Fact CheckedCritical Illness Insurance is one of those things that many clients think they will never need. It is a luxury for well-off people to cover improbable 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 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 out of commission? If you don’t have some work-related protection, 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:
- 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 insurance industry did NOT create the concept of critical illness insurance.
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-60s. 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 that financial stress had a “knock-on” effect on their recovery.
As a result, he lobbied the South African insurance industry to create a new type of insurance for people 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 several things to be aware of.
First and foremost, you must get through a survival period 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. Most insurers offer 30 days, but it can be more or less.
Waiting Period
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 is why it’s essential to go through your policy details with an independent agent BEFORE signing on the dotted line. There is a lot to consider.
Critical Illness Insurance Canada – Conditions
Now, this is where things get tricky. Considering the conditions covered by your critical illness insurance would be best.
As with life insurance, not all critical illness insurance plans are created equal. Some are more comprehensive than others; as you can imagine, they come with a heftier price tag. Most Critical Illness Policies cover either four or 25 conditions.
Option 1: 4-Conditions Critical Illness Plans Cover
- Life-threatening Cancer
- Heart Attack
- Stoke
- Heart Bypass Surgery
Option 2: 25-Conditions Critical Illness Plans Cover
- Alzheimer’s
- Aortic Surgery
- Aplastic Anemia
- Bacterial Meningitis
- Brain Tumour
- Blindness
- Cancer
- Coma
- Bypass Surgery
- Deafness
- 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
- MS
- Occupational HIV
- Paralysis
- Parkinson’s
- Severe Burns
- Stroke (CVA)
Many of the comprehensive 25-condition plans also cover the following five childhood conditions:
- Cerebral Palsy
- Congenital Heart Disease
- Cystic Fibrosis
- Muscular Dystrophy
- Type 1 Diabetes
Different carriers protect different critical illnesses and approach them differently. Another factor to consider is the severity of the medical condition in question.
For example, let’s say you have basal cell carcinoma, one of the less severe 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 for Critical Illness Insurance
Buyer beware! It would be best to have a physician specializing in your 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 must live more than 30 days (sometimes more) before you get the payout.
A clear understanding of your coverage is fundamental!
Exclusions
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 essential 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.
This information, including your past medical records, is then reviewed by an underwriter who determines your premiums.
The healthier you are, the less you pay. This is why it is essential to get this insurance when you are younger and more healthy. Otherwise, coverage may become unaffordable.
Life insurance is a business, so for obvious reasons, you are less likely to get preferential rates if it looks like you will draw benefits soon.
NOTE* A life insurance medical exam with a blood and urine test is the “gold standard” for underwriting. If your application for Critical Illness protection does not encompass a full medical exam or 30 to 40 very specific medical questions, then the coverage is likely low quality with poor guarantees at best.
Critical Illness Insurance Canada – Products
Various critical illness products have very different protections, regardless of what face amounts or illnesses are covered. You can choose plans that cover four conditions or 25 plus!
Clients can buy policies that pay as little as $10k or as much as $2.5 MILLION!
Again, this is the same as life insurance in terms of the type of protection. You may select permanent coverage until the day you die OR temporary coverage for as little as ten 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 tough to swallow.
Well, I have some GREAT news for you. You can purchase a return premium rider to get the money back minus administrative fees. The BAD news? It’s super expensive.
There is one more caveat! 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
- Industrial Alliance
- Wawanesa Life
- Ivari
- Humania
- Manulife
- RBC
- Sun Life
- BMO
- Canada Life
- Desjardins
This is not a list of every company that offers critical illness insurance. These are just a few to note. Like life insurance, picking the right insurer for you is essential!
Here are some things to consider:
- The financial foundation of the company you select
- Customer service
- Products offered
- Underwriting niches
If you have been reading my posts, you know you can save a pretty penny by picking the right company for your particular situation. Critical illness insurance is no different.
Buyer Beware!
Critical Illness Insurance in Canada has become very popular lately.
Some advisors think 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, primarily 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 outlined in your policy. You won’t get a dime if your critical illness doesn’t meet those specific definitions!
There are many exclusions, conditions, and requirements that insurance companies have set for 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 (i.e., early prostate cancer), you won’t get the lump sum.
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.
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
Many stories exist about critical illness claims not being paid out by banks (and 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 three 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
They were told by the bank associate who sold them the insurance that their mortgage payments would be covered if either of them were unable to work due to a severe 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 a licensed insurance agent.
Banks in Ontario are NOT required by law to have licensed agents sell their insurance products. However, Alberta is the only province in Canada requiring anyone selling life insurance products to be a licensed agent.
This is a sad example of why speaking with a licensed independent insurance broker with comprehensive knowledge of the critical illness insurance niche is important.
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 six months or a year?
Critical Illness Insurance could potentially fill that gap if you can afford it.
Call Policy Architects today. We work with the best life insurance companies in Canada and can help you determine whether critical illness insurance is the right product for you.
