A Dead Cert
I suppose there is no such thing as a "dead cert" in gambling terms, but there are two certainties in life. One is that we will die and the other is that we will pay tax at some point.
Of course, in between being born and the former in the previous paragraph, we make plans. But, to interfere with our plans, life itself intrudes. Those little upsets that come along to make things more interesting! Whether it is to do with money, our families or our health, you can be sure something is always waiting in the wings to spoil the plans.
This month, I thought I would look at one aspect of life that causes so many problems for families. The area of Critical illness is a scourge that can bankrupt any unsuspecting family or indeed company. A critical illness is generally defined as one which has a major impact on someone’s life. Examples are various forms of cancer, organ transplant, heart attack, stroke, and permanent disability. Fairly major problems, you’ll agree!
Insurance to cover this was first introduced in South Africa in 1983, then here in the late 1980s. The types of policies have changed dramatically over the last 20 years. Today, the market is more sophisticated and the policy definitions more defined. At the moment, insurers are reviewing policy wordings to take account of the ever-changing way in which diagnosis of illnesses moves forward. The principal driver is a rapid advance in medical science, and the ability to detect an illness at an earlier stage. The underwriter’s job with this type of insurance is more difficult than say, life assurance. For life assurance, the underwriter will consider the risk of death of the life assured. For critical illness, the underwriter will assess the risk of the occurrence of one or more of the critical illnesses covered under the policy. The idea of critical illness insurance is for the policyholder to pay premiums for the duration of the policy, or until diagnosis of the critical illness and in return, the insurer will pay out a lump sum to that person. An example might be if the policyholder had a heart attack. The policy would pay out the sum assured, thereby allowing the policyholder to make the best recovery possible, without rushing back to work. Attached to a mortgage protection policy, this would mean that the mortgage could be repaid, taking pressure off the family. A great idea! Looking ahead, it is likely that we will see companies offering only reviewable rates, rather than guaranteed premium rates. It is also likely that underwriters will bring in new tests for applicants in the future to help detect early signs of critical illness.
Over the years, the majority of UK employers have viewed the concept of business protection in much the same way as a 13-year old approaches a plate of school dinner cabbage. It might be good for them, but they are still likely to give it a miss. Fortunately, as Bob Dylan said, "the times, they are a changing." Nowadays, TV chefs are able to make even a plate of vegetables appealing to teenagers. Similarly, a combination of 21st century protection products and informed advice can reinforce the importance of financial planning pillars such as critical illness cover and its benefits to a workforce. After all, the loss of a key member of staff from a small business team through long-term illness can rapidly destabilise the future prospects of the entire company. Potential scenarios are as many and varied as there are companies.
Clearly, as individuals, we should all consider the possibility of being smitten by a critical illness. I am quite sure that all of us know someone who has been diagnosed or has died from cancer. That is of course only one of the illnesses covered. As I said at the start of the column, life is what happens between our plans. It is worth talking to your independent financial adviser or asking your employer to ask their financial adviser to discuss this important area.
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