‘It makes sense to link the pay­ment to the sever­ity level’

Weekend Argus (Saturday Edition) - - PERSONAL FINANCE -

Par­tial pay­outs for se­vere ill­nesses at lower sever­ity lev­els help en­sure that you have cover when you need it, Dis­cov­ery Life, one of the leaders in life poli­cies with tiered ben­e­fits, says.

Kenny Rab­son, Dis­cov­ery’s head of re­search and de­vel­op­ment, says Dis­cov­ery’s claims ex­pe­ri­ence is very dif­fer­ent to that of Old Mu­tual.

He says the first se­vere ill­ness claim lodged by a Dis­cov­ery pol­i­cy­holder tends, on av­er­age, to be at a sever­ity level that war­rants a claim at 70 per­cent to 75 per­cent of the in­sured amount.

Rab­son says Dis­cov­ery is of the view that if you claim for an ill­ness at a low sever­ity level, you do not need a large pay­out, be­cause your re­cov­ery is usu­ally com­plete and the im­pact on your life­style is neg­li­gi­ble.

The sever­ity-based ap­proach also takes cog­ni­sance of the fact that medicine and med­i­cal tech­nol­ogy have ad­vanced, re­sult­ing in many peo­ple re­cov­er­ing com­pletely from se­vere ill­nesses.

For ex­am­ple, he says, where breast can­cer is di­ag­nosed at an early stage, prog­no­sis is ex­cel­lent and of­ten ac­com­pa­nied by full re­cov­ery.

How­ever, if a med­i­cal con­di­tion is more se­ri­ous than ini­tially an­tic­i­pated, poli­cies with pay­outs based on the sever­ity level of your claim al­low you to claim for a top-up ben­e­fit.

He says the other im­por­tant fac­tor that the sever­ity-based poli­cies ac­knowl­edge is the like­li­hood that you may suf­fer more than one ill­ness over your life­time and so need to be able to claim for each ill­ness. Sever­ity-based prod­ucts al­low you to claim mul­ti­ple times un­til your ben­e­fits are ex­hausted, and if you re­in­state your pol­icy ben­e­fits, you can claim more than the amount for which you ini­tially in­sured your­self.

Rab­son says as­sur­ers who of­fer tiered ben­e­fits have dif­fer­ent rules on re­in­state­ment, but Dis­cov­ery pol­i­cy­hold­ers who have pur­chased cover at in­cep­tion of R1 mil­lion have, as a re­sult of mul­ti­ple claims and re­in­stated ben­e­fits, en­joyed cover for up to R3 mil­lion, whereas tra­di­tion­ally the ben­e­fits would have been capped at R1 mil­lion.

Dis­cov­ery al­lows you to re­in­state cover for sub­se­quent claims in “the same dis­ease process” – that is, a claim re­lated to a pre­vi­ous one.

Rab­son says your sub­se­quent dread dis­ease claims are likely to be re­lated to your pre­vi­ous claims and, un­der tra­di­tional dread dis­ease prod­ucts, you would not be able to in­sure your­self for that ill­ness or re­lated ones af­ter a claim.

The cost of al­low­ing you to re­in­state your cover is built into the pre­mi­ums you pay when you take out the pol­icy, Rab­son says. This pre­vents you from fac­ing a sig­nif­i­cant pre­mium in­crease when your cover is re­in­stated, which would have made the cover un­af­ford­able or un­avail­able when you most need it.

AC­CEL­ER­ATED COVER

Rab­son says many South Africans have dread dis­ease cover and lump sum dis­abil­ity cover as an ac­cel­er­ated ben­e­fit on their life poli­cies, and if they are paid out in full on the first claim for a se­vere ill­ness, it has a sig­nif­i­cant im­pact on their life and dis­abil­ity cover.

If dread dis­ease and dis­abil­ity cover are of­fered as an ac­cel­er­ated ben­e­fit on a life pol­icy, it means the same in­sured amount cov­ers you for se­vere ill­ness, per­ma­nent dis­abil­ity and death. A claim for ei­ther dread dis­ease or dis­abil­ity will de­plete (par­tially or com­pletely) the ben­e­fits that will be paid when you die.

Cover as an ac­cel­er­ated ben­e­fit is cheaper than a stand-alone pol­icy.

By of­fer­ing tiered ben­e­fits, a life as­surer is able to of­fer cover for the whole of the body rather than just cover for, for ex­am­ple, the four main dread dis­eases, Rab­son says. Tak­ing cover for any less than the whole of the body is like play­ing the lot­tery, he says, be­cause you do not know which ill­ness you may get in fu­ture.

BE­YOND THE BIG FOUR

Rab­son says he is con­cerned that choos­ing a pol­icy on the ba­sis of the four stan­dard­ised med­i­cal con­di­tions only could re­sult in the sig­nif­i­cant mis-sell­ing of dread dis­ease cover.

For ex­am­ple, a client who was sold cover purely for the four main ill­nesses but who con­tracts rheuma­toid arthri­tis may have a sig­nif­i­cant short­fall in pro­tec­tion.

The def­i­ni­tions of the four main ill­nesses may now have been stan­dard­ised, but there are sig­nif­i­cant dif­fer­ences in the def­i­ni­tions of other ill­nesses, Rab­son says.

If you fo­cus only on the stan­dard­ised def­i­ni­tions of the four main ill­nesses, you may also miss other fea­tures of a prod­uct, he says.

For ex­am­ple, Dis­cov­ery of­fers a ben­e­fit that can boost your pay­out on a par­tic­u­lar claim to 200 per­cent of the sum as­sured in more se­ri­ous cases of a se­vere ill­ness. Dis­cov­ery ex­am­ines the im­pact of four life­style fac­tors be­fore en­hanc­ing the pay­out be­yond your sum as­sured.

The im­pact of this ben­e­fit may not be ap­par­ent from the stan­dard­ised dis­clo­sure of how an as­surer will pay out for the four ma­jor ill­nesses, Rab­son says.

If you look solely at the stan­dard­ised dis­clo­sure of the four main ill­nesses, you may also miss other fea­tures in dread dis­ease prod­ucts, such as mul­ti­ple claims, cover for your chil­dren and par­ents, and the abil­ity to be treated off­shore if the treat­ment is not well enough es­tab­lished in South Africa.

Rab­son says most bro­kers have switched their clients into poli­cies that pay out based on the sever­ity of the ill­ness be­cause in­tu­itively th­ese prod­ucts make more sense.

He de­nies that more pol­i­cy­hold­ers have sever­ity-based prod­ucts be­cause the pre­mi­ums are cheaper. He says Dis­cov­ery’s poli­cies are not al­ways cheaper, as they of­ten cover more ill­nesses than other poli­cies and al­low claims for mul­ti­ple ill­nesses.

MUL­TI­PLE CLAIMS

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