From diagnosis to recovery: The importance of Critical Illness Income

By: Nic Smit, Chief Product Actuary at Bidvest Life

Nic Smit

Traditionally, lump sum benefits are seen as the solution to providing protection against major health events. Critical illness cover will pay out a lump sum on the diagnosis of a serious illness, and disability cover will pay out a lump sum in the case of a permanent disability. And while there is a place for lump sum benefits, this approach has one major shortcoming.

Neither critical illness cover nor lump sum disability cover will pay out for most of the injuries or illnesses that prevent your clients from working. Critical illness cover only lists the specific conditions that will result in a benefit being paid, and lump sum disability cover requires the life insured to be permanently disabled before a benefit is paid. It is more common than you might assume for someone to be unable to work for months due to a condition that is neither permanent nor included in critical illness cover.

This demonstrates that, when building your clients’ portfolios, it is essential to first cover their most likely risks. Adding income protection benefits will protect them against an inability to earn due to illness or injury. Even so, a traditional income protection policy may still not meet all the needs that come with critical illness diagnoses.

In the case of cancer – which, according to Bidvest Life’s 2022 claims report1 is the most common reason for claiming under critical illness – traditional income protection benefits would only start paying a benefit once the life insured is unable to work. This leaves your clients with a potential gap where they must deal with a life-changing diagnosis but cannot claim on their income protection benefits until the cancer progresses to the point where it prevents them from working. Further to this, cancer often results in intermittent periods where you are physically able to work (consider when cancer patients undergo regular chemotherapy treatments), which means that your client will not receive a constant benefit payout. Not only does this mean that your client has to work to fill those gaps in their benefit payouts, they also constantly need to

provide information to the claims assessor to justify the income payouts that they do receive – an additional requirement for a client who is already dealing with a stressful life event.

This is where the advantages of a benefit like Critical Illness Income (CI Income), which guarantees uninterrupted monthly payments for a year on diagnosis, come into play. Policyholders need only submit paperwork once, on diagnosis, and do not have to worry about additional appointments and admin when they are already ill. Moreover, CI Income cover is a lot more affordable than traditional critical illness cover, where the sum assured is often kept low to contain costs. Take Bidvest Life policyholder Nandi* as an example.

After her stage 3 breast cancer diagnosis, Nandi underwent a double mastectomy and breast reconstruction. Her policy provides her with three benefits so that she can focus on her recovery instead of worrying about lost income: a lump sum payment of 100% of her sum assured on diagnosis; a monthly income for the 12 months post-diagnosis through her CI Income benefit; and an additional 15% payout on her Critical Illness Lump Sum (CILS) benefit (over and above the 100% of benefit already paid) specifically for her reconstructive surgery.

Finally, when selecting your clients’ policies, remember that the life insurance industry has evolved to make critical illness cover as comprehensive as possible. Initially, critical illness benefits were designed to cover the four SCIDEP (Standardised Critical Illness Definitions Project) events but now encompass hundreds of different conditions. Yet the return on adding multiple lists of events becomes marginal in comparison to the need for covering the most likely events: cancer, heart attack, stroke and bypass graft. It’s important not to forget that you are far more likely to suffer some conditions than others. Bidvest Life policyholder Nandi* is living proof of the importance of having a combination of benefits in place when cancer strikes.

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