?

All medical schemes must cover the prescribed minimum benefits (PMBs) – a set of defined benefits set out by the Medical Schemes Act which includes any emergency medical condition, a limited set of 271 medical conditions, and 26 chronic conditions. The purpose of PMBs is to ensure that all medical aid members have access to a minimum set of health services regardless of which plan option they are subscribed to.

In addition to covering the regulated PMBs, medical aids vary greatly in terms of the benefits they offer and navigating the open medical scheme market and the various plan options on offer can be overwhelming. Entry-level medical aid options include basic hospital cover at 100% of medical aid rates, with network options generally being more cost-effective. By extension, some medical aids provide a medical savings account facility that houses a portion of a member’s premiums which can be used for out-of-hospital, day-to-day medical costs such as acute medication, GP consultations, dentistry, homoeopathy, speech therapy and physiotherapy.

More comprehensive medical aids provide insured benefits for out-of-hospital medical costs, although such benefits generally kick in once a pre-determined threshold of expenditure has been reached and are subject to annual limits. More comprehensive plan options may also provide additional benefits in respect of scopes, scans, radiology and pathology which can be unaffordable if required on an outpatient basis. If you suffer from a chronic condition, it may be financially worthwhile – depending on the cost of your treatment – to upgrade to a plan option that covers your chronic condition.

Who needs it?

Generally speaking, state healthcare facilities are inadequate and overburdened, making it advisable for anyone earning an income to take up membership in a medical scheme. Thankfully, there is a wide range of open medical schemes to choose from, each offering a broad range of plan options that cater for different levels of affordability.

Gap cover

What is it?

Gap cover is short-term insurance designed specifically for medical aid members to provide financial assistance in the event of in-hospital treatment. In its simplest form, gap cover insures the difference between the amount charged by your specialist (such as your surgeon or anaesthetist) – which can be up to six times the medical aid tariff – and the amount covered by your medical aid.

What does it cover?

Although originally designed to cover the shortfall while receiving in-hospital treatment, gap cover products have been continuously enhancing and improving their benefits, with some more comprehensive policies now covering out-of-hospital doctor and specialist visits, co-payments, scans, certain day procedures, emergency room cover, additional cancer benefits, dentistry cover and cover for internal prosthetics. Gap cover remains a cost-effective way of insuring against high medical bills flowing from a hospital visit, but be sure to do your homework before taking out cover as there are a large array of service providers and benefit options to choose from.

Who needs it?

If you’re a member of a medical aid scheme, our advice is to put a gap cover policy in place, keeping in mind that some service providers have a cut-off age of 60 or 65 after which membership is not permissible.

Dread disease

What is it?

Dread disease cover – also known as severe illness or critical illness cover – is lumpsum cover regulated by the Long-term Insurance Act. This form of cover has been around since the 1980s and is designed to provide a tax-free, lumpsum payout on the diagnosis of a severe illness such as cancer, heart attack, stroke, lung disease, kidney failure, muscular dystrophy, or Parkinson’s disease.

What does it cover?

No two dread disease policies are the same, so it is important to do your research before applying for dread disease cover. Your insurer should provide a list of all diseases or illnesses covered by your policy, together with severity levels applicable to each condition in order to claim. The purpose behind this form of long-term insurance is to provide financial relief on diagnosis which can be used for any number of purposes such as home or vehicle modification, home nursing, medical costs not covered by medical aid, travel costs, or medical appliances, to name just a few. All insurers provide cover for cancer, heart attack, stroke and coronary artery bypass, with most offering cover for a range of other illnesses such as paralysis, kidney failure, blindness, heart valve surgery, brain damage, multiple sclerosis and motor neuron disease, although it is important to determine what severity levels apply to each condition before claiming.

Who needs it?

In relation to other forms of long-term insurance cover, dread disease cover is comparatively expensive. As such, it is advisable to assess your need for dread disease cover in view of all other benefits you have in place, including medical aid, gap cover and disability cover. If you have a comprehensive medical aid in place, together with a comprehensive gap cover and adequate disability protection, dread disease cover may be considered a nice-to-have benefit as opposed to an essential one.

Income protection

What is it?

Also governed by the Long-term Insurance Act, income protection cover is designed to replace your nominated income should you become permanently or temporarily disabled due to injury or illness.

What does it cover?

For most people, their ability to build wealth is largely dependent on generating an income. If illness or injury renders you unable to work or perform your occupation, you may find yourself in a position where you are unable to support yourself financially. Income protection allows you to mitigate the risk of temporary or permanent loss of income by paying out your insured income in the event of a valid claim. When applying for cover, you will be medically underwritten by your insurer who will take into account your age, gender, occupation and industry, your health and that of your family, your smoker status, and how long you require cover for, amongst other things. Generally speaking, most income protection policies terminate at age 60 or 65, depending on the policy. Because this type of cover is linked to your earnings, it is important to review your policy if and when there are any changes to your income. Remember, also, that your need for this type of cover will reduce as your net wealth increases and your ability to self-fund a period of lost earnings becomes more possible.

Who needs it?

The extent to which covering your living expenses and saving for retirement is dependent on your income is an important determinant when assessing the need for this type of cover. As such, when contemplating the risks you face in the event of a temporary or permanent loss of income, you should also take into account factors such as whether you have additional sources of income, whether you are a dual-income family, the extent to which you can cut back expenses in the event of a disability, your debt levels, and whether you have assets that can be realised to help cover costs.

Lump-sun disability cover

What is it?

Similar to dread disease cover, lumpsum disability cover provides lumpsum, tax-free cover if you become permanently disabled.

What does it cover?

This form of cover pays out in the event of a disability, although modern disability policies use a set of medical formulae to determine the severity of your disability which is, in turn, linked to the initial claims payout and subsequent payouts. Payouts can be used to cover the costs associated with your disability such as a wheelchair, medical equipment, remodelling of your home or vehicle, or settling your home loan. However, this area of insurance is particularly complex and it is important to fully understand the range of definitions as well as key distinctions, such as the difference between traditional disability insurance and functional impairment.

Traditional disability assurance, which is based on whether or not you are physically able to work following a disability, is generally divided into own occupation, own or similar or reasonable occupation, and any occupation insurance. On the other hand, functional impairment pays a lump-sum benefit on the occurrence of a pre-defined event that limits your ability to carry out physical functions. Criteria for the payment of benefits are based on the level of illness or impairment, defined in medical terms. Whether you can work or not is not a deciding factor.

Functional impairment benefits are tiered and take into account the importance of the body part you can no longer use, bearing in mind that the impairment must be permanent. To measure functional impairment, consideration is given to your ability to perform daily activities. Generally, a functional impairment policy will pay a percentage of the amount for which you are insured, depending on the severity. Impairment products are list-based products which means that if your particular impairment is not on the pre-determined list, you will not qualify for a claim.

Who needs it?

Again, not everyone needs this type of cover and, ideally, your need for disability cover should be viewed holistically as part of your overall risk portfolio. This type of cover is ideally suited for those who have large amounts of debt that they would need to settle in the event of a permanent disability.

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Craig Torr

Crue Invest (Pty) Ltd

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