Towards the end of 2018, the American Journal of Medicine released the results of a deep look into the financial impact of a cancer diagnosis on Americans. The results were staggering:
- 42% of new cancer patients lost their life savings on medical expenses within 2 years of diagnosis
- 62% of all cancer patients are in debt because of their treatment
- On average, patients lost over $92,000 (about R1.3 mil) over two years whether they had medical insurance or not
- 40 - 85% of patients have to quit work while undergoing treatment which further exacerbates the situation
Unfortunately, there is no such similar study in South Africa, but we have no reason to believe that the situation for South Africans would be much better.
One thing is clear though; a cancer diagnosis is jarring for multiple reasons. Not only the obvious impact on your health, but also the negative impact on your and your family’s wealth. What was particularly interesting from the US study is that these impacts were felt even though, in many cases, there was health coverage in place.
In South Africa, it’s likely the same will be true. Being a member of a good medical scheme is certainly your first line of defence, but this study has shown how quickly caps can be hit and funds can be depleted. Not to mention that cutting-edge treatments may not be covered by your medical scheme at all.
As an actuary and someone who likes to measure and quantify risks, my first question after reading this study was to figure out how likely people are to be diagnosed with a severe illness. To work this out, I looked beyond cancer and also included other severe illnesses like heart attacks, strokes and organ transplants – all of which are also likely to have a big impact on your wallet.
I compared two people: a healthy (non-smoking) 30-year-old man, and a healthy (non-smoking) 25-year-old woman.
Using these two profiles, I worked out the probability of being diagnosed with a severe illness before age 70. Generally, the man has a 1-in-3 chance of being diagnosed and the woman has about a 1-in-4 chance of being diagnosed.
So if we believe this American experience might also be true in South Africa, then a large proportion of people could be financially ruined by a severe illness sometime in their life. That’s a frightening thought.
What can we do about this?
Fortunately, the innovative South African insurance industry invented a type of life insurance called Severe/Critical Illness Cover (that’s right, just like the Kreepy Krauly, this was invented in Mzanzi). This cover normally pays out a lump sum of cash on diagnosis of a defined severe illness regardless of any expenses you may or may not incur as a result of the illness.
If these same people bought a sizeable amount of critical illness cover, their probability of getting diagnosed won’t be lower, but the financial impact of the diagnosis will be taken care of (if they needed to stop working, or pay for state-of-the-art treatment, for example).
But hang on... most people DON’T get diagnosed with a severe illness!
This is a critical point. Just flipping the statistics around, a 30-year-old healthy male has a 2-in-3 chance of never being diagnosed with a severe illness, and 3-in-4 healthy 25-year-old females will have the same fortunate outcome.
If these people have severe illness cover, they will pay a lifetime of premiums and never claim or get paid. And because this amount would add up, one could argue that they’d be worse off financially (although at least not financially ruined as they might be in the case of diagnosis).
So Sanlam Indie developed a critical illness cover product which gives everyone the best of both worlds.
With Sanlam Indie, every time you pay a premium, we match up to 100% of that premium into an invested Wealth Bonus. Every 5 years, 10% of this Wealth Bonus can be taken in cash, and when you reach age 70, whatever is left there is yours to take too, in cash, tax free.
Let’s consider the same two individuals:
30-year-old healthy male
He can buy R3 million critical illness cover for as little as R277 per month. This premium grows over time as our friend gets older and his cover grows with inflation.
Over the following 40 years, we estimate that the total premiums paid by this gentleman would amount to approximately R1.4 million. If this client were unfortunate enough to be diagnosed with a severe illness we cover, he would be paid out R3 million in cash, in “today’s money” (tax free) and possibly even more than that for the very worst cancers.
However, best case scenario, our client makes it to 70 without any claim - his Wealth Bonus pays out and could be worth as much as R2 million (completely covering all his premiums, and then some).
25-year old healthy female
She can buy R3 million cover for R223 per month. At age 70, her total premiums paid would be around R1.9 million and her Wealth Bonus could be worth in the region of R2.8 million.
There are many other great reasons to buy our critical illness cover:
- Your cover continues for life, provided you keep paying premiums. So if you still want the cover after age 70, keep it.
- You won’t necessarily lose your Wealth Bonus if you claim. To get your Wealth Bonus, you must just be an active client at age 70. This is true if you have any cover with us which is still active at 70, even if you have already claimed your critical illness cover.
Many people think of critical illness cover as something they will get when they’re older and their health is deteriorating. This is unwise in general, since you run the real risk that you may not be able to buy cover at that later stage because you’re not healthy enough to qualify.
We believe you should buy your severe illness cover when you are younger and healthier. And with Wealth Bonus, you’re continuously accumulating wealth along the way.
Check out our Critical Illness Cover here.