Critical Illness

We all know someone who has suffered the effects of cancer, heart disease or stroke.

One in four women and one in three men are likely to suffer some form of cancer before turning 75 years, while there's a 50% chance of a 40-year-old man, and a 33% chance of a 40-year-old woman, developing coronary heart disease.*

The chance that major illness may strike you is very real. Don't let it be financially critical. Critical Illness Insurance can provide a lump sum payment if you suffer a critical illness such as a heart attack, stroke or malignant cancer.

Definition

Pays a lump sum in the event of a diagnosis insurable condition, e.g. cancer, stroke, heart attack, major head injuries.

Purpose

If a person suffers a medical illness, term life insurance won’t help as the person is still alive. Suppose a person has a mild heart attack and is seriously ill but is able to return to work after two months. Will he or she be as productive as before or stand the stress associated with working as hard? Policies like income protection and TPD may not be suitable since pay-out depend on the effect of the event after its occurrence. What is needed is a cover like critical illness insurance which pays out on the actual occurrence of the incident.

Critical illness insurance (also known as trauma insurance) provides a cash lump sum in the event of contracting a specified disease or illness. The number of conditions covered (benefits) varies widely, cheaper policies often offering less benefits.

In most cases "accidental" types of illnesses are covered immediately, although many insurers impose a waiting period (commonly 90 days after the policy is accepted) for certain illnesses. Typically critical illness policies will pay benefits in the case of some or all of the following critical illnesses: 

  • Alzheimer's Disease
  • Aplastic anaemia
  • Blindness
  • Burns - severe/major
  • Cancer
  • Cardiomyopathy
  • Coma
  • Coronary artery angio
  • Coronary bypass surgery
  • Deafness
  • Dementia
  • Diplegia
  • Encephalitis
  • Heart attack
  • Heart valve surgery
  • Hemiplegia
  • HIV -occupational acquired
  • Kidney failure - chronic
  • Liver disease - chronic
  • Loss of independent existence
  • Loss of limbs and/or eye
  • Loss of speech
  • Lung disease - chronic
  • Major head trauma
  • Major organ transplant
  • Motor neurone disease
  • Multiple Sclerosis Paraplegia
  • Parkinson's Disease
  • Pulmonary hypertension
  • Quadriplegia
  • Stroke
  • Terminal illness
  • Life Cover - death benefit
  • Total & Permanent Disability
  • Aortic surgery
  • Out of hospital cardiac arrest
  • Benign brain tumour
  • HIV - accidental infection
  • Peripheral neuropathy

The function of critical illness insurance is to:

  • Pay for specialist or international medical attention
  • Cover the cost of modifications to the home
  • Avoid financial stress in recuperation (debts, etc)

Target Market

  • To repay debt
  • Single people wishing to maintain financial independence.
  • A homemaker who would usually perform the duties of a housekeeper or nanny.
  • Those who may require cash support for their business while they take on the role of carer.
  • Those who would like to be able to choose private medical care rather than remain on a waiting list.

How much cover should you have?

You can tailor the amount of Critical Illness Cover to suit your individual circumstances. In deciding how much cover you need, you should consider the costs of your living expenses, the medical costs associated with a serious illness, as well as rehabilitation costs. Ideally, your insurance cover should be enough to pay off your debts so you can concentrate on getting better, without worrying about your finances.

Taxation

Premiums are not tax deductible however benefits are paid tax-free. An exception occurs where the critical illness insurance is part of key person insurance. In August 1995, the Australian Taxation Office (ATO) issued several Tax Determinations in respect of the taxation implications of critical illness insurance to the policy owners. These determinations have confirmed that for individuals (i.e. employees and self-employed persons) the premiums paid for critical illness insurance cannot be claimed as a deduction from assessable income, and any proceeds received are not treated as income.

The reason behind this ruling is that the policy does not replace earnings lost by the policy owner, but rather provides a capital amount if the insured suffers a specified illness (TD 95/41).

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Arrowsmith & Petruccelli Financial Services Pty Ltd is a corporate authorised representatives licensed through Millennium3 Financial Services Pty Ltd. Millennium3 Financial Services Pty Ltd is a Principal Member of the Financial Planning Association. Millennium3 Financial Services Pty Ltd (ABN 61 094 529 987) is a Australian Financial Service Licensee. AFSL Licence No: 244252. For more information relating to this arrangement please click here

 

 


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