Welcome to Informed Decisions Blog #18, nearly at the 20 milestone now! Thanks for continuing to read and learn about critical aspect of Personal Finance & Financial Planning. If you are new here, welcome! This is a great place to begin the journey if you are a new visitor.
Any (decent) builder would tell you that in order to build the house of your dreams, you need to put in place solid and durable foundations. While these foundations can be expensive, are no addition to the overall look of the house, and often more expensive than initially envisaged, I'm sure we all agree that they are a must have.
The same can be said of our financial lives; solid foundations will help support you if there is an earthquake, landslide, or even some mild tectonic shift! We addressed the basics back in earlier blogs and podcasts, but lets dig deeper on one of the core aspects of financial foundations, protection. Many of us in our 30's have some sort of cover in place, have been offered it or seen adverts online. What to do!? Over the next few weeks we will explore of each of the main types of protection on offer to us today, and whether they are something to consider or not!
Specified Illness Cover, Serious Illness Cover, Critical Illness Cover, Disability Cover, Income Cover, Permanent Health Insurance, Income Cover, Income Protection, Bill Cover, Inability to Work Cover......these are just a few of the names thrown around for various types of 'living benefits' (you don't have to die to claim them!) which may or may not help you financially if you are unable to work due to accident, ill-health, injury, mental or physical illness. In this blog we will dig deeper on Specified Illness Cover, aka Critical Illness Cover as it stands in Ireland today.
What is Specified Illness Cover?
As it's name suggests when you are medically diagnosed with a specific illness, injury, ailment or condition you would receive a tax free lump sum payment. It is for that reason that i always refer to this as Specified Illness Cover, because it's claim is dependent on whether is was one of the specified illnesses.
When you apply for this cover you will/should be given a clear list of the illnesses, the definitions of each, and the severity of which you must be diagnosed in order to be considered valid for a claim under any particular illness. If you suffer from something which is not on this list, or is not of 'sufficient severity', or does not meet the 'definition' you do not get your claim. If it does you do.
What sort of illnesses are covered by Specified Illness Cover?
Every serious life company in Ireland offers Specified Illness Cover under one title or another, each one will largely cover the same illnesses, however some have different definitions and severities under different illnesses. This is where it can get a bit murky and subjective in terms of which route is best. It's important to research this yourself, as well as taking the input from the providers, in order to make an informed decision on which is most appealing to you.
Irrespective of that, all providers will cover the 'Big 2'; so if you are diagnosed with having had a Heart Attack (of specific severity!) or Cancer (of specific severity!) you will be covered.
There are also another approx 50 less common, more bizarre illnesses covered by the various providers. For example surgical removal of an eye is a regular on the list, indeed diagnosis of flesh-eating bugs is another more recent addition by one provider! Hmmmm.
What definition must be met to claim my Specified Illness Cover?
Here's an example of the definition involved for claiming on a cancer diagnosis under specified illness by one provider, as of Jan 16. Worth noting that not many of the providers make the definitions available online. Doesn't inspire trust does it! Here's the high-level definition for Cancer:
Any malignant tumour positively diagnosed with histological confirmation and characterised by the uncontrolled growth and spread of malignant cells and invasion of tissue. The term malignant tumour includes leukaemia, sarcoma and lymphoma except cutaneous lymphoma (lymphoma confined to the skin).
So there you have it, if you had Specified Illness Cover and were diagnosed with a form of cancer, that is the definition your condition needs to meet in order for you to have a valid claim. If it doesn't currently meet that definition then you don't get your cash. If it does then you submit your claim, backed up by medical evidence from a medical professional and you can await your cash payment.
While no official figures can be found to show how many Specified Illness Claims there are every year from all the insurers I gather there are in the region of 2,000 claims each year in Ireland. That is just under 8 individuals in Ireland each and every working day either being diagnosed with a specified illness, sending in their claim, or receiving their claim cheques. That again is scary. The average amount each individual claims is estimated at €60,000.
What would you do with the money? What's the point in laying this foundation?
As a result of us being 5 to 6 times more likely to suffer from one of these illnesses than we are to die before 60, it is therefore in the region of 5 times more expensive than life cover. As a key element of our financial foundation it ain't cheap, and it is because it is statistically so likely to happen, unfortunately.
Consider if you were in the situation of being diagnosed with a cancer which displays levels of 'uncontrolled growth and spread'. It's scary, it's hard to picture, however many of us will have had first or second-hand experience of this.
What sort of an impact will it have on you and your circumstances? Will it impact on your ability to work, to earn your current income? Will your partner need to take time out of work to support you or replace you in some way? How will you pay for medical treatments? Will you be under financial pressure to return to work as soon as possible as opposed to taking time out? What impact will it have on your financial goals? Will you have to rely on loved one's to support you? Will you have financial concerns?
If you answer 'yes' to any of these then having some level of Specified Illness Cover may be appropriate to you. The level of cover you should have will depend on many factors, among them; what emergency fund you have in place, what impact a diagnosis will potentially have on you, what your income is, what your affordability allows and ultimately it will boil down to how big a problem you feel it would be if it did happen.
Irrespective of how much there is no doubting that for many of us it is prudent to have an element of it in our financial foundations, no question. In conjunction with some of the other foundation protection types we will discuss over the coming weeks it can help keep your house intact while you overcome the earthquake.
Whatever you do or do not do with this information at least make sure that you make an informed decision with regards your financial foundations.
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