Critical Illness Insurance
So, you’ve been out shopping like a mad fiend, trying to lay your hands on disability insurance coverage. It’s expensive. It’s tough to get. You give up. You’re never going to qualify! Or, worse, because you’re currently not employed (maybe you’re a mom or dad at home, or maybe you’re between careers) you can’t even apply.
While you may not be able to qualify for that disability plan I’ve convinced you that you need, I have another suggestion that might be at least a partial solution: critical illness insurance. With this insurance, you buy a policy to cover specific types of diseases and if you’re subsequently diagnosed, you’ll receive the payout of the amount of coverage you bought.
CI came to Canada in 1995. It originated in South Africa in the early 1980s, the brainchild of a cardiologist who watched as the financial stress exacerbated his patients’ health problems.
According to the Heart and Stroke Foundation of Canada, 1 in 4 Canadians will contract a critical illness by the age of 65. But with the tremendous strides in medical technology, you’re far less likely to die. You might even make a full recovery. Thirty percent of cancer victims are completely cured, while 75 percent of stroke victims and 95 percent of heart attack victims survive the initial occurrence. The problem most people face is that lengthy and expensive treatments often mean people don’t have the money to get them through the crunch until they can get back on their feet and start earning a living again. And that where CI insurance steps in to fill the gap.
Critical Illness insurance pays a lump sum on either diagnosis of the conditions you’ve bought coverage on, or their progress to an agreed state. While a heart attack is a heart attack and requires no further definition, multiple sclerosis might not actually impair your lifestyle for many years.
There are no strings attached to the payout - you’re diagnosed and 31 days later you’ve got a cheque - so you can use the money in any way you see fit. Unsure our over-burdened medical system will make space for you? Put your CI money to use seeking private treatment. Or use the money to provide an income while you convalesce. Clear up debts. Keep your small business running. Make physical changes to your home or vehicle. Ready yourself for the rest of your life. It’s your money so it’s your call how it’s used.
The ailments covered aren’t the same on every plan. While cancer, heart disease and stroke are pretty standard, there is considerable variance on conditions such as multiple sclerosis, paralysis, kidney disease, loss of speech or hearing, and so on. Look for a plan that covers the highest number of variables. And watch the definitions used for critical illness conditions, which also tend to vary from plan to plan. Don’t let the medical terminology baffle you into buying something you don’t understand. Be clear on when you’ll be covered and for what.
Buying CI insurance is a lot like buying life insurance except, of course, you don’t have to die to collect - which makes it seem more like “life” insurance than life insurance. First you select the amount you wished to be covered for. That can range from about $25,000 to the millions. Next, you provide medical evidence of good health. (Be warned: a strong emphasis is placed on your family’s health history and a tendency toward a heredity disease such as cancer could result in its omission from your coverage.) That, along with your age, your gender and whether or not you smoke gives you an annual premium amount.
That premium ain’t no small potatoes neither. CI insurance can be expensive. As an offset, policies offer a full refund of premiums to your estate if you die without making a claim. And some policies have a special rider you can purchase that will kick your premiums back to you if you haven’t made a claim within a specified time period.
If you haven’t been able to lay your hands on disability insurance, CI insurance can help ease your mind by providing a lump sum payout when you most need it. And with medical science making life-saving advances in treating major illnesses, this might be the time to insure your wallet, as well as your body.
May 29th, 2008 at 12:09 pm
Hello Gail,
Thank you SO, SO much for covering this topic; it one that I feel strongly about and hope many people take your advise. Personally I have chosen to get Long Term Care Insurance first, and will be appliying for CI insurance within the next year. I am young - 25 - and feel that this is one of the best uses for my money, and a realy investment. If you are so inclined I would encourage you to write a blog on LTC insurance as well, and if possible compare it to CI. There are siginificant differences, and depending on peoples situataions, one could be better suited than the other. Of course ideally people should have both. LTC insures my income, I am currently single, so this is imporant! With LTC if anything happens to me - any type of injury where I require care - I will be paid and “income”. I am also covered for this through my employer, however it is not portable. This is the key! If I were to leave my employer, then I would not longer be covered under their plan, this way I will always have coverage, no matter what! And at the end of 30 years I don’t have to pay any more! That’s the way it works - you pay the premium for x amount of years, and then you are done paying, and you still have coverage - FOR LIFE!
