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Critical illness cover and Alzheimer’s disease: Do you need to put your insurance in trust?

Alzheimer’s Disease Statistics

  • In the UK, there are 800,000 people that suffer with dementia.
  • Of this, around 496,000 are diagnosed with Alzheimer’s Disease.
  • In terms of population, women outnumber men at a ratio of 2:1.
  • It is estimated that there will be more than a million people with dementia by the year 2021.

Source: http://www.alzheimers.org.uk

Alzheimer’s disease is a progressive and irreversible brain disease that gradually destroys the patient’s memory and thinking skills. This is caused by protein plaques that grow in the brain structure, leading to brain cell death. Also, there is a lack of key brain chemicals that are necessary for the proper function of the brain and the transmission of messages within the brain.

When this happens, the patient is unable to carry out even the simplest tasks. As the disease ravages the brain, the patient increasingly:

  • Suffers mood swings, due to the realization of what is happening to their memory. The patient may feel frustrated, anxious or angry.
  • Increasingly forgetful about names, places, occurrences and what is currently happening.
  • Increasingly finding it hard to perform day-to-day activities
  • Increasingly withdrawn and depressed

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Risk Factors for Alzheimer’s Disease

There is no one cause that can be pointed as leading to Alzheimer’s Disease. According to research, indications show that the disease is caused by a combination of the following risk factors:

  • Genetics. The disease may be passed on from one’s parents, especially for early onset Alzheimer’s Disease. However, for Alzheimer’s disease that appears late in life, there seems to be only a small chance that it is caused by genetics.
  • Age. Alzheimer’s disease is more common in people over age 65 (7% for those over 65 and 17% for those above 80 years of age).
  • Environmental factors.  Some studies indicate that exposure to aluminium may be linked to Alzheimer’s disease. It is also believed that those who suffer blows to the head or suffer from whiplash have an increased risk as well.

Why get critical illness to cover for Alzheimer’s Disease?

Counting the Cost of Alzheimer’s and Other Forms of Dementia

Estimates covering the annual cost per person (2007 rates) are as follows:

  • People in care homes: £32,000
  • People in the community/their own residences that have
    • mild dementia: £14,500
    • moderate dementia: £20,000
    • severe dementia: £28,500

*Source: Dementia UK 2012 Report

Critical Illness cover can help protect against the financial damage that getting a diagnosis of Alzheimer’s Disease can bring. The proceeds of the insurance can help pay for:

  • Treatment to retard the effects of the disease. There is currently no cure for the disease.
  • Money to hire a carer
  • Adaptive equipment

Check the definition of Alzheimer’s Disease in the policy.

Based on the definition provided by the Association of British Insurers, Alzheimer’s Disease is payable if this disease occurs before a certain age, commonly pegged at 65. However, there are some providers that give an ABI+ definition to Alzheimer’s Disease, making a diagnosis payable at any age.

In addition, ABI definitions require that:

  • The diagnosis be made by a Consultant Neurologist who specializes in the disease or is a psychiatrist or geriatrician
  • It must be shown that there is permanent clinical loss of the ability to:
    • Remember
    • Reason
    • Perceive, understand, express and give effect to ideas

Other types of dementia may be excluded in the cover (again, based on ABI definition).

A Trust to Protect Your Critical Illness Policy

The disease may prevent the patient to make key decisions. Therefore, if you consider Alzheimer’s disease a distinct possibility, you can think of putting your critical illness cover in a trust. This way if you are stricken with Alzheimer’s disease, the proceeds will be received by someone you trust and will act in your best interests.

A split trust is usually one option you can use when safeguarding a life insurance policy that also has a critical illness cover.

A Background on Trusts

With a split trust, you can protect the life insurance proceeds, while at the same time ensure that the policy owner will get the critical illness insurance proceeds upon diagnosis of a critical illness.

When there is no trust to protect the estate, it can delay and even reduce the life insurance proceeds that the beneficiaries can expect to get. What can happen is that the proceeds may be counted as part of the estate of the deceased and may be tied up in probate. The beneficiaries will have to wait before all debts the estate has is cleared, and this can cut down on the insurance proceeds.

Also, this will make the insurance proceeds subject to inheritance tax. With a trust, the proceeds go directly to the beneficiaries and they don’t have to pay any inheritance tax on that.

Split Trusts

When thinking about setting up a split trust, you should consult a lawyer or a trusted insurance agent who can help you ensure that the trust works the way you want it to. If you, as the policy holder, want to make sure that you get the critical illness insurance proceeds, you should make sure that the trust is set up in a way that you won’t have any problems collecting the funds, especially at a time when you will be needing it the most.

Cancelling a Trust

It is also important to remember that it is not as easy to cancel a trust once it has been set up. Often, the option will be to wait for the policy to stop without any benefits being paid out.

Last updated on: 18.1.2013

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