INSURANCE By Steve Wright
Dicing with death and insurance cover Terminal Illness: a significant risk that should be insured separately, writes Steve Wright.
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ot all death comes quickly. The unfortunate truth is that a very large proportion of death is preceded by a period of terminal illness. As insurance advisers we are usually pretty good at calculating the financial loss that happens on death, particularly to families. The biggest is the loss of the deceased’s income, which is completely lost forever (well until they would likely have retired anyway) and there are often additional expenses. Sufficient amounts of life cover protect against this financial loss, meaning that while the family still have to cope with the emotional loss of losing a loved one, at least they don’t have to worry about where the money will come from.
REDUCED LIFE EXPECTANCY But what about terminal illness? By terminal illness I mean a diagnosis of illness from which recovery is unlikely and where life expectancy is dramatically reduced, typically no more than 12 months. Terminal illness often brings a
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host of unforeseen expenses and lost income: • There may be expensive and unfunded medical treatment, perhaps overseas, that may not be covered by medical insurance because it is experimental or not conventional, for example. These costs, including travel and accommodation, can easily reach six figures. • Then there is loss of income, if the terminally ill client has income cover that might start paying something but it won’t pay for their spouse to stay away from work. Frankly, if any member of my family was terminally ill and only had a limited time, the last thing I’d want to be thinking about is work. • The terminally ill client may have life goals they want to accelerate, the so-called ‘bucket list’. Money will be needed immediately to satisfy these. Few would be prepared to deny a terminally ill person the best care available. I don’t know a single parent, for example, who would not use up their last dollar, go into significant debt, to fund medical
treatment that might prolong or make more comfortable, their terminally ill child’s life. Terminal illness, particularly of a child, can result in the family losing their home.
SECURITY FOR FAMILY Many good life cover policies will also pay the full sum insured on terminal Illness but here is the problem: life cover is mostly used to provide financial security to the family after the death of the client. If a significant chunk or even all of their life cover is used to fund a period of terminal illness, death might yet see the family financially destitute. This means the life cover you have put in place for them does not do its job. Also, meaningful amounts of life cover are simply not available for children under 10 (it is against the law for insurance companies to pay more than $2,000 plus a return of premiums on the death of children under 10 years of age). I believe terminal illness is a risk separate from death and as advisers we should be aware of its financial implications. Terminal illness as a risk should be specifically
