Don’t confuse dread disease with disability income
As participants in the financial services industry we often get bogged down by the day-to-day administrative issues that confront us. We lose sight of the important function we perform for our clients. And we forget the essential nature of some of the products we sell. That’s why Liberty Life’s ‘road show’ initiative – which covers topics under the headings Risk Focus, Investment Focus and Legal Focus – is a breath of fresh air.
On Wednesday, 18 February 2009 FAnews Online attended a Liberty Life media event to find out more about this intermediary focused product knowledge drive. We sat through an excellent lecture by Wits Professor, Steven Jurisich, titled “Demystifying Dread Disease.” Before we take a closer look at Dread Disease insurance, Jurisich reminds us why the life insurance industry exists in the first place. He says it serves two main functions – on the one hand as a tool to assist individuals in creating wealth – and on the other to offer protection against risk. It’s as simple as that. The myriad products in the life industry fall under one or other of these headings.
The risk side of the equation comes down to protecting the individuals “potential to earn,” says Jurisich. The industry provides products to cover the risk to future earnings caused by dying too soon, the reduced ability to work, becoming disabled and living too long!
Getting to grips with Dread Disease insurance
The Dread Disease concept is credited to Dr Marius Barnard who proposed such cover in 1983. He notes that “you don’t need insurance because you are going to die but because you are going to live.” With advances in medical technology the need for assistance after a Dread Disease or disability event is stronger than ever before. Liberty defines Dread Disease insurance as “the payment of a lump sum in the event of the personal insured suffering a condition covered under the policy.” Most insurers stick with a core of common events (which account for approximately 90% of all Dread Disease claims) including cancer, heart attack, stroke and coronary artery bypass surgery. Jurisich notes that while Liberty’s Living Lifestyle product lists 27 possible diagnoses, many international products cover hundreds of conditions!
There are some misconceptions around the product. You have to remember that Dread Disease insurance is not an income replacement, not the same as disability cover, not a medical aid substitute and cannot be viewed as a terminal illness accelerator. You have to avoid giving the client this idea. Liberty says the typical insured will use the money received from a Dread Disease payout to supplement strained finances and meet expenses not covered under personal or state disability cover (such as medical aid). One example would be to use the funds for experimental medical procedures not covered on your medical aid.
The disability chain of events
The challenge to the financial adviser is to correctly explain the risks covered, benefits paid and events that trigger each insurance product. Dread Disease and disability events may bring any of the following into play: medical aid, dread disease, and disability income or impairment products. Liberty provides a model called The Disability Chain of Events to describe the various diagnoses and appropriate product for each stage. They use an example of a motor accident victim – Dr Jones – who is rushed to hospital with a severely injured leg. The leg is too badly crushed to save and is amputated. To make matters worse he is diagnosed with Stomach Cancer during subsequent medical examinations. He is unable to work for 18-months due to the accident.
Mr Jones experiences both accident and illness during his ordeal. The immediate medical costs relating to his hospitalisation and the amputation of his leg are borne by his medical aid. So too is the standard cancer treatment. However, his Dread Disease insurance will kick in after the cancer diagnosis (and 14-day survival period) to provide lump sum relief. He will be able to use this money to pay for advanced cancer treatments, to supplement short-term expenditures and to obtain emotional treatment for the cancer diagnosis. An impairment policy would compensate Dr Jones for the loss of the limb by covering physiotherapy, rehabilitation and emotional costs associated with the amputation. But his loss of income can only be compensated out of a disability insurance product.
Financial intermediaries have to ensure that their clients are adequately covered for each stage of The Disability Chain – Accident or Illness, Residual Impairment, Reduced Ability & Lost Activities of Labour and Inability to Work & Loss of Future Earnings.
Editor’s thoughts:
Dread Disease and disability cover is essential to protect your client’s “income potential” against risk. You have to provide a basket of cover to catch all stages of The Disability Chain. Do your clients mistakenly believe that their Dread Disease policy can be used to provide income? Add your comments below, or send them to [email protected]
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