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. While life and disability cover can be easily quantified in accordance with your stated objectives, there is no set formula to determine what level of dread disease cover a person needs.
Due to the high prevalence of dread diseases, fear can result in a disproportionate spend on this benefit relative to death and disability cover. As a relatively expensive product, affordability often drives decision-making – although, importantly, there are a number of other factors that should be taken into account when deciding whether to implement dread disease cover and at what level. Here’s what to consider:
1. Your medical aid plan option
When contemplating taking out dread disease cover, give consideration to the level of medical aid cover you enjoy. Remember, the purpose of dread disease cover is to provide you with financial assistance in the event of diagnosis to help with the financial burden of dealing with a dread disease. The payout, which is tax-free, is designed to cover out-of-pocket medical expenses such as home care, childcare, travel costs associated with treatment, wigs, wheelchairs, walking aids, medical appliances not covered by medical aid, structural changes to your home such as wheelchair ramps or bathroom modifications, and so on. Even if you’re on the most comprehensive medical aid option, it is likely that there will be costs for your own account – which is where dread disease cover can provide relief.
2. Gap cover
Your gap cover policy is short-term insurance cover which, together with your medical, provides top-up health cover up to certain limits. Its role is to provide additional financial protection to medical scheme members who receive in-hospital treatment and care so that they are not saddled with large out-of-pocket expenses following a hospital event, which means that it can play a role in alleviating medical costs – but mostly in the event of hospitalisation. Remember, a dread disease diagnosis does not necessarily mean hospitalisation or surgical intervention. Depending on your diagnosis, you may require out-of-hospital treatment or therapies which in most instances are not covered by your gap cover policy. In such circumstances, a lump sum dread disease payout can offer considerable financial relief and peace of mind.
3. Disability cover
Similarly, if you have disability cover in place, think carefully about the purpose of the cover in the context of your overall portfolio. Capital disability cover, which is a lump sum payout in the event of permanent disability, often serves a specific purpose in one’s portfolio such as paying off the home loan and settling debt. Also important to bear in mind is that a dread disease diagnosis doesn’t necessarily translate into a permanent disability, meaning you would not qualify for a payout. If you have an income protection benefit in place which pays out in the event of temporary or permanent disability, keep in mind that this benefit is specifically designed to replace the income you have lost as a result of your illness – and may not be sufficient to cover the additional costs associated of your illness, treatment, and home modifications.
4. Your goals
When assessing your need for dread disease cover, it is always advisable to take a holistic view of your risk cover portfolio. In doing so, give consideration to the medical aid, gap cover, capital disability and income protection benefits you already have in place, and what additional purpose dread disease cover can serve in your portfolio. In doing so, also take into account factors such as job flexibility, whether or not you have children or aged parents who need to be cared for, the proximity of medical care, and other personal factors that will impact your lifestyle should you fall ill.
5. Your affordability
If securing dread disease cover is a financial planning goal, you need to determine how much you can afford to spend each month on your cover. However, in doing so, you will need to take into account your future affordability and how your premiums will escalate over time. As it is important to 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, you will need to account for the manner in which your premiums will escalate. There are a number of different premium patterns that you can select from.
6. Your health status
Naturally, you will need to take your current health status into account together with any concerns you may have with regard to any particular illness – specifically if you have a family history of critical illness. That said, while some illnesses are hereditary, many illnesses are a function of poor lifestyle choices including smoking, poor eating habits, 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, to 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.
7. Your age
Generally speaking, the younger you are, the more affordable your premiums will be. If you are relatively young and in good health, you can benefit from taking out dread disease cover with favourable underwriting and premiums. 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 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.
8. Your insurability
The extent to which you are insurable will also have an impact on your decision to take out cover. Any pre-existing conditions that you have will be taken into account during the underwriting process and may result in premium loadings or exclusions. Loaded premiums may make the cover unaffordable, while exclusions for pre-existing conditions may lead you to question the overall value of such a policy. Your age and health status are absolutely critical when it comes to securing comprehensive dread disease cover which is why, if possible, taking out some level of cover while you are young and healthy is first prize.
9. Your support system
The extent of your support system will directly impact 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 childcare, home care, transportation to and from treatment, shopping and preparing meals, helping with household chores, and general logistical support. In the absence of a support system, you would need to outsource many of these functions, which in turn will have a direct impact on your finances.
10. Emergency funding
Lastly, don’t forget to take into account the level of emergency funding you have in place and whether it would be sufficient to provide for your needs in the event of a dread disease diagnosis. Remember, claiming from a dread disease policy is an involved process that takes time, so it is important to ensure that you have immediate access to some cash. 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.
Remember, every product that you put in place should serve a specific purpose, so be sure you are clear on what you hope dread disease cover will achieve.