The devil is in the detail when it comes to severe illness cover, and the details are constantly changing, which can leave you feeling powerless when choosing a policy or deciding whether or not to accept enhanced cover on your existing policy.
Medical advances and increasing longevity are making severe illness cover an essential part of your protection against the financial shocks that can arise when you suffer a serious illness or medical condition, such as a heart attack, cancer, stroke, Parkinson’s disease or dementia.
Severe illness cover plugs financial gaps created when you need to make lifestyle adjustments, such as slowing down your career, cutting back on your responsibilities at home, or employing someone to help you, or when you incur expenses related to your condition that are not covered by your medical scheme, such as adjustments to your home or rehabilitation costs.
A good medical scheme option, possibly with gap cover, should meet most of your medical expenses, and an income protection policy should cover you in the event of temporary or permanent loss of income.
Severe illness cover typically pays out a lump sum if you are diagnosed with a condition listed in the policy.
The high probability of claiming for an illness over your lifetime makes the cover relatively expensive, and the range of illnesses that can be identified at an early stage continues to grow.
When choosing the most suitable cover, or deciding whether to upgrade, you are likely to find yourself grappling with two concepts: the definitions and number of illnesses covered and the existence of a catch-all clause.
Number of illnesses covered
When severe illness cover was first introduced, it covered only four conditions: heart attack, coronary artery bypass grafts, cancer and stroke.
Most life assurers now cover many more conditions, although traditional assurers, such as Old Mutual, Liberty and Sanlam, say that 70 percent or more claims are still for the four big illnesses.
Old Mutual’s Greenlight policy covers 68 severe illnesses, 16 mild illnesses and 29 severe illnesses specific to children, and nine of the severe illnesses are now also covered when diagnosed early.
Nicholas van der Nest, the director of risk product innovation at Liberty, says Liberty covers more than 150 conditions at various levels of severity, in 31 categories or types of illness. There are options to include illnesses specific to women and children.
Petrie Marx, the product actuary at Sanlam Risk, says Sanlam’s comprehensive option covers 34 illnesses in addition to the big four, while its core option covers the big four only.
Gareth Friedlander, the head of research and development at Discovery Life, which covers about 300 conditions, says its claims statistics show that 45 percent of claims submitted to Discovery are for illnesses other than the big four.
BrightRock’s executive director, Schalk Malan, says it’s product covers 318 illnesses.
Friedlander says that the number of conditions can be misleading, because a single condition can be listed multiple times with different levels of severity.
Marx agrees and says the definition of one claim event in Sanlam’s policy could include a number of separate claim events listed in another assurer’s policy.
He says Sanlam’s current philosophy is not to cover a long list of diseases, of which some are very rare, or of a very low severity, but to provide excellent cover for the most prevalent dread diseases.
Sanlam’s offering is, however, under review.
Assurers may also pay out different percentages of the amount for which you are covered, depending on the severity of the illness.
In an attempt to help you to understand the different levels of cover, life assurers that belong to the Association for Savings & Investment South Africa (Asisa) have committed to using a standard disclosure grid that shows how much they pay at four different severity levels if you claim for the four main severe illnesses. You should check this grid and be aware that severity levels also apply to other conditions.
Medical advances have resulted in the early diagnosis of severe illnesses, including cancer, which can now be detected and treated at what is known as stage 0.
Life assurers are upgrading their cover to include payment if you are diagnosed early – often at only a percentage of the sum for which you have taken out cover – but this typically means a higher premium.
Living with illnesses detected at an early stage can still prove costly, but your chances of surviving without longer-term effects are greater, and this should influence your decision on whether to pay more for improved cover.
If your assurer improves your cover, including more illnesses or cover for early diagnoses, you may be offered an upgrade at a higher premium and will have to weigh up the cost versus the benefits.
Many life companies boast that their policies include a catch-all clause, which ensures that you are covered if you suffer from any illness not listed in the policy that reaches a predefined level of severity. This provides cover for illnesses not listed in your policy and future undiagnosed illnesses, but typically only if the illness is quite severe.
Malan says that if a catch-all clause did, in fact, cover all illnesses, life assurers would not have to list any conditions in their policies. He says you need to know what level of severity will trigger the benefit. For example, you must be bedridden or fail an activities of daily living test.
BrightRock has a catch-all clause under each disease listed in the policy. For example, if the functioning of your heart deteriorates to a certain extent, or your mental capacity reaches a stage where you fail a standardised mental test, you qualify for a benefit.
Friedlander says Discovery’s test measures how capable you are of performing certain activities of daily living to determine whether you will receive a benefit for a condition not listed in the policy.
Marx says Sanlam’s catch-all clause determines whether you qualify for cover based on the extent of what is known in the industry as whole-person impairment.
Jenny Ingram, the head of product development for fully underwritten products at Momentum, says Momentum’s catch-all clause will result in a payout if your whole-person impairment is regarded as being more than 35 percent.
She says a catch-all benefit category may not always protect you if you suffer from a condition that is discovered after the inception of the policy.
Last year, Momentum introduced what it calls the Breadth of Cover Guarantee, which guarantees a payout of up to 20 percent for any condition that is not listed in a Momentum Myriad policy but which is defined in a severe illness policy of any life assurer that is an Asisa member.
Ingram says this feature aims to eradicate the need to count the number of illnesses or claim events in a Myriad critical illness policy.
Van der Nest says Liberty’s catch-all clause applies only to the conditions not specifically listed in the policy. Any illness specifically excluded – for example, congenital blindness – will not be considered under the catch-all definition, irrespective of its severity.