Critical illness cover wasn’t invented by an insurance company as many would believe. No, it was the brainchild of a renowned heart surgeon working in South Africa. He spotted the need for people to have protection should they become critically ill, but survive and struggle financially.
As a surgeon, Dr Bernard was used to saving lives. He was acutely aware however, that he couldn’t do anything about the long-term financial implications for those he saved.
He reflected that; “I was used to operating on people and boasting about my great results. I had patients surviving 5 or 6 years, but all of a sudden I saw the social and financial implications. I knew nothing about insurance but I knew life insurance only paid out on death. My patients lived for many years, but in this same time, they died financially.”
In the 1900’s, serious illnesses such as cancer, heart attacks and strokes were rare. Tuberculosis, typhoid fever and malaria were much more common. Those that were lucky enough to survive these illnesses did so at a time when average life expectancies were in the 40’s. Passing on at such a young age, meant many still had dependents and hence why life assurance was so important at that time.
Throughout the 20th century however, we had many medical breakthroughs and with the likes of antibiotics, vaccines and immunisations to name but a few, the average life expectancy rate rapidly increased. So much so that in the developed world today, this figure is now well into the 80’s. While this is fantastic news on most fronts, it can also cause difficulties that not only need to be addressed, but financed.
Major lifestyle changes, a decrease in the amount of manual work and an over-indulgence in rich foods has led to obesity and many other complications. This has seen a huge increase in illnesses such as heart attacks, cancer and strokes. It was for this reason that Dr Bernard dedicated significant time to seeking out a company prepared to underwrite this risk. This wasn’t easy as most analysts perceived the risk to be too high at that time. He persisted until eventually, in 1983, he convinced a South African insurance company to insure against these illnesses.
He was appointed to the Board of this insurance company as Medical Consultant to oversee that payment was made if a policyholder suffered one of the defined specified illnesses. Today, most insurance companies provide Specified Illness Protection on a range of illnesses. The number of illnesses covered is now also much greater than what they were when first established by Dr Bernard way back in 1983.
Even so, claims statistics published by Irish Life earlier this year showed that Cancer, Heart Related Conditions and Stroke are still the big 3. They accounted for 86% of the specified illness claims that they paid to their customers in 2016. Malignant cancer accounted for 3 out of every 4 female specified illness claims but just 1 in 2 male claims. Heart related conditions accounted for over 5 times as many male specified illness claims as female claims. Breast Cancer for ladies and Prostate Cancer for men were the main cancer related claims. Irish Life paid out 861 claims for specified illness in 2016 with the average claim being €62,229. More than one third of those were under 50.
Life Insurance companies in Ireland offer cover on a list of specified illnesses. To qualify for a claim, you need to be diagnosed with one of the illnesses listed on your plan. You must also meet the severity of that condition as outlined in the policy terms and conditions, so professional advice is paramount. There is no tax relief on the premium but any pay-out on a claim is tax-free and paid out as a lump sum. Unlike Income Protection, there’s a lot of flexibility around the amount of cover you can to put in place. Your smoking status, the term of the policy and existing health will, in the main, determine the premium.
A recent study by the Irish Cancer Society “The real cost of Cancer”, 2015 stated quite clearly that for most patients; “The stress of managing the cost was greater than the stress of having the cancer itself.” That’s not only frightening but shows nothing much has changed then since Dr Bernard’s thoughts back in 1983!
Please share this blogpost if you think it has been informative or might benefit someone you know.
As always, contact me if you have any personal Financial Planning queries or would like to reserve your free Discovery Meeting consultation.
Paul is the Managing Director of Lifestyle Financial Planners Ltd and been in the Financial Planning business since 1985. Lifestyle Financial Planners offer specialist, tax-efficient wealth management, retirement and estate planning solutions to our clients. Paul is a Certified Financial Planner and holds a Masters Degree from UCD in Financial Services and Risk Management.
Tel: 096-75951 Mob: 086-8053755, www.lifestylefinancialplanners.ie
The information contained in this article is for general information only. It should not be used as the basis for any form of agreement or advice. We recommend readers seek separate tax and legal advice where necessary. This information is of a generic nature and does not take into account your own particular circumstances. Investment funds can fall as well as rise.
Lifestyle Financial Planners Ltd trading as Lifestyle Financial Planners is regulated by the Central Bank of Ireland