Is Critical Illness Insurance One of Those Things You REALLY Need?
Critical Illness Insurance is one of those things that many clients think they will never need. A luxury for well off people to cover very unlikely scenarios.
The problem is those scenarios are way more common than you think.
Frighteningly 1 out of 2 Canadians develop cancer in their lifetime. But with medical advancements, you are more likely than ever to survive your diagnosis.
63% of Canadians diagnosed with cancer are expected to survive for 5 years or more after a cancer diagnosis!
So what happens to you and your family when a breadwinner is simply our of commission? If you don’t have some sort of work-related protection in place….just in case your paycheck STOPS.
Well, I have the answer…Critical Illness Insurance.
What Is Critical Illness Insurance?
Critical illness insurance is a policy you purchase to help cover financial obligations while you are seriously ill.
If and when you are diagnosed with a medical condition that falls within the defined terms of your policy you receive a lump sum payment to spend as you wish.
There are many different products out there and ways to approach this sort of coverage, but the funds can be used to help you pay for a variety of things like:
- Mortgage & Other Debt Payments
- Replacement of Income
- Costs Connected to Home Healthcare and Medical Expenses Not Covered by your Province or Health Insurance
History of Critical Illness Insurance
Believe it or not, the concept of critical illness insurance was NOT created by the insurance industry.
Surprisingly, critical illness protection was the brainchild of a South African heart surgeon, Dr. Marius Barnard. He was also part of the team that performed the world’s first human heart transplant in the mid 60’s. Not too shabby!
Barnard saw the financial toll a life-threatening illness took on his patients. Those fortunate enough to recover from their critical illness didn’t recover financially.
He noticed the financial stress had a “knock-on” effect in terms of their recovery.
As a result, he lobbied the South African insurance industry to create a new type of insurance to deal with those facing life-threatening illnesses. The first critical illness policy was issued in 1983 in South Africa under the product name, Dread Disease Insurance.
Beware There is a Survival Period
As with any coverage, there are a number of things to be aware of.
First and foremost, there is a survival period you have to get through before the insurer pays out the benefits.
This period depends on the product and the illness. Details are contained in the body of your policy. For most insurers, the period is 30 days – but it can be more or less.
All critical illness coverage in Canada comes with a waiting period, usually 90 days.
This means you must wait at least 90 days from the effective date of your policy before you’re allowed to submit a claim.
This why it’s VERY important to go through all of the details of your policy with an independent agent BEFORE you sign on the dotted line. There is a lot to consider.
Critical Illness Insurance Canada - Conditions
Now, this is where things get tricky. You need to really think about the conditions that are covered by your critical illness insurance.
As with life insurance, not all critical illness insurance plans are created equal. Some are more comprehensive than others and as you can imagine they come with a heftier price tag. Most Critical Illness Policies cover either 4 conditions or 25 conditions.
Option 1: 4-Conditions Critical Illness Plans Cover
- Life-threatening Cancer
- Heart Attack
- Heart Bypass Surgery
Option 2: 25-Conditions Critical Illness Plans Cover
- Aortic Surgery
- Aplastic Anemia
- Bacterial Meningitis
- Brain Tumour
- Bypass Surgery
- Heart Attack
- Heart Valve Replacement
- Kidney Failure
- Loss of Independence
- Loss of Limbs
- Loss of Speech
- Major Organ Transplant
- Major Organ Failure
- Motor Neuron Disease
- Occupational HIV
- Severe Burns
- Stroke (CVA)
Many of the comprehensive 25-condition plans will also cover the following 5 childhood conditions:
- Cerebral Palsy
- Congenital Heart Disease
- Cystic Fibrosis
- Muscular Dystrophy
- Type 1 Diabetes
Different carriers protect different critical illnesses and have their own way of approaching them. Another thing to consider is the severity of the medical condition in question.
For example, let’s say you have basal cell carcinoma, which one of the less serious cancers. No carrier will pay out a critical illness benefit for a non life-threatening cancer.
“Please Note: Preexisting conditions are NOT covered! So please be completely transparent about any medical issues you have.”
“Your benefits will be declined if they find you are deceptive.”
Diagnosis Is Key
Buyer beware! You need to have a physician that specializes in your particular medical condition officially diagnose you before a claim is made.
Once again, the critical illness must be covered by your policy and in most cases, you need to live more than 30 days (sometimes more) before you get the payout.
A clear understanding of your coverage is VERY important!
Another thing to be aware of is all life insurance companies have exclusions. Self-inflicted injuries, the use of drugs and alcohol, participation in war or crime as well as other situations may nullify your coverage.
Falsifying information as I mentioned above is another big no-no!
This is why it’s important to read all the fine print before you sign up for a Critical Illness Insurance Plan.
Critical Illness Policies Are Underwritten
Critical Illness Insurance is underwritten like a traditional term or permanent life insurance policy. This means you take a medical exam and answer questions posed by an agent.
All of this information, including your past medical records, are then reviewed by an underwriter who determines your premiums.
