Make sure your medical bills don’t ravage your retirement savings

What most of us don’t realise is that many people will be living longer with an illness, rather than dying from it.

It's time to carefully consider ‘survival insurance’, rather than piling up on funeral covers from ‘suppose you die’ agents. Picture: 123RF/ VIACHESLAV LAKOBCHUK
It's time to carefully consider ‘survival insurance’, rather than piling up on funeral covers from ‘suppose you die’ agents. Picture: 123RF/ VIACHESLAV LAKOBCHUK

We recently took our daughters to visit their grandparents for their school holidays. As we left them behind, I couldn’t help but think of how blessed they are to have their grandparents, and how much more blessed I am to also still have my grandparents. In my family we are blessed with long life, but at what cost?

Yes, we want to live long, and medical advances are giving some people exactly that, but we do not want the ill-health and challenges that come with it. The World Economic Forum highlights the dire global situation around the Retirement Savings Gap in its recently published 2019 Investing in (and for) Our Future paper. Each year, the gap is growing by 2% to 10%, varying per country. 

So what does this study have to do with the gift of long life? A self-sustaining and dignified lifestyle will be an unrealised dream for the majority of elderly people. We have heard, and will continue to hear the narrative that South Africans do not save enough. However, there is no country that is saving enough. The shortfall in savings towards retirement is a global crisis. 

What most of us don’t realise is that many people will be living longer with an illness, rather than dying from it. The insurance claim statistics for 2018 released a few weeks ago was clear that severe illness and disability claims are on the increase, and fast! We have reached a point where we need to carefully consider ‘survival insurance’, rather than piling up on funeral covers from ‘suppose you die’ agents. 

Now is the time for ‘suppose you live’ solutions. ‘Survival insurance’ is what a grandfather needed when he survived a stroke, or when that aunt survived bone cancer. The cost of survival cannot be ignored when it comes to your self-sustainability and dignity. 

While the actual costs will vary between patients and survivors, we can still agree that the estimates are scary. A simple example is chemotherapy – the estimated costs are between R25,000 to R140,000, while the costs for stroke survivors can mount to between R500,000 to R1m over their lifetime. 

The relationship between retirement savings and insurance planning is closer than ever, after they met in the ‘suppose you live’ zone. Earlier, I mentioned that my grandparents are still alive – their ages range between 79 and 92 years. 

They were able to prepare for their retirement by building legacies that would continue to give them an income which was more than just enough. This has allowed them to enjoy growing older, and even though money cannot buy health, it has bought them access to good healthcare. 

The severe illnesses that came along were treated and are managed using their retirement solutions. This is a great example for us that longevity risk is not only real, but that we do need to prepare for it without the illusion that something will happen to provide for your future self.

How can you tackle both and not break the bank?

Insurers have created risk solutions that pay you an additional tax-free lump sum or regular payments which you can use to supplement your retirement savings shortfall or cover life’s expenses. 

Each insurer has their own value proposition in the design of the product, however, what is clear is that this is a stepping stone in the right direction towards ‘survival insurance’ planning. I love that! An example is if a 40-year-old man takes severe illness and disability cover with insurer X, along with their in-house retirement annuity and keeps both products active, at retirement age the additional tax-free amounts are ‘unlocked’ and payable to him. This is not from a claim or his retirement savings. 

This way, if you are lucky enough to live a claim-free life or had an unfortunate claim event happen to you, it does not exempt you from the cash benefit.

Leon C. Megginson summed it up neatly when he said, “It is not the strongest or the most intelligent who will survive but those who can best manage change.” 

* Trudy Luthuli is an independent financial adviser and partner at Luthuli Capital

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