Employee Benefits

Sabir Bacus
Senior Benefit Consultant

 

 

 

 

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Dread Disease Benefits

A lump sum payout to maintain your standard of living when disaster strikes

Insurers, preferring clarity in their naming conventions above politeness, have labeled a range of specific insurance benefits under the descriptive heading of ‘dread diseases’.  

Other naming conventions include ‘severe illness’ or ‘critical illness’ benefits.  Whatever its name, a policy in this regard covers a policyholder for a stipulated disease or illness which affects a person’s well-being, with potential and real changes in lifestyle being inevitable.  Conditions covered include various cancers, musculoskeletal diseases, and heart disease.

 

 

A group dread disease policy, provided by an employer as a component of their employee benefit programme, provides employees with cover in additional to the conventional death and disability benefits otherwise usually offered.  

In this third edition of explanatory articles on employee benefit policies, we unpack the intricacies of dread disease benefits and how they enhance an employee benefits program.

The required changes in lifestyle following a person contracting a dread disease, together with the prerequisite treatment, will place an additional financial strain on family resources – usually way beyond that covered by medical aid, and gap schemes, as well as designated savings.  

 

A dread disease benefit payment is made as a lump-sum to the insured upon diagnosis.  It is intended that this immediate capital sum alleviates the financial burden incurred by an insured as a result of the diagnosed condition.

This insured benefit is available as a multiple of the employee’s risk salary or as a stipulated lump sum amount.  Certain maximum levels of cover are usually imposed by an insurer.  The cover may be linked to an existing Group Life Assurance (GLA) policy or provided as a stand-alone benefit.  If the dread disease cover is linked to a GLA policy, a claim on the dread disease benefit is usually an advance against the GLA policy, reducing the death benefit accordingly. 

 

Maximum free cover limits may apply, whereafter medical evidence will be required before an insured is covered for the additional benefit.  Comprehensive medical evidence will be required before payouts are made. 

It is vital to know which conditions your specific insurers’ policy covers, and the maximum amounts provided. 

Dread diseases conventionally include one’s cardiovascular system, cancer, nervous system, respiratory diseases, loss of senses, gastrointestinal tract, urogenital tract and kidneys, connective tissue diseases, organ failure, endocrine and metabolic diseases, musculoskeletal diseases, and paralysis.

A dread disease policy is provided by an insurer as an unapproved benefit.  The lump sum proceeds are therefore paid out tax-free.

In the infancy of dread disease cover, a benefit was conventionally paid out upon diagnosis of any of the nominated ailments, regardless of the severity.  As insurance has become more sophisticated, insurers have recognised the need to consider the severity of the ailment and the possibility of its progression.  Nowadays contemporary risk-benefit products are tailored for both severity and progression, with a more complex benefit structure.

 

Benefits are usually paid in proportion to the severity of the defined illness, with the insurer considering the impact which the illness has on a policy holder’s lifestyle.  The payouts which are dependent on the severity levels are pre-defined by the insurer.

An example of benefit payment taking severity levels into account:  If diagnosed with cancer Stage 2, a 50% benefit may be paid.  If the cancer progresses to Stage 4, a further 50% of the benefit may be paid.   

Some insurers offer a range of dread disease products, being variations of the same theme, though providing increased flexibility for specific needs.

The prevalence of South Africans suffering any of the conditions nominated under a dread disease policy is sufficiently high to justify that everyone should strongly consider this insurance as part of their overall financial planning.  

Whilst financially it is most affordable as a group product within a retirement fund, it is also available as an individual stand-alone policy. 

 

We invite you to discuss this with either your GTC retirement benefit consultant or one of the GTC MAPS team.