Question

I’ve recently joined a company where there are no employee benefits, so we need to make our own arrangements.  At my old company, I had critical illness cover of one times my annual salary. Is this something that I should get privately? None of my friends have it.

Answer

Critical illness cover typically pays out a sum of money should you become ill with a severe illness. Now, given that we generally have medical aid and gap cover to pay these types of  bills, do we actually need an additional sum of money to cover us should we become really ill?

No matter how good your medical aid is, there will always be additional amounts that you’ll have to settle out of your pocket.  These could include follow up visits to the doctor, out of hospital blood tests or X-rays as well as non-chronic medication.

In addition, as many of us are working for ourselves or may be receiving a pay for performance reward, we may not be working at full capacity for a for a while after having had a severe illness. This can impact on our cash flow.  This critical illness benefit can fill this gap and ensure that your finances are not knocked off course if you become ill.

Now, you can self-insure this gap by building up an emergency fund. As long as you have the discipline to not to touch this for reasons other than sickness, it could work.

As we are living a lot longer (with one in ten of us expected to live to 100), the chances are of us getting a critical illness especially when we retire is very good. The additional costs associated with a severe illness can really impact on a pensioner’s finances.  Having this cover can make a real difference and provide financial peace of mind in retirement. 

There are many critical illness products on the market that offer varying levels of cover.  I would certainly recommend that you speak to an experienced financial planner who can help you make the right choices.  Some of the factors to consider would include:

• Is there a reinstatement benefit?

 If you claimed for a heart attack, would you be able to claim if you had another one a couple of years later?

If you had a claim for one type of cancer and then you developed a different cancer would there be an additional payout?

• How comprehensive are the benefits?

Will the benefit only be paid under very specific circumstances? For example, are only certain specific types of cancers covered?

• At what stage of an illness will the benefit payout be triggered?

If, for example, you became ill with cancer (which can progress from stage 1 to stage 4), at what stage would you be paid out?

Many of the cheaper policies only pay out when you are extremely ill.  You would ideally like the payout to happen as early as possible so you can fight the disease hard in the early stages.

• Is there a catch-all clause?

If your illness does not fall into a typical definition set, is there a catch all clause which may trigger a payment? 

There are situations where you could end up in hospital for an extended period with a cluster of conditions which on their own may not warrant a payment, however taken together, they could result in a claim.

• Are you covered for the whole of life or does the benefit stop at a certain age?

There are products on the market that cease when you turn 65.   Remember you are most likely to claim after you retire.  When I do retirement planning for clients, this is the one risk product that I recommend that they take out even if they are already in their 60s.

The chances of you getting really ill at some stage in your life is high. Critical illness cover can play a key role in protecting your family’s finances should this happen.