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How a Critical Illness Affects Your Life Insurance Premium

How much does your life insurance premium increase after you are diagnosed with a critical illness and what exactly is a critical illness?
When taking out a life insurance policy, the insurance provider will most likely test you on everything and anything that could later become a problem. It must be understood that life insurance premiums are not simply sucked out of thin air. Each premium is carefully thought out and determined. This is because the insurance company is essentially determining whether or not there is a likelihood you will die before paying your life insurance policy in full. life_article_banner

How Is Your Life Insurance Calculated?

Your life insurance premium is calculated with four main categories in mind:
  1. Lifestyle choices
  2. The amount of cover you need
  3. Personal details (age, gender, education, income, current state of health)
  4. Any possible lifestyle changes that may affect your health
If you are at a higher risk due to a dread or critical disease, this will affect your life insurance premium. You may need to take out additional cover, known as critical illness insurance. Your premiums may also go up if there is a history of a certain illness in your family. This is due to the fact that there is an increased likelihood you may develop the illness as well. Simply put, you may not pay out the remainder of your life insurance policy. This means that, in the event of your death, the company will have to cough up the remainder to give to your beneficiaries.

What is a Critical Illness?

A critical illness is an illness which may involve either permanent life-long symptoms or a surgical replacement or donor. In the table below are some examples of a critical / dread illness.
Alzheimer's disease Coronary artery bypass grafts Loss of speech
Aorta graft surgery Creutzfeldt-Jakob Disease Major organ transplant
Aplastic anaemia Deafness Motor neuron disease
Bacterial meningitis Dementia Multiple sclerosis
Benign brain tumour Encephalitis Multiple system atrophy
Blindness Heart valve replacement or repair Open heart surgery
Cancer HIV infection Paralysis of a limb
Cardiomyopathy Kidney failure Parkinson's disease
Cardiac Arrest Liver failure Primary pulmonary hypertension
Coma Loss of hand or foot Progressive supranuclear palsy
Removal of eyeball Respiratory failure   Spinal stroke (over 24hr)
Stroke (over 24hr) Systemic lupus erythematosus  Third degree burns (20% body or face or head) 
Total and permanent disability Traumatic brain injury   

The Effect of a Critical Illness on Your Life Insurance Premium

The impact of any critical illness on your monthly premiums will vary according to the illness. According to if you have suffered cancer, you will need to be in remission for at least five years for most insurers to offer you cover. If you are diagnosed with Type I diabetes you could be looking at paying two to three times more cover than you already do. For hereditary diseases, it will depend on the condition, how many family members had the illness, and their age when they were first diagnosed. Example of Medical Costs
  • One specific treatment for rheumatoid arthritis could amount to more than R100 000 per year.
  • The average cost for a stroke is between R500 000 and R1 million over the lifetime of the patient.
  • The lifetime cost of Alzheimers disease is more than R1 million.
  • Experimental cancer treatments utilising a patient’s own immune system will cost in excess of R1 million.
Another thing to keep in mind is the Survival Period stipulated in your life insurance policy. A survival period is known as the minimum amount of days a policy holder has to survive after the first diagnosis to receive a payout. The stipulated survival period can vary from company to company but is usually 14 days after you were first diagnosed.

What Does Critical Illness Insurance Cover?

To take out critical illness insurance, your illness will need to be validated by a physician who specialises in that illness or condition. Extensive testing will need to be presented to an insurance company by the physician, i.e EKG changes of a myocardial infarction, that confirm the diagnosis. Critical illness insurance essentially provides a tax-free lump sum to the policy holder at any time they should need it. The policy can also be structured to pay out a regular income in the case of permanent lifelong symptom illnesses.

How Much Cover Do I Need?

Life insurance and determining how much coverage you will need to take out is not a pleasant thought. Most people arbitrarily buy life insurance based on the premium they are willing to pay. So how do we determine how much we should take out?  Simply put, your insurance coverage should be based on your needs and your life stage. Furthermore, it should cover at least 10-12 times your annual earnings. You may also need a separate insurance plan to cover all outstanding debts, including a home or car loan. This will ensure your spouse is not left with the possibility of liquidation. Alternatively, consult with a financial advisor to help you work out exactly how much coverage you would need to take out.

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