Life insurance, income protection and other insurance

Do you need Critical Illness cover?

Just when you thought you were fully insured

Critical illness cover (also called Dread Disease) is an insurance policy that pays you an amount of money if you are diagnosed with one of the specific illnesses or conditions on a predetermined list.

But I have medical insurance already!?

So you made it your goal to find a good comprehensive medical aid and gap cover, which is why you’re asking why you need yet another insurance product from those sneaky insurance companies. The rationale behind gap cover goes something like this.

  1. You’re involved in a serious motor vehicle accident.
  2. You need medical treatment in hospital and some surgery.
  3. Your medical aid likely pays for most, if not all your hospital costs, and some of your specialist costs.
  4. Your gap cover will pay for specialists that are more expensive than the government-approved cost.
  5. Physiotherapist visits and rehabilitation for several months then starts to really make a dent in your emergency fund. You’d always thought that 4 months’ of your monthly expenses would have been enough, but the costs that are left over from your accident are really starting to eat a hole in your savings.
  6. A more severe outcome would be if you needed to make modifications to your house or car to accommodate your injuries.

I’m not that good at telling stories, but you get the idea…

That’s Gap Cover. What about critical illness cover?

In practice, it’s not motor vehicle accidents, but cancer that accounts for just over half of all critical illness claims. Add some heart issues and strokes and that’s the majority of all claims. In the case of a cancer diagnosis, your critical illness tax-free lumpsum might be used to subsidise your treatment, which may have limitations or exclusions as imposed by your medical aid.

We’ve always been somewhat skeptical when more and more insurance products start being offered for risks that one wouldn’t necessarily have previously thought possible to manage, but when one considers the roughly 50% chance of suffering from cardiovascular disease during one’s life, and the chances of being diagnosed with cancer at one in three, this doesn’t sound like such a bad idea after all.

So how much critical illness cover would I need?

Given that there is no determinable and identifiable expense for which you’re insuring yourself, quantifying your critical illness cover need is more difficult. Unlike with life insurance and income protection, quantifying your critical illness cover amount is largely an exercise in ‘how much lets you sleep at night?’ as opposed to figuring out how much is required to plug a gap.

Industry experts will tell you that you could aim to receive an amount of about one times your annual salary. As with all things personal finance though – everyone’s circumstances are different.

You may have a family history of cancer or heart disease, in which case you may live in constant fear of succumbing to your family legacy. Given that you consider your chances of being diagnosed with a critical illness are much higher, you may feel that you require more cover.

The answer would also likely depend on a few other factors, like whether you’re an existing member of a medical aid scheme, whether you have gap cover in place, and how much cash you have stashed away in your emergency fund.

As with most things insurance-based, now is definitely the time to chat to an expert. A financial advisor will help you choose a product that works for you and that fulfills your expectations. Critical illness cover can be complex, as some insurers pay out only a percentage of the insured amount, depending on the severity of your diagnosis, whereas some pay out 100% all the time.

Strain your brain

If you’re thinking about whether critical illness cover could be for you, like me, you’re wondering what horribly life-altering events might come your way and whether in fact, having an additional pool of money would in any way help you deal with that calamity.

You’ll perhaps arrive at the same conclusion I did, which is that having medical aid and gap cover is there to cover my major medical costs and to provide the insurance and assurance one needs. Secondly, having some money stashed away for a rainy day does help, which is nothing more than what critical illness cover is, albeit for a diagnosis against a limited number of medical conditions.

The question then could just become one of cost; if my odds of being diagnosed with some horrible medical condition are as high as everyone is telling me and it’s not simply fear-mongering, then tell me how much it’ll cost to provide me with say, 50% of my salary upon diagnoses?

Unfortunately, that’s hard to tell and something that you should probably seek professional advice on.

It’s worth chatting to someone to find out about various products on offer and how they may suite your circumstances. As always, ask questions, read and be sure to understand the pro’s and con’s of the product and of not having it at all.

It is a good idea to have critical illness cover, but it’s not for me to tell you…. you need to find out for yourself and make the decision.

Please share your thoughts