Critical Illness Insurance
When compared to other types of insurance, Critical Illness insurance seems very expensive. That’s because it is! Although you may initially balk at the price, this coverage is steadily gaining in popularity and there’s good reason why.
The reason this coverage costs so much is because there is a very good chance that the insurer will have to pay out on a claim. The chances of a Canadian suffering from a critical illness such as cancer, a heart attack or a stroke are more than 1 in 3. A Canadian Cancer Society study estimated that 38% of women and 44% of men in Canada will develop cancer during their lifetimes.
Somewhat similar to life insurance, critical illness insurance pays out a specified sum in case of an insured event. Each policy has a list of serious illnesses that are covered and the payment that is received is a lump sum, tax free amount. The money has no restrictions and can be used however you see fit. Most common uses are for medical expenses outside of the province (ie. not covered), paying down debt, taking time off work or providing extra help at home.
Imagine finding out you have cancer and the doctors recommend chemo treatment right away. Then they tell you that it’s a month long wait to get in. You could have the treatment tomorrow if you travel south of the border but the cost is $40,000. With a critical illness policy, you’ll have the cash to pay for this type of event.
There are many different types of plans from short term to permanent. Due to the high costs, I often recommend adding a “return of premium” rider to policies. This allows the policy holder to recover the premiums they’ve paid at retirement time if they haven’t had to use the insurance. It ends up being a forced savings plan and the only thing it costs you is the lost potential interest growth if you had of invested the money elsewhere.
The underwriting process for critical illness insurance is a little bit stricter than your average life insurance policy. With the much higher payout ratios for these policies, the companies tend to tighten their guidelines for approval a little more. This certainly doesn’t mean that the average person won’t qualify, but they will place more emphasis on family history. For those that aren’t approved due to history, there are guaranteed issue options that are priced competitively. The biggest drawback is that the benefit amount will usually cap out at around $25,000.
Several companies are now also offering options to combine your critical illness and life insurance needs into one policy. While not always recommended, this is a strategy well worth considering.
Whatever you decide, understand that the above article is only a brief overview of what critical illness insurance is all about. It’s important to sit down with you advisor and discuss all aspects and options for this type of coverage before making a decision. As one of the basic pillars of any financial plan, it’s no wonder that the sales of these policies are steadily on the rise.