When life happens
Criticalical illness, such as cancer,cer, can touch even the healthiestlthiest of people. When life happens, insurance can carry the astronomical medicaldical costs and provide supportport for the aftermath. However,wever, deciding which type of criticalritical illness cover is most suitableable for your client and ensuringuring that the insurance companympany has no grounds on whichch to void a claim, can proveve challenging.
The first critical illness insurance product was launched in 1983 in South Africa and is now used worldwide. Dr Marius Barnard, brother of world-renowned heart surgeon Christiaan Barnard, became frustrated watching patients’ financial struggles and designed a product that provides a lump sum payment to a policyholder older facing cancer, a heart attack, stroke and a range of other diseases s that vary by contract. It can also provide the financial means to pay for the trauma counselling that so many patients face as a result of battling a critical illness.
According to the South African Depression and Anxiety Group, between 20 and 30 per cent of all cancer patients are diagnosed with depression. This makes it twice as hard to cope with performing everyday tasks. It is times like these that a risk benefit, which gives patients access to excellent medical assistance, can prove invaluable. Major expenses are an added weight on your client’s shoulders and make recovery that much harder. Ian van der Walt, broker manager at Momentum Namibia, says that the insurer does not focus only on the ‘big four’, i.e. cancer, heart attacks, strokes and coronary artery by-pass grafts (CABG), but believes in breadth of cover. There is an ongoing debate over whether tiered or comprehensive critical illness cover is preferable. Many life insurance companies argue that it’s important to have 100 per cent cover at mild severity levels of the critical illness. If your client suffers from cancer for instance, it is often when the most aggressive chemotherapy treatment is applied to the
Should your client develop an early stage of disease, a benefit commensurate with the effect on their lifestyle would be paid out, leaving the remainder of the benefit intact. Should the illness worsen, a further benefit would be payable. This allows for further claims for more serious illnesses rather than paying out the whole benefit immediately and leaving nothing should another claim arise. The remaining benefit is therefore intact and continues to grow with benefit increases every year. The upside of this is that lower pay outs for lower severity illnesses prevent an incident in which large pay outs are made for an illness from which a person may make a full recovery and therefore not require such a large lump sum on diagnosis.
Beyond the bibig four
“Our studies reveal that 40 per cent of claims in Southern Africa are outside the big four, so that is the reason why Momentum offers a broader spectrum of cover,” says Van der Walt. These include illnesses such as connective tissue disease; musculoskeletal, gastrointestinal and respiratory disorders; accidental HIV/Aids; major burns; visual impairment; and trauma.
However, figures quote the big four as making up between 70 and 90 per cent of all critical illness claims in Africa. In 2008, these illnesses made up 93 per cent of Old Mutual Namibia’s critical illness claims. Gim Victor, chief executive officer of Old Mutual Life Assurance Company in Namibia, says that the insurer’s Greenlight Care 4U risk product does not differentiate between mild and more severe illnesses, acknowledging that any critical illness needs 100 per cent cover. Accordingly, this risk product pays out 100 per cent at all severity levels for the four core illnesses.
Old Mutual’s Greenlight offers core and comprehensive options on its severe illness benefit. The severe illness (core) benefit covers the most common severe illnesses at 100 per cent of the cover amount. The severe illness (comprehensive) benefit covers the core events, plus a comprehensive list of severe illnesses at 100 per cent of the cover amount. In addition, it offers support centres that connect clients with a network of assistance.
Tiered vs. comcomprehensive cover
mildest form of the disease that the chance of survival is greatest. Comprehensive treatment of the disease in the early stages is more likely to prevent it from progressing further. However, the flipside of this is that tiered cover may be more affordable and offers at least some cover, rather than none at all.
In Old Mutual’s case, while comprehensive cover is generally preferred by clients, affordability considerations do make some customers prefer the core cover option. Both offer 100 per cent cover at all times, but the core option covers the big four only. Victor says, “It is interesting to note that the illnesses covered under the core benefit collectively account for 89 per cent of all Greenlight severe illness claims, which ensures that even under a tiered benefit, a customer is covered for most of the severe illness events.”
Rather than paying out 100 per cent of the cover on diagnosis and allowing the client to invest the money as they choose, tiered cover leaves the client’s money with the insurer. Tiered benefits typically pay between 25 and 100 per cent, depending on the severity level of the illness. For example, most tiered benefits pay 25 per cent for a level D heart attack, cancer and stroke; level D being the least severe level of illness.
Momentum’s benefits are structured as tiered. Van der Walt says that from a cost perspective, tiered cover makes more sense to both the policyholder and the insurer. “Tiered benefits mean that the claim amount paid is based on the severity of the event. Benefits do not necessarily fall away after the first critical illness claim. Multiple claims are therefore possible,” says Van der Walt.
However, it could be argued that comprehensive cover offers clients greater peace of mind and significant resource when they need it most.
Our studiesdies reveal ththat 40 per cent of claimsaims in Southern Africa are outside the big four, so that is the reason why Momentum offers a broader spectrum of cover.
A client may fail to reveal something about their medical history or their family’s medical history.
Rejected claims and the adviser’s role
To recommend the right cover, a broker or financial adviser must assess their client carefully, as risks vary from consumer to consumer. If your client has a family history of heart disease, for instance, look at what is covered for heart attacks. In terms of lifestyle, if your client is overweight, a smoker and unfit, they are at risk of heart disease and a stroke. It is all about establishing where your client’s main risk lies and what cover is available for that. When it comes to claiming, exclusion and non-disclosure are the two primary reasons for non-payment by insurance companies. A client may try to claim for a benefit that was excluded upfront at the underwriting stage. For instance, if the client has had cancer before taking out critical illness cover, cancer may be excluded in their particular policy. Advisers must make their clients aware of this.
Illnesses causing functional impairment, such as Parkinson’s and Alzheimer’s, can also cause non-payment. The diagnosis of such illnesses is made only once the condition is viewed as permanent and irreversible, which is often at an advanced stage of the disease. The problem is that functional impairment cannot be measured before the condition has been optimally treated and stabilised and it can be said without doubt that no further improvement is expected. However, many patients realise this only at claims stage and have to wait until their functional impairment has reached the level as defined in their particular critical illness policy before they are paid out.
Non-disclosure is one of the most common reasons for nonpayment. A client may fail to reveal something about their medical history or their family’s medical history. Alternatively, clients may not think that a seemingly banal piece of information, such as that they are taking blood pressure tablets for instance, can make a big difference to how their potential risk is assessed. It is critical that financial advisers ask as many of the right questions as they need to, and ensure that clients understand the questions clearly and answer them truthfully.