‘Full payout may be needed even if the illness is mild’
Most of the claims policyholders make on severe illness policies are for the milder forms of one of the four main illnesses, Old Mutual says.
Old Mutual is one of the life assurers that pays out the full insured amount for valid claims on its dread disease policies regardless of the severity of your illness.
Many policyholders are choosing policies that pay out less than the full insured amount for a less severe level of an illness – 25 or 50 percent of the insured amount – because these policies are marginally cheaper than those that pay out in full, the company says. But Old Mutual argues that this cheaper cover may not be sufficient for your needs.
MOST CLAIMS AT LOW LEVELS
Dr Peter Bond, the life assurer’s chief medical officer, says Old Mutual’s claims data show that most of its policyholders are claiming for illnesses at lower severity levels.
Cancer accounts for 48 percent of all claims on Old Mutual’s severe illness policies, and 60 percent of all cancer claims are for stage one cancer, which, in terms of the standardised severe illness definitions, is classified as the lowest severity level, D. Heart attacks account for 25 percent of all Old Mutual’s severe illness policy claims and 50 percent of these are defined as mild or minor (level C or D).
Strokes account for eight percent of claims and 40 percent of these result in mild motor damage, Old Mutual’s statistics show.
Bond says it is likely that claims for mild episodes of a severe illness will continue to increase relative to claims for more serious illnesses, because methods for detecting serious illnesses are improving and becoming more readily available, and more people are taking precautions against more serious occurrences of severe illnesses.
HUGE IMPACT ON YOUR LIFE
Ursula Torr, Old Mutual’s risk solutions product manager, says Old Mutual believes that even at “mild” severity levels, an illness can have a huge impact on your lifestyle. Although you may be able to work thereafter, severe illness benefits are not linked to your ability to work but your ability to cope with work.
Bond says at lower severity levels a dread disease or critical illness may have similar or greater cost implications than a more severe form of the same illness.
The fact that a severe illness can be cured, he says, should not determine the level of the benefit payment on a severe illness policy.
Usually, Bond says, mild illnesses require major treatment – for example, aggressive treatment of early stage cancer – which can result in a major upheaval to your lifestyle. He says this aggressive treatment can have a big impact on your life and may involve a number of expenses. A partial payout on your severe illness policy may therefore be insufficient to meet the expenses.
At an early stage of an illness such as cancer, your doctors will try to cure you, but at the most advanced stage of the disease, you are likely to receive less treatment for the illness and more palliative care and treatment to alleviate the symptoms, Bond says.
Similarly, you may suffer a mild stroke that is regarded as only severity level D. But, Bond says, strokes have different effects on people, and you could suffer a level D stroke that affects your memory and hence your ability to work and perform daily tasks.
Apart from the way in which a milder form of a severe illness may affect you physically, you may also struggle with your illness emotionally, Bond says. Old Mutual statistics show that 45 percent of heart attack patients and 25 percent of all cancer patients suffer from depression.
As medicine progresses, your chances of surviving a severe illness, one of the big four in particular, are high, and there is a good chance you will be alive five years after contracting that illness.
But your greatest need will be for the financial means to provide for post-event services, such as rehabilitation and the redesign of your home and workplace, and for the potential loss of income, Torr says.
A policy that pays out 100 percent of the sum insured, such as those offered in Old Mutual’s Greenlight range, can be reinstated if you continue to pay the premiums and this allows you to claim for a second unrelated illness.
Dr Pieter Coetzer, Sanlam’s chief medical adviser, adds that where you take out severe illness cover to protect yourself against a loss of insurability, it makes more sense to get a 100percent payout and invest it to use for your other needs.
He says you are unlikely to get risk cover within the first five years of suffering from one of the main dread diseases of stroke, cancer and heart disease.
If you then need collateral insurance as security for a loan, you won’t be able to get a policy as collateral. If you had a policy that paid out a 100-percent benefit you could invest any surplus money to use for this kind of need, Coetzer says, but a tiered benefit would not offer the same kind of access to surplus funds.
Coetzer says that claiming on a policy can be laborious and it is not always certain that you will be paid out. You may prefer to have to go through this process only once rather than a number of times with a tiered benefit product.
He also points out that although the standardised definitions will help you to compare the payouts on the four main dread diseases, there could be many differences between the other conditions covered.
In addition, he says, tiered products sometimes have time frames for payouts. For example, a stage one cancer may only be upgraded to a stage two cancer if it spreads within six months.