Most of my clients have some Life Insurance cover in place before I start working with them.
For some people, it’s a planned, calculated amount of cover, while for others, it’s a number that their agents or a bank representative put in front of them years ago, and it’s just been that way ever since.
One of my first processes is to change that passive involvement into one where my client understands Life Insurance for what it can be – a savings vehicle, a safety net, financial leverage and a lot more.
But in all of that, there’s one aspect within that I’ve repeatedly seen is profoundly misunderstood: Critical Illness Cover.
Most people’s response when I ask them about their Critical Illness Cover is: “But I have medical insurance.”
Medical Insurance Vs. Critical Illness Cover
Medical Insurance or Health Insurance and Critical Illness Cover are two completely different types of insurance coverage.
Let me shed some light on the differences.
Medical Insurance is designed to take away the cost of treatment of a particular medical condition that you may contract over the course of your life. This can be anything from doctor’s visits to short-term treatment required to cure an acute condition, to managing asthma or diabetes.
A good Medical Insurance Policy removes the burden of the bill that comes with medical treatment, regardless of the condition.
Critical Illness Cover, on the other hand, pays out when a person is diagnosed with, and survives, a critical medical condition such as a heart attack, cancer, tumor, loss of a limb, amongst others. Most policies list about 30 to 40 critical illnesses covered.
Let me now take you through an example of how Critical Illness Cover helped, Sunil, a friend of mine.
The Importance of Critical Illness Cover
Sunil was a friend of mine from back in school. He lives and works in Dubai.
Back in the day, he had purchased a Life Insurance policy with around US$ 200,000 of cover – which is barely anything, but typical when you’re buying a policy before the age of 30. Death seems like a far off event to have a strong contingency plan in place for.
The policy also had Critical Illness Cover worth US$ 100,000.
At the age of 30, Sunil had a heart attack. He suffered from a rare genetic blood condition that had caused it.
He underwent surgery and had three stents put in his heart. The operation cost around US$ 40,000, back in 2008. At the time, he worked with an established multinational bank in the UAE, and company-provided Medical Insurance covered the total cost of surgery and all the medical treatment that followed.
Fortunately, Sunil recovered well but was prescribed a slow, careful recovery process, more so because of his predisposed blood condition, and it looked something like this:
- The doctor recommended three months of complete rest – no work.
- The next three months, he was told to work only at 50% capacity, which meant half days.
- And then for the final three months of recovery, he could work full days but was asked not to drive.
That was a nine-month recovery period where Sunil needed to manage with a significant income deficit. He was the sole breadwinner in his family, had a wife and a school-going child to pay for, and also supported his two parents.
That loss of income would have been a big hit to take.
Now, a small part of that loss was covered by the company’s group Life Insurance policy. The policy ensured that if an employee became critically ill, the company stood to receive 75% of the employee’s salary for up to two years.
But Sunil was on a pay structure so that 70% of his income was purely commission-based and only 30% was recorded on the payroll as a salary.
So the 75% covered by the group Life Insurance was calculated off of the 30% that was his base salary – an amount that was by no means sufficient to take care of all of his financial obligations over his nine-month recovery period.
Here is where that modest Life Insurance policy of his, with the $100,000 of Critical Illness Cover kicked in. That $100,000 took care of all his expenses, the facilities, and the care required for a smooth recovery.
He didn’t have to worry at a time when he was already under so much physical and emotional stress from what he had just been through, and the company didn’t need to bear the financial burden either.
What You Need to Know Before You Purchase Critical Illness Cover
- The amount of cover you have or purchase is crucial
How much Critical Illness Cover you buy shouldn’t just be a number you think seems reasonable or a percentage of your Life Insurance cover. Your Critical Illness cover should ideally be a multiple of your income.
Think about the number of months that you would like to not have to worry about monthly expenses if you fall critically ill.
If you think that number is 24 months or two years, then your critical illness cover should be two times your annual income or expenses.
I have US$ 1.25 million worth of Critical Illness Cover myself. Assuming my household expenses work out to USD300,000 per year, I’ve given myself four years of Critical Illness Cover to recover and recuperate as worry-free as possible.
That amount is also as much cover as I can get given my age, my health, my income, and other factors that the insurance company takes into consideration to justify the value of a policy.
- Critical Illness Cover is a function of your Life Insurance policy
You purchase Critical Illness Cover along with your Life Insurance policy as a rider and the cover is a part of your total policy payout.
So if you have US$ 1 million of Life Insurance Cover, and US$ 200,000 worth of Critical Illness Cover, should you ever need your Critical Illness Cover paid out, then your Life Insurance payout drops down to US$ 800,000.
Though this is typical, it may not be the case with every insurer. Some contracts could possibly pay out the critical illness claim as an additional cover and the Life Insurance may not be affected.
- Critical Illness Cover only pays out once
A Life Insurance policy will only pay out Critical Illness Cover once in your lifetime, as a lump sum, upfront benefit. Should you fall critically ill a second time, you will have no payout from that particular policy.
You could, however, have various Life Insurance policies in place, each of which will cover critical illness once.
All in all, Critical Illness Cover is crucial and helps to minimize the devastating effect of critical illness.
The cover helps the insured and their families to recover from the trauma, cover the costs for facilities and amenities that the recovering person needs, and helps to carry the family through comfortably until they can resume normal life again.
It can be devastating to get weighed down under crushing financial pressure when dealing with a critical illness – the stress slows recovery, and perhaps even reverses recovery for many.
It’s said that the second heart attack comes because of incomplete and inadequate recovery and care after the first one.
I can’t think of a more severe or probable cause of relapse than the stress that would come from not knowing how to pay your bills or the kids’ school fees or the mortgage.
I hope this article has prompted you to think about your Critical Cover, as it stands right now. Even if all you do is go back and have a quick look at what you have in place, and start thinking about whether or not it’s enough – I’ll consider my job done!
Feel free to reach out to me if you’ve got any questions about your existing Life Insurance or Critical Illness Cover, or if you need to look into getting some.
