You invest in establishing a succession plan that will respond to events that in the worst case scenario, would be catastrophic to your well-being and that of your family. These events vary by a business or personal context – the more serious personal health or life events, the more you would seek to make sure there is sufficient financial provision.
Financial provision could mean a self reserve account, accumulated assets which could sold or it could be financed in a cost effective form, that of an policy of insurance that provides a lump sum or income on death, disability or critical illness.
One of the cost effective forms of risk financing is via a life assurance policy with additional rider benefits that cover an array of critical illnesses and disabilities to financially protect and safeguard yourself or your family on an insurable event. You know the addition of critical illness coverage requires an investment with a known return on specific insurable events.
If 1 in every 3rd person is subject to having a heart attack, and 1 in every 4th person developing cancer, when insured for such events, you have comfort that your investment will provide the financial return and provision to support you and your family.
According to Hennie de Villiers, deputy chair of the Association for Savings and Investment South Africa (ASISA) Life and Risk Board Committee, a severe illness diagnosis could easily tip you and your family over the financial edge. The range of diseases covered by critical illness policies differs from insurer to insurer, but de Villiers explains that the four most common conditions included are heart attacks, cancer, strokes and coronary by-pass grafts for heart disease, as these account for a significant number of critical illnesses in South Africa.
In a life succession plan one would, amongst a number of other questions, ask what if the pay-out expected from the life assurance company is repudiated because the claim originated during a survival period.
Critical illness survival period is usually defined as the length of time you, the insured, must survive after you have been diagnosed with an insured critical illness. Only once you have passed the survival period, the insurance benefit will be paid to your family should you pass away.
In a scenario where a person has a heart attack and dies within the survival period, which is 14 days in some life assurers or up to 30 days in others, your family will not be paid the critical illness coverage amount. In many instances this amount would account for millions of rand or a major proportion in a balanced life assurance financed portfolio.
In other words, if the insured person dies within the survival period, the family will not receive a critical illness insurance pay-out at all! Nada, naught, zero.
Why? According to traditional life assurers, critical illness insurance benefits are meant to be used by the insured as a living benefit to recover from illness, not a death benefit. If this has surprised you and you go back to review your life assurance portfolio, calculate what could be lost across the various critical illness and disability benefits if claimed during the survival period. You may be shocked to see how much is lost at claim stage compared to what you think you have been sold. Send us an email if you need our help in identifying or interpreting these periods.
The life assurance industry claim statistics show the highest claims are for heart attack, stroke and cancer. Studies show that 1 in 3 will die prematurely from a condition related to the heart and very similar to that of cancer.
Boston correspondent for Infection Protection, Dr Chris Iliades writes that a heart attack is rarely fatal, but a sudden heart attack is fatal in 95 percent of cases and the greatest risk is during the first 30 days after a heart attack.
The Centers for Disease Control and Prevention (CDC) records that someone in the United States has a heart attack every 43 seconds. In a 2014 report, the American Heart Association estimated that around 1 million people in the United States have a heart attack each year and 1 in 6 people who suffer a heart attack die as a result.
By now you may agree that a risk with a major impact to your critical illness coverage pay-out is related to the unknown of survival and waiting periods. If a claim is submitted for an insured event which occurred during the survival or waiting period, it will in all likelihood be repudiated and no payment is made. A typical and traditional survival period is in the range of 14 to 30 days
Statistics show of the critical illness claims made by women last year, nearly 11% were by women under the age of 35. Women between 36 and 45 accounted for 31% of the claims submitted by women.
After reading contracts of insurance of the various assurers, we find the majority of products sold in the market contain both stringent survival and waiting periods. We have found a provider who provide coverage with no general survival periods and limited waiting periods. This would mean on a critical illness event diagnosis followed shortly thereafter with one passing away, the family will receive the full pay-out on the death and critical illness benefit.
One of the life assures who focus on health rewards, reported cancer and heart and artery related claims made up 59% of claims over the age of 50 during the 2015 year.
Depending on the defined critical illness condition, some insurers have a 6 month waiting period and assessment process. A well known mutual assurer, exclusive to the graduate professional, has a 30 day survival period for a heart attack and 3 month survival period for a stroke. According to a Danish study of stroke survivor victims, it was found that 28% do not survive within 30 days of having a stroke. If this mutual assurer was your provider, which it is to thousand of professionals, the full investment return of the critical illness will be forfeited. Lost to your family.
Figures previously released from Statistics South Africa show that cerebrovascular disease (which causes strokes), hypertensive disease and other forms of heart disease were among the top five natural causes of death among women in 2015. In addition, it was suggested in the same report that more than 60% of critical illness claims made by women in 2015 were a result of cancer.
Considering the consequences of a serious illness or disability is never a pleasant experience and can be difficult to think about objectively. Insured benefits such as critical illness, impairment, disability and income replacement cover are vital components of a comprehensive and well balanced long-term insurance portfolio and in many instances we find clients under insured.
The problem is, many people don’t know about the various waiting and survival periods relevant to different critical illness and disability cover products. This is one of the reasons why one of a professional financial advisor’s plays such an invaluable role.
A professional financial adviser will be able to guide you on taking out a policy that is suited to your individual needs and matching these needs to the benefits and policy definitions, and further help you to understand the conditions of your policy.
If you have any question about critical illness insurance, waiting periods or where to find the products that provide the most comprehensive coverage, send us an email and we will try to help.