CONSUMER HEALTH:Specified-illness insurance policies can provide vital funds at a very troubling time
A SERIOUS ILLNESS contracted at a relatively young age can put severe financial pressure on a family. Taking out an insurance policy to protect you and your family can therefore seem to make sense – but are they really worth the money?
Well, more and more people seem to think so. According to insurer New Ireland, it has seen a 580 per cent increase in payouts for its specified- illness policies over the past 10 years. Its average lump sum paid out in 2009 was €76,000, with more than half of all claims made for cancers.
You can buy specified-illness (or critical or serious illness, as it is also known) cover separate to your life cover or as part of it, which is known as “accelerated specified-illness cover”. In the first instance you might take out life assurance of €300,000 and critical illness cover of €100,000. If you opt for the second option and make a claim, your life cover will be reduced by that amount – so life cover of €300,000 will be reduced to €200,000 if you make a €100,000 claim.
As you are four times more likely to contract a serious illness before the age of 65 than you are to die, specified-illness policies can be expensive. Moreover, policies for women tend to be cost more due to their longer life expectancies. At Irish Life, for example, cover of €100,000 for a 35-year-old non-smoking female will cost about €534 a year, or €489 for a similar-aged man.
However, while specified-illness policies can provide a vital source of funds, they can be restrictive. In general, such policies pay out only the full lump sum for which you are insured in the case of a number of specified, serious illnesses. Irish Life’s policy, for example, pays out for 37 illnesses, including Alzheimer’s, malignant cancer and heart attacks, and has also introduced a partial payment of €15,000 for milder life-altering illnesses such as the loss of a limb or angioplasty to two or more coronary arteries. At New Ireland, 28 illnesses are covered. At Eagle Star, cover is provided for 38 serious illnesses.
However, two of the biggest reasons people are unable to work are back problems and mental-health issues such as depression and stress. Specified-illness policies do not generally cover these.
For this reason, it may be worth considering an income-protection policy as an alternative. These pay out when you are unable to work, which may be due to a minor illness or accident rather than a specified serious illness. However, these can be restrictive in terms of who insurers will offer protection to.
Another downside of specified- illness policies is that they pay out a single lump sum. Income-protection policies, on the other hand, pay a fixed income as long as the policy holder is prevented from working.
A €50,000 lump sum, therefore, might only last two years, based on a monthly spend of €2,000, while under an income-protection policy a monthly income of €2,000 could last for a much longer period, as payments continue until you can return to work, you die, or you reach the age of 55, 60 or 65, depending on the policy.
Another consideration is the tax relief under income-protection policies, which can reduce monthly premiums. For example, specified-illness cover of €75,000 will cost about €660 a year for two people, or about €55 a month. For someone paying tax at the higher rate, however, a €660 annual income-protection policy would actually only cost €32.45 a month.
Finally, before you fork out, first consider whether or not you already have protection through your employer, as many offer either your full salary or a proportion of it for a certain period in the event you are unable to work.
CASE STUDY: A VITAL SAFETY NET
For Donna O'Donnell (42), of Mitchelstown, Co Cork, being diagnosed with a critical illness was the last thing on her mind when she and her husband Jim took out a policy with New Ireland Assurance 10 years ago. At the time, the couple, who had one child and another on the way, were building their own house and needed a life policy to satisfy the bank.
Last March, however, she was diagnosed with breast cancer, and found that the policy provided her family an important lifeline.
"If we didn't have the policy we'd have been in trouble," she says, adding that at the time her husband's job was looking uncertain. In fact, just prior to her diagnosis, the O'Donnells, who by this time had three children, had reduced their cover in order to cut back on their household spending and bills.
"I'm happy we didn't cancel altogether," she says now, given that she has had to give up her job minding children in her home.
Following her diagnosis, Donna asked whether she would be eligible for a payment based on her policy, and after a straightforward process she received this three or four months later. They have used the lump sum towards the cost of their mortgage, everyday bills, and car loans.
"As long as I could pay my mortgage I didn't care – you'd manage otherwise," she says.
Donna's treatment will continue until October, and, as she doesn't have health insurance, she is also using her lump sum towards the cost of any additional medical expenses. She will undergo reconstructive surgery once her treatment ends.
