Assessing the severe illness cover on a life insurance policy can be extremely difficult.
You need to consider conditions covered, the definitions used to define those conditions and the severity levels at which benefits - possibly different levels of benefits - are paid. Read more Why does my severe illness policy pay out at less than 100% of the insured amount?
You will probably need a financial adviser to guide you, but it is worthwhile knowing a bit about the way life insurers offer cover so that you can ask the right questions.
Initially severe illness policies focussed on the four dread diseases that today still affect most people worldwide: cancer, heart attacks, strokes and the need for coronary artery bypass graft surgery.
Since then, however, most life insurers have broadened their cover to include a long list of other illnesses – some have less than 100 and some as many as 300 including illnesses such as AIDS, central nervous system disorders; eye disorders, loss of limbs or the use of them, major burns, motor neuron disease; multiple sclerosis; muscular dystrophy; Parkinson’s disease; paralysis; renal disorders; respiratory disorders; speech disorders and even in some cases, trauma.
It can be difficult for you to know if these lists give you certainty that your policy will pay out when you suffer from a severe illness, even if it isn’t one of the most common ones.
Some insurers therefore include a “catch-all” benefit for illnesses that have not been specified, or have not yet even been discovered. The benefit may be priced into your premiums or it may be an optional extra at an additional charge.
This “catch-all” benefit may be defined in terms of how much of your body is impaired and unable to function normally, or on how capable you are of performing certain daily activities.
Survival periods
You should be aware that many severe illness policies include a requirement that you survive for a minimum period of time after the diagnosis of your illness. This period is usually 14 or 28 days.
The reason for this is because your dread disease benefit is intended to provide for medical and lifestyle expenses rather than provide a death benefit for your beneficiaries.
However, a very serious illness or injury that leads to your death shortly afterwards may result in significant additional costs and you may not want these paid from benefits intended to financially support your family for the rest of their lives.
Some life companies therefore do not have survival periods. There are also typically no survival periods when severe illness benefits are an accelerated benefit or early pay out of the life cover.
