Taking the risk out advice for: Critical Illness cover
HISTORY OF DREAD DISEASE COVER & WHY IT WAS INVENTED
Did you know that it wasn’t an insurance company that came up with the concept of dread disease insurance? It was Dr. Marius Barnard, the heart surgeon who was part of the team that performed the first heart transplant in South Africa in 1967.
Barnard saw first-hand the financial difficulty of his patients who survived heart surgery. This inspired him to approach South African insurance company, Crusader Life, to develop critical illness cover, in 1983. Dr. Barnard helped detail the definitions of the critical illnesses, and many of these still stand today.
Since then, there have been other developments in products and medical aid which mean that clients don’t need as much Critical Illness cover as they once did. We’ll unpack this in the content below.
To watch the interview with Dr. Barnard, scan the QR code, or copy the link: https://www.youtube.co m/watch?v=YfIftGMgNqI
ICON’S RISK GUIDANCE VIEW AND CRITICAL ILLNESS COVER:
Since Critical Illness lump sum benefits are typically the most expensive risk benefit in the market, it’s very important for you, as advisers, to consider CI cover in the context of other risk insurance benefits – as well as the impact to the client’s bottom-line budget, and what their broader financial needs are.
A recap of ICON’s 3 golden rules:
Cover should be tailored for each client, understanding their specific needs, and working within the confines of their budget.
Keep cover lean and mean: use primarily income benefits over lump sums, and use the premium savings for investments.
Risk cover should make a client financially neutral - not in a better or worse position, if something should happen.
HOW MUCH CI COVER IS ENOUGH?
ICON doesn’t believe in a one-size-fits-all approach. There is no simple formula we can apply to every client. However, we've developed a simple 3-Step Risk Guidance process to help advisers determine and substantiate how much Critical Illness lump sum cover should be in place:
STEP 1: CONSIDER HOW MUCH COVER IS NEEDED WITHIN THE CONTEXT OF THE OTHER RISK PRODUCTS
Medical Aid and Gap Cover
Consider the quality of medical aid and gap cover in order to determine how much lump sum cover your client should have in place to make up for shortfalls. Have a look at the co-payments and maximum limits for cardiovascular and oncology benefits, etc.
Income Protection
Keeping the golden rules at the forefront – we suggest that advisers always ensure that the client has income replacement benefits in place should the client have ANY injury or illness that could prevent them from working for 7 days or more. That could be anything from pneumonia, to a broken ankle, to cancer. Once the client has their 100% of their income protected, they can rest assured that no matter what minor or major illness occurs, they will get paid their monthly salary, irrespective of their sick leave or what their employer / business partners decide.
Critical Illness Income
ICON highly recommends CI income benefits that can boost the monthly income replacement benefits as well as guarantee the payments for a period of time – allowing the client to focus on their recovery.
Summary
The client should have just enough insurance to put them in the same position financially than if they didn’t get sick, but not too much that it jeopardises the investment allocations and retirement savings. The balance of insurance and investments should AWAYS be considered hand in hand, and the weigh- ups made in line with the client’s goals and risk reality.
STEP 2: USE OUR CALCULATOR TOOL TO WORK OUT THE LUMP SUM NEEDED FOR EACH CLIENT, AND STORE IN THEIR RECORD OF ADVICE
In addition to the risk benefits above that may be in place, also consider the following:
How much wealth does the client have? Do they have money available to cover extra monthly costs out of pocket, should they need?
What’s the clients’ total monthly life insurance and investment affordability?
What’s the clients’ family medical history? This may influence the statistical chance of them having a critical illness claim in the future.
STEP 3: LOOK AT THESE GUIDELINES WHEN CHOOSING A PRODUCT FOR YOUR CLIENT
1) Does the policy have quality terms for the most likely conditions?
The table below shows the likelihood of a clients' claim being one of the 4 major SCIDEP conditions (Cancer, Heart Attack, CABG and Stroke).
This is why, as a financial adviser, it's crucial to interrogate the terms on these illnesses, rather than putting too much emphasis at the number of total conditions covered. Consider the Top Up options that secure 100% sum insured payments for SCIDEP conditions.
Source: Sanlam Life - 2017
The bar graph below shows the average number of days each of the SCIDEP events were in claim on Income Protection policies (average days per illness, over 24 years). This shows the importance of income replacement cover being in place, first and foremost, as well as a lump sum benefit.
2) What does the quality of cover look like for the next 10 most likely conditions? And, consider what does your client's family history suggests.
3) Are there reinstatement and multiple related claims options?
Another key consideration is whether or not your client will qualify for multiple claims if their illness returns. Many providers reinstate the lump sum cover, but this will obviously come at a significant premium cost. Another way to ensure continued cover is with CI Income benefits with FMI or Sanlam, and ensure the client has quality Income Protection in place that will pay for multiple cases.
4) What catch-all benefits exist to allow pay-outs for conditions not specifically listed?
Severe Covid with extended hospitalisation is just one example of a condition that would not have been listed explicitly listed on policies prior to 2020. In order to ensure a claim could still be triggered for undefined conditions such as this, advisers should look at what 'catch-all' benefits are on the policy. FMI's Expense Benefit and Hollard's ICU benefit (pays 4% of sum insured) - both included at no extra cost to policy - are great ways to ensure a client can claim for unspecified events.
5) Is there an option to get claims backdated if a client doesn't immediately claim?
If a client has a severe stroke, heart attack, or receives news of a serious illness, there's a chance they will not be in any state to lodge a claim immediately. This is why it's very important to check whether the product provider will allow for late back-dated claims - and not only for CI Lump Sum payments, but for CI Income and Income Protection claims too. ICON's product partners are forgiving when it comes to back-dated claims, and claims are generally paid very quickly (FMI typically within 48 hours).
6) What other significant value-adding benefits does the provider offer? (Family assist options, transport, medical second opinion etc)
Often, the cost of going through a critical illness is more than financial - it's emotional, physical, and can take a massive toll on the entire family. Providers linked to ICON have some extra benefits build into the product to help the client recover. See some unique selling points below from FMI (Bidvest Life).
MEDICAL SECOND OPINION
FMI offers the expert Medical Second Opinion service. This benefit gives clients, and all accredited FMI advisers, access to world-class specialists for peace of mind that you’ve received the right diagnosis and the best possible treatment plan. This is just one way we try to make things easier for your client, so that they have all the information needed to make critical decisions about their health.
7) What about general exclusions, or, a survival period?
It's important to remember that all benefits come with a cost - so the question is, are they necessary factors for your client? If you look at the need for Critical Illness cover - it's there to plug the gaps of all the associated costs of battling a serious illness. Therefore, if the client has adequate life cover in place, a survival period should not be there as a 'nice to have'. The same can be argued for some general exclusions, and again, the needs vary depending on clients. According to our research, Hollard doesn't have ANY general exclusions on their Max – Comprehensive Critical Illness cover, whereas all other companies, have condition-specific exclusions.
ICON has partnered with SA's leading Critical Illness cover providers; Sanlam, FMI & Hollard each offering differing terms and pricing models.
