Dubai: Even with excellent medical insurance, just one critical illness can be a tremendous financial burden. So then how worth is using your money to buy a critical illness insurance cover in the UAE?
Most people have never had to use critical illness insurance, which is sometimes called catastrophic illness insurance.
But in the event of a big health emergency, such as cancer, heart attack or stroke, critical illness insurance could be one of the few insurance products that will protect you from financial ruin.
According to a recent survey by Friends Provident International (FPIL), a global provider of protection, savings and investment solutions, 57 per cent of the UAE’s workforce are woefully unprepared financially if they were suddenly hit with a critical illness.
The firm, which operates a regulated business in the UAE, came to this conclusion after having recently conducted a survey among 1,000-plus working residents to find out how long individuals could financially survive a critical illness.
Brief look at what is critical illness insurance cover
Critical illness insurance was developed in 1996, as people realised that surviving a heart attack or stroke could leave a patient with insurmountable medical bills.
Critical illness insurance provides additional coverage for medical emergencies like heart attack, stroke, or cancer.
Because these emergencies or illnesses often incur greater than average medical costs, these policies pay out cash to help cover those overruns where traditional health insurance may fall short.
These policies come at a relatively low cost. However, the instances that they will cover are generally limited to a few illnesses or emergencies.
In fact, unlike medical cover, critical illness cover is specifically designed to cover things like rent, mortgage payments, utility bills, loans and debt, food, school fees, home modifications (addition of stairlift, ramps etc) and many other daily living expenses not covered by either medical or life policies.
What critical illness cover does, however, share with life insurance is that a very small premium buys a lot of income replacement cover in the event falling ill means having to give up your job.
Where people are mostly wrong when it comes to insurance
Many people assume they’re fully protected with a standard health insurance plan, but the exorbitant costs of treating life-threatening illnesses are usually more than any plan will cover.
Because critical illnesses, such as the ones mentioned above, require extensive medical care and treatment, their costs can outstrip a family’s medical insurance policy quickly.
If you don’t have an emergency fund or health savings account, you’ll have an even harder time paying those bills out of pocket.
Many people are now choosing high-deductible health plans, which experts often consider is widely realised to be an expensive mistake.
Once an individual has paid that portion of a claim, the insurance company will cover the other portion, as specified in the contract.
Consumers benefit from relatively affordable monthly premiums but could find themselves in a real pinch if a serious illness were to strike.
What does a critical illness insurance entail?
Critical illness insurance can pay for costs not covered by traditional insurance. The money can also be used for non-medical costs related to the illness, including transportation, child care, etc. Typically, the insured will receive a lump sum to cover those costs.
Coverage limits vary – you could be eligible for a few thousand dirhams all the way up to Dh500,000, depending on your policy. Policy pricing is impacted by a number of factors, including the amount and extent of coverage, the sex, age and health of the insured, and family medical history.
There are exceptions to critical illness insurance coverage. Some types of cancer may not be covered, while chronic illnesses are also frequently exempted. You may not be able to receive a payout if a disease comes back or if you suffer a second stroke or heart attack.
Some coverage might end once the insured reaches a certain age. So, like any form of insurance, make sure to read the policy carefully.
Why critical illness insurance may be important for you
You can purchase critical illness insurance on your own or through your employer. Adding it to a current life insurance plan may also save you money.
One of the reasons companies have been keen to add these plans is that they recognise employees are worried about high out-of-pocket expenses with a high-deductible plan.
Unlike other health care benefits, workers generally bear the entire cost of critical illness plans. That makes it a money saver for companies, as well as employees.
Low cost, limited coverage
Part of what makes these policies appealing is that they generally don’t cost a lot, especially when you get them through an employer.
The average range of premium for critical illness insurance plans in the UAE is Dh200 to Dh2,500 depending upon the provider and the average range of cover varies from Dh200,000 to Dh500,000. The premium and covers are provider and plan specific.
Despite these plans’ low price tag, some health care experts are skeptical as to whether they really are a good deal for consumers.
One principal concern is that they’ll only reimburse you for a somewhat narrow range of illnesses. If the illness you’re diagnosed with doesn’t fit the definition of a covered illness, you’re at a disadvantage.
The more illnesses that are covered on your plan, the more you’ll pay in premiums.
Careful of stipulations, policies are subject to a host of them
Like all insurance policies, critical illness policies are also subject to a host of stipulations. Not only do they only cover the conditions listed in the policy, they only cover them under the specific circumstances noted in the policy.
A diagnosis of cancer, for example, may not be enough to trigger payment of the policy if the cancer has not spread beyond the initial point of discovery or is not life-threatening. A diagnosis of a stroke may not trigger a payment unless the neurological damage persists for more than 30 days. Other restrictions may include a specific number of days the policyholder must be ill or must survive after diagnosis.
Seniors should be particularly careful about these policies. There may be limits for payout on some policies, with persons over a certain age (such as 75) being ineligible for payment, or they may include so-called ‘age reduction schedules’, which means your potential insurance payout shrinks as you get older.
Many policies do not provide a guaranteed payment
It is important to note that many of these policies do not provide a guaranteed payment.
For example, a typical insurance company discloses that in its critical illness policy the expected benefit ratio for this policy is 60 per cent. This ratio is the portion of future premiums that the company expects to return as benefits when averaged over all people with this policy. If 60 per cent of the premiums are eventually paid out in claims, 40 per cent of the premiums are never paid out at all.
Are there alternatives to critical illness insurance?
Experts point out that there are alternative forms of coverage without all these restrictions. Disability insurance, for example, provides income when you can’t work for medical reasons and financial protection isn’t limited to a narrow set of illnesses. This is an especially good option for anyone whose livelihood would take a significant hit from a prolonged work absence.
You can also build a separate savings account to cover non-medical outlays that could arise if you have cancer, for example, and have taken leave from your job.
Since medical bills are a common cause of bankruptcy worldwide, protecting yourself against that fate should be given consideration, especially if you have a family history of any of the illnesses mentioned above.
Critical illness insurance can alleviate financial worry in the event that you become too sick to work. It provides flexibility in that the money paid out can be used as you wish, to cover a wide variety of potential needs.
There are some drawbacks and stipulations to this type of insurance coverage, though. As with all types of insurance, you should shop around to find the policy that best meets your needs and situation.
In the backdrop of the latest survey from FPL, critical illness cover, which replaces income lost due to illness, is often recommended as the responsible thing to do – the key takeaway being a small monthly premium with a regulated insurer pays the bills when you can’t work.