I encourage anyone, with or without LTC covereage thru their employer, to investigate this option, as well as CI.
May 29th, 2008 at 1:20 pm
Jessie, keep in mind there are risks in being overinsured, especially if you have no dependents. With respect to Gail, insurance is something that should be discussed with a financial advisor. Thirty years is a long time, and the amount of cash you may need to survive on at 55 may be very different from that of 25 when presumably you have few assets, but at 55 you may have a pension, rrsp income, real estate, cash or other investments. In other words, you are betting that you will get a critical illness, but may not have discussed the probabilities of this with your doctor first. The premium (which as gail mentions is not insignicant) may be better served by investing it in the stock market for the next 30. I’m not saying that CI is not worth it, but that contrary to our cautious nature as Canadians there is such a thing as too much insurance. CI is a money making, not losing, venture for the companies that provide it and it’s worthwhile to remember this.
May 29th, 2008 at 2:51 pm
We had been offered CI by our financial advisor last week and are totally confused as to whether to take it or leave it or what. Thanks Gail - as always you have explained it perfectly and now it’s time to make the decision! You rock lady!
May 29th, 2008 at 6:18 pm
I cannot say that Geoff is not correct. I think it’s less important for a single person to get a big insurance coverage. If you are in a relationship and your partner in some way depend on your income to pay rent/mortgage/bills, i.e., have a place to live, that would be different.
May 29th, 2008 at 7:13 pm
when i was just on my own, i had death insurance on my mortgage (where the balance would be paid and my parents would have a free house to sell), disability thru my employer and that was it. it was plenty of cash in the end, my parents could mourn me on some beautiful island somewhere. but now as a wife and mom, i no longer get disability thru an employer (despite the importance of my role primarily in the home), sick benefits thru EI covers only lost wages not non-monetary things (how do you put a price on picking up half mushed cheerios off the floor and dressing the cat for fun twice daily). we have life insurance but hey, dead isn’t always the worst scenario.
i tease my husband that if i were to charge him for what i do in the house, he could never afford me. and i’m not even counting the… well you know!
he agrees.
if i so much as break my ankle, the house comes to a screeching halt, the small income i generate comes to a halt too.
how do you insure a part time worker and house mom?
May 30th, 2008 at 4:58 pm
When we were expecting our son we decided to get coverage for critical illness and life insurance. It is expensive but ti’s worth every penny to me.
If something happens to myself or my husband I know that my there is enough money to ensure my son is well cared for and the surviving spouse won’t be burdened financially.
A good insurance agent is worth their weight in gold as well! My first policy I bought from a new young agent and I wasn’t totally sure I was happy with it. When we signed up with a new insurance company for our home & auto insurance the agent asked about our other policies. He then asked if we would let him take the policys to review and see if he could do better for us. He is fantastic! he pointed out things that we were not aware of in all of our previous policies and made sure we got the best coverage we could afford. Our agent owns his own insurance company and has been in business for 20 years or more.
It pays to shop around!
Now I need to get a will….
May 31st, 2008 at 2:53 am
Advising someone who is single not to get insurance because they have no dependants just plain bad advice. Because who are they going to depend on when they get in a jam? No one because they are single! Mom and Dad might not be able to come to the rescue because you’re not a kid anymore.
A girlfriend of mine with her own home and a very well paying job one day got very sick. But she doesn’t have any insurance not on her own or through work. So what happened? Well she wasn’t making any money cause she couldn’t go to work. She couldn’t pay her bills cause she wasn’t getting paid. This went on for about two years.
