Cancer, heart attack and trauma strike when you least expect

Gareth Stokes, FAnews Online Editor

Over the past couple of weeks I’ve spent some time looking at the life insurance space from the “coverage shortfall” perspective. I thought we’d liven up the theoretical discourse on applicable level of life and disability covers by taking a look at “real world” statistics from the latest Discovery Life Claims Tracker. The life insurer provided a raft of interesting statistics for the period 1 July to 30 September 2010. In just three months the group paid out 708 claims totalling R349.966 million. The average payout for the period was R494 303 – though one claim ran to R21.929 million.

These statistics are collected from the Discovery Life assurance book. The insurer’s typical policyholder is in the 36 to 40 age band and the entire book is skewed slightly toward male members, with 56% male versus 44% female. Discovery says 79% of these policyholders are non-smokers. What else can we glean from the latest report? I’m not going to bore you by repeating the top five occupations on the group’s book, but I will mention that business owners and directors fill three of the top five claimant categories by occupation!

Main causes of death

The bulk of the payouts awarded by Discovery in the latest quarter – totalling R239.037 million – are for death claims. Cancer, Heart & Artery and Trauma events account for 71% of death claims by volume and approximately 82% by value! A worrying statistic is the increase in Suicide related claims between the second and third quarters this year. The group reports an increase from 2% of total claim volumes to 8%, with the rand payout for such claims soaring from R1.488 million to R23.941 million.

The top three causes of Income Continuation Benefit claims include Musculoskeletal (35%), Nervous (13%) and Cancer (9%) with a total of R12.847 million paid in the latest period. Incidentally – the same three categories top the list of the Causes of Capital Disability Benefit table. Cancer and Musculoskeletal claims account for 29% each of claims by volume – with Nervous-related claims accounting for 16%.

What struck me about the statistics was the average age of “victims” of the various death, dread disease and disability events. Under the Causes of Severe Illness Benefit claims section Discovery lists the average age of Cancer claimants as 47 years, the average age of Heart & Artery claimants at 49 years, and the average claim for Respiratory Diseases claimants at just 40 years. Across all claim types the average age spans between 40 and 50 years – with a couple of outliers in the mid-50s and late-30s. The lesson – if you’re going to suffer an event it’s likely to be in your 40s!

The value of life insurance

Why should you have life insurance? There are countless reasons, the main one being to ensure the financial wellbeing of your family and dependants should you die or suffer from an income limiting disease or disability. Discovery provides an example of a “typical” insured.

Bob (not his real name) is a 54 year old male, who works in his own business with 21% to 50% manual duties (a description used by insurers to “qualify” how involved the insured is in the day to day running of the business). This business owner took out an insurance policy with Discovery Life as follows: LIFE FUND R1 million, Severe Illness Benefit 40%, Capital Disability Benefit 60% - and a Minimum Protected Fund 45%. The policy was active for 19 months when disaster struck.

Bob was diagnosed with Stage 1 Myeloma. The website everydayhealth.com describes the ailment as “a type of cancer that develops in plasma cells. It is an incurable but treatable cancer in which abnormal cells accumulate in bone marrow and in the solid areas of the bone. Patients experience bone pain and weakness, as well as kidney problems, anemia, and amyloidosis.” The cover on Bob’s policy immediately kicks in. He was paid out R211 000 for Severe Illness Benefit Category C and an additional R40 917 under the Capital Disability Benefit cover, Category C.

A second and third condition subsequently developed. Bob developed Severe Chronic Obstructive Pulmonary Disease, which triggered a R274 094 payment on the Capital Disability Benefit Category B… And soon thereafter suffered Chronic Heart Failure, for which the policy paid out R383 732 under Capital Disability Benefit Category A. Although Bob would no doubt have preferred full health the value of the cover is clearly demonstrated. He received a total of R909 743 to cope with the impact of his illnesses.

Editor’s thoughts: It’s difficult to talk about life insurance payouts without getting technical. I’ve used the Discovery Life statistics to remind each and every one of you of the importance of putting adequate life and disability covers in place. With the majority of claim events taking place between 40 and 50 years your “window” to purchase cover might be narrower than you think. How often would you reassess your clients’ life cover to ensure their policies cover a wide enough range of critical illness events? Add your comment below, or send it to gareth@fanews.co.za