Serious Illness Cover is similar to Permanent Health Insurance (“PHI”) and often provides protection for the same illnesses but the benefits operate in a different manner. PHI provides a periodic income which is paid when the policy holder is diagnosed with an illness or disability covered under the policy where the policy holder is unable to work. Serious Illness provides a lump sum payment on the diagnosis of an illness or disability under the policy. This type of benefit operates somewhat differently to PHI and is not tax deductible although the lump sum payment is tax free. The benefit of having a lump sum payment can be of great assistance to a policy holder if diagnosed with a serious Illness covered under the policy or in circumstances where they suffer from a disability.
Serious Illness Cover is commonly referred to as Specified Illness, Critical Illness or Living Insurance. It is very important when making a claim under a Serious Illness policy that the illness has been diagnosed and supported by the appropriate report from an approved medical practitioner. Some of the illnesses that one might expect to see covered are Heart Attack, Alzheimer’s disease and stroke.
Some policies will differentiate between serious illnesses and less serious illnesses, they may pay a smaller lump sum for less serious illnesses. One advantage of Serious Illness policies is you can often combine the policies with Term Assurance cover which can be attractive for policy holders.
Life companies generally offer Serious Illness on a standalone basis or on an accelerated basis which in the latter can have the effect of reducing the Term Assurance portion of the policy by the amount of the Serious Illness covered under the policy. The premiums for accelerated serious illness tend to be lower than standalone because of this reason. Life companies will generally offer double cover, in this type of policy the Term Assurance is unaffected by a serious illness claim and is preserved until the policy ceases by expiry or cancellation or when a claim us made.
Many Serious Illness policies cover Permanent Total Disability (“PTD”) which covers the policy holder in circumstances where they are unable to work due to illness or disability. There must be a permanent disability and not just an inability to work. There are two types of PTD policies: (a) where the policy holder is covered if they can no longer work in their occupation or (b) the policy holder can no longer work in any occupation. There is often a waiting requirement similar to a deferred period in a PHI policy where the policy holder must suffer from a permanent disability and be unable to work for 6 or 12 months depending on the policy.
The lump sum benefit payable under a Serious Illness policy is tax free. Many people use this to pay off their mortgage, pay for medical care or to renovate their home to accommodate their disability.
Serious Illness Cover can have a number of exclusions. For example; alcoholism, drugs, self-harm or dangerous activities. This is not an exhaustive list but is indicative of some exclusions you might expect in a Serious illness policy. As with nearly all insurance policies, the principle of “utmost Good Faith” applies. This means you must complete the proposal honestly and detail any relevant health issues in order to receive benefits under the policy.
Serious Illness Cover can give a policy holder great peace of mind and protection.