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What’s the Difference between Additional and Accelerated Serious Illness Cover?

September 11 2019 4 min read Specified Illness Cover

 

Additional or Accelerated Serious Illness Cover

Remember being 14 or 15 in maths class in school? Your teacher, probably a bit of a gowl, would spend ages explaining the complicated maths on the board and then he’d ask you if you understood. You probably didn’t, but you said ‘yes’ anyway because you didn’t want to look like an eejit.

Next thing you know, Mr McGowl has asked you to come up to the board to solve an equation for ‘x’. You couldn’t find that ‘x’ if it was inscribed onto your forehead.

And all you can do is go up there and write some crap on the board while Mc Gowl tuts away.

The insurers quite often play this game when they name and explain things. Even with the best of intentions (I’ll let you consider how true that might be), they have a way of explaining things so that you can’t actually figure it out.

An example?

Serious Illness Cover.

Which is also called Critical Illness Cover.

And Specified Illness Cover.

It’s all the same thing.

But then it gets nuttier.

You’ve also got a choice between

  • Standalone/independent Specified/Serious/Critical Illness cover,
  • Additional Specified/Serious/Critical Illness cover
  • and Accelerated Specified/Serious/Critical Illness cover.

Are you keeping track of how many variables of the same thing that adds up to?

It’s more than you can count on one hand – but it’s actually only three different types of the same thing.

McGowl strikes again.

Serious/Specified Illness cover: what is it?

For the sake of my typing hands and sanity, we’re just going to call it Serious Illness Cover from now on in.  Good?

Good.

At its simplest, Serious Illness Cover (and all its subtypes) pays you a tax-free lump sum if you get sick with one of the illnesses named in your policy. So if your policy includes stomach cancer, for example, and you get stomach cancer, you’ll get a pay-out.

However, if you get a rare form of ear cancer that’s not in your policy, you won’t get any pay-out.

(For my money, I recommend Income Protection instead, but that’s a whole other blog post.)

An example will help:

John buys €100,000 Serious Illness Cover and he gets the stomach cancer that’s covered in his policy. Poor John. John makes a claim and gets the €100,000 tax-free cash, which obviously helps enormously with his recovery as he doesn’t have to worry about work or money for a bit. His Serious Illness Cover policy is done.

All clear? That’s Independent/standalone Serious Illness Cover in a nutshell.

Accelerated Serious Illness Cover

Your first thought might be,

sure it has ‘Accelerated’ in the title. It must be class.

The ‘Accelerated’ has absolutely nothing to do with getting paid faster so wipe that notion out of your head.

Instead, this is when you buy Accelerated Serious Illness Cover which is attached to a Mortgage Protection or Life Insurance policy.

Yes, I know we’re starting to get tangled up with lots of terms here, but remember what I said about confusedly trying to solve for ‘x’ on the blackboard? This is like that.

Now, Accelerated Serious Illness Cover has a hiccup, which we’ll get into in a second but basically: any pay-out will reduce the amount of Life Insurance or Mortgage Protection cover.

Don’t worry, I have examples.

  • John buys €500,000 Life Insurance and €100,000 Accelerated Serious Illness Cover.
  • He makes a successful Serious Illness claim.
  • €100,000 tax-free cash is paid by the insurer.
  • His life cover reduces by €100,000 so he’s left with a Life Insurance policy of €400,000 for when he dies.

Unfortunately, it gets more complicated with Mortgage Protection. (Because it wasn’t complicated enough apparently.)

  • John buys €500,000 Mortgage Protection and €100,000 Accelerated Serious Illness Cover.
  • Mortgage Protection is a type of life insurance that reduces over time. You assign this policy to the bank.
  • The amount of Mortgage Protection and the amount of Accelerated Serious Illness Cover reduces kind of, but not exactly in line with the mortgage.
  • He makes a successful claim in year 10 of the policy for cancer.
  • By year 10, John’s Mortgage Protection cover had reduced to €400,000 and his Serious Illness to €80,000 so €80,000 tax-free cash is paid by the insurer to the bank (not to John).
  • The bank pays €80k off John’s mortgage.
  • His Mortgage Protection reduces by €80,000 so he now has a policy worth €320,000.

So when you buy Accelerated Serious Illness Cover on a Mortgage Protection policy, the actual amount that will pay out could be far less than you anticipated.

It’s complicated, so take a minute to reread. I’ll wait for you.

What you’re taking away from this is likely:

DO NOT BUY ACCELERATED SERIOUS ILLNESS COVER WITH MORTGAGE PROTECTION.

You are right. Do not do it.

Additional Serious Illness Cover

Additional Serious Illness Cover is more straightforward. You buy it as an addition to your Life Insurance cover.

Let’s look at John again.

Wait.

Where’s John gone?

JOHN! YOUR DINNER’S READY.

He’s back. He’s had a busy day in fairness.

  • John buys €500,000 Life Insurance and €100,000 Additional Serious Illness Cover.
  • He makes a successful Serious Illness claim.
  • €100,000 tax-free cash is paid by the insurer.
  • His life cover is unaffected and continues at €500,000.

All good there.

Should you buy Accelerated or Additional Serious Illness Cover?

If you’re thinking of bundling Serious Illness Cover and Mortgage Protection, don’t do it as the only winner there is your bank. The swines.

For Life Insurance, you should buy it on an Accelerated basis but increase your Life Insurance by the amount of the Serious Illness Cover.

Here’s why:

John, 41-year-old male, is trying to decide whether to go for Policy A or B below.

A) €250,000 life cover and €50,000 additional serious illness cover comes in at €70.37

B) €300,000 life cover and €50,000 accelerated serious illness cover comes in at €69.73

If John contracts a specified serious illness, €50,000 pays out on A or B.
If John then dies, €250,000 pays out on A and B.

For all intents and purposes, the policies are identical.

But what if John dies before he makes a serious illness claim?

Policy B will pay out €50,000 extra in life cover…all for a lower premium.

Yep, it doesn’t make sense sounds nutty but you’re hardly surprised at this stage!

Structuring your policy this way takes advantage of a little know discrepancy in the way the insurers price the different types of serious illness cover.

Accelerated v Additional v Standalone v Independent Serious Illness Cover

Let’s recap:

  • Mortgage Protection + Serious Illness Cover

= both reduce over time. A pay-out on Serious Illness will reduce the value of the Mortgage Protection cover.

  • Life Insurance + Accelerated Serious Illness

= neither reduce over time. A pay-out on Serious Illness will reduce the value of the Life Insurance cover.

  • Life Insurance + Additional Serious Illness

= neither reduce over time. A pay-out on Serious Illness doesn’t affect the Life Insurance cover

  • Independent/standalone Serious Illness

= no life cover, just Serious Illness. But be aware of the “Survival Period

A life insurance survival period is the length of time you must live after you have been diagnosed with the critical illness. Only if you pass the survival period will the insurance benefit pay out. It is usually 14 days.

Moral of the story?

DO NOT BUNDLE SERIOUS ILLNESS COVER AND MORTGAGE PROTECTION.

Over to you…

Now you know the difference between the types of Serious Illness Cover.

Next you need to figure out how much Serious Illness Cover you need and which company offers the most comprehensive Serious Illness Cover.

Let me know if you need some help by completing this questionnaire. And don’t worry, this is all very purposefully overly-complicated (blame the Mc Gowls, not the McGowans, of the insurance world) so give me a call if you need to talk through any of it.

I’ll be right back after you complete the form or you can bell me on 057 9320836.

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