The healthier you are the less you pay. This is why it’s very important to get this insurance when you are younger and healthier. Otherwise, coverage may become unaffordable.
Life insurance is a business – so for obvious reasons they are less likely to give preferential rates to someone they think is likely to draw benefits soon.
NOTE* A life insurance medical exam with a blood and urine test is the “gold standard” for underwriting. If you application for Critical Illness protection does not excompass a full medical exam or 30 to 40 very specific medical quesitions, than the coverage is likely low quality with poor guarantees at best.
Critical Illness Insurance Canada - Products
There are many different Critical Illness Products out there with VERY different protection whether it be face amounts OR illnesses covered. You can choose plans that cover 4 conditions or plans that cover 25 plus!
Clients can buy policies that pay out as little as $10k or as much as $2.5 MILLION!
In terms of the type of protection, again this is the same as life insurance. You may select permanent coverage until the day you die OR temporary coverage for as little as 10 years.
Return of Premium Rider (ROP)
So what if you never draw on your Critical Illness Insurance? Of course, this is the goal as no one wants to get sick…
…but those premiums you pay out are a tough pill to swallow.
Well, I have some GREAT news for you. You can purchase a return of premium rider that allows you to get the money back, minus administrative fees. The BAD news? It’s super expensive.
There is one more caveat as well! You have to pay your premiums for 15 – 20 years before you can get them paid back – and it’s a more expensive route.
I generally don’t recommend purchasing the ROP option.
Companies That Offer Critical Illness Insurance
This is not a list of every company that offers critical illness insurance. Just a few to take note of. Like life insurance, it’s important to pick the RIGHT insurer for you!
Here are some things to consider:
- The financial foundation of the company you select
- Customer service
- Products offered
- Undewriting niches
If you have been reading any of my posts you know that you can save a pretty penny by picking the right company for your particular situation and critical illness insurance is no different.
Critical Illness Insurance in Canada has become very popular lately.
There’s a school of thought among some advisors that critical illness insurance is something you should consider only after you’ve acquired adequate life insurance and long term disability coverage.I tend to agree. In order of importance, critical illness insurance should be at the bottom of the following insurance hierarchy:
- Life Insurance
- Disability Insurance
- Critical Illness Insurance
Critical Illness Protection - Why Are You So Complicated
Critical illness coverage is complicated. Unfortunately, many consumers who purchase it, especially through financial institutions, think they’re protected when they may not be.
Insurance companies only pay out a claim in strict adherence to the definitions set forth in your policy. If you’re critical illness doesn’t meet those specific definitions, you won’t get a dime!
There are many exclusions, conditions and requirements laid out by the insurance companies when it comes to getting your money.
For example, only certain types of cancer and heart attacks are eligible for the benefit. Yes, that’s right, if your cancer is non life-threatening (ie. early prostate cancer) you won’t get the lump sum.
In fact, Parkinson’s and Alzheimer’s are only covered under certain conditions. The list goes on.
Should You Buy Critical Illness Insurance Sold by the Bank?
In a word, No.
Read my Mortgage Insurance Vs Life Insurance post and you’ll see how I feel about the mortgage life insurance sold through the banks. I don’t like it.
I feel the same way about the Critical Illness protection peddled by the banks. It’s often provided as an add on to the mortgage life insurance they sell.
Things Don't Always Work Out the Way You Plan
There are many stories about critical illness claims not being paid out by the banks (life insurance companies too!).
One of the saddest stories I heard was about a couple who’d paid $6000 into a critical illness policy over 3 years.
“the TD Bank sales representative, who also arranged the mortgage, assured Williams and her husband they’d be covered if they had a serious condition that prevented them from earning an income.” Td Denies Woman’s insurance even as she awaits bone marrow transplant
Apparently, they were told by the bank associate who sold them the insurance that their mortage payments would be covered if either of them were unable to work due to a serious illness or condition.
When the wife and mother, Bianca Williams, developed Aplastic Anemia, she discovered to her shock that the bank did not consider Aplastic Anemia to be cancer or life-threatening.
The bank denied the couple’s claim.
The representative may have done a poor job explaining the fine print. There’s also speculation about whether the bank’s representative was even a licensed insurance agent.
Banks in Ontario are NOT required by law to have licensed agents sell their insurance products. Alberta, on the other hand, is the only province in Canada requiring anyone selling life insurance products to be a licensed agent.
This is a sad example of why it’s IMPORTANT to speak with a licensed independent insurance broker who has comprehensive knowledge of the critical illness insurance niche.
Policy Architects Can Help!
If you’re looking for Critical illness Insurance in Canada, you must do your homework!
As a breadwinner with dependents and debts, what happens to your family if you are knocked out of work for 6 months or a year?
Critical Illness Insurance could potentially flll that gap. If you can afford it.
Call Policy Architects today. We work with the best life insurance companies in Cananda. We can help you figure out if critical illness insurance is the right product for you.