So the only thing she had going so her was that she was not in debt before she got sick. So she was able to use up all her available credit to take care of herself. However two years later she is now back to work but something like 80 grand in the hole! Just barely treading water on payments trying to stay afloat. Talk about stressed out this does not help with the recovery process she could relapse anytime cause she’s freaking out so bad.
The worse part is that she was sick with something that is covered under all CI plans so if she had of had insurance things would have not turned out this bad. But the problem is you can’t buy insurance after you get sick.
Buying insurance when your young, single and healthy makes sense. Because you can definitely get cheap insurance when you’re young and healthy with low cholesterol. If you wait until your married with dependant you might not even qualify or end up having to pay higher premiums because you’re now considered a high risk.
May 31st, 2008 at 8:34 am
“A” that was so well said.
A single person should atleast have CI insurance. Life insurance isn’t as important when you don’t have dependants, but if you puchase a term plan at a younger age while healthy you can get it at an affordable rate and it’s usually locked in for that 10 or 20 year term.
My parents had me at a young age and are now in their 50s. I worry all the time that one of them is going to become ill. How are they going to pay for expensive medications/treatments? I can’t afford to insure them.
I learned a long time ago to try not to worry about the things that are not in your control but as I see my friends parents becoming ill or passing away I can’t help but think about it. I’m glad I have peace of mind with my coverage that my son won’t have to worry about how we are going to pay for care.
May 31st, 2008 at 1:24 pm
you should be able to pay for your bare minimum living expenses should anything happen to you. whether that’s through a work disability plan, CI whatever. as for life insurance, if you have no dependents, just don’t leave a whack of uninsured debt with no assets for your loved ones to remember you by (don’t test the old saying ‘never speak ill of the dead’ hehehe).
June 2nd, 2008 at 10:21 am
For the benefit of others, just wanted to note that in Canada debt can not be “inherited” - ie you can’t leave a whack of insured debts to a loved one (with the exception of a spouse in a joint account setup kind of way). However, that doesn’t mean the creditor(s) can’t seize all available assets (ie can’t owe a mortgage on a house and in the will pass it on to your son and expect mortgage to disappear)
Neither Angela nor myself were recommending anyone have NO insurance. However, I know that a lot of people pay literally thousands of dollars for coverage they don’t need or vastly exceed their requirements, and at the end of it most do not benefit from this. A single person, with no dependents, needs very little LIFE insurance, though I would recommend disability and possibly CI insurance (possibly). For instance, though Kristin was very generous in having mortgage insurance to pay off her mortgage for her parents when she lived alone if she died, in theory if the mortgage is less than the value of the house her parents would have done just fine selling it (and if not, it’s not her parent’s problem anyway, it’s the banks). Kristin would have saved thousands in mortgage insurance she didn’t need. However, insurance can be viewed as an emotional, not logical purchase, and I recognize that but I think it needs to be looked at by the numbers as well, which is really all I’m trying to say. If the numbers make sense to you — on both sides of the equation - then go for it!
June 2nd, 2008 at 4:43 pm
Great post Gail!
I was “saved” by my CI coverage. In 2006, I was diagnosed with stage 1b squamous cell carcinoma, a few months after getting my Critical Illness policy. I submitted my claim and after about 4 months I received my $50000 cheque. My cancer was removed and has never returned. I was able to take the time I needed to heal and not worry how I was going to pay my bills. I was lucky, I did not have to take a lot of time off work, but I had total peace of mind thanks to my critical illness protection.
Unfortunately I no longer qualify for coverage but I would encourage everyone out there to look into this getting some critical illness protection.
June 2nd, 2008 at 11:46 pm
This is a great article. I think critical illness insurance is one of the types of coverages that are often overlooked, especially in the United States. With the possibilities so great that you’ll end up with a major illness, it’s a wonder more people don’t get this type of insurance. I actually like to think that the popularity of CI policies in Canada helps to prove that the health system in the U.S. is one of the best ones in the world. I have heard that many people from Canada buy CI insurance and then use that payout to come to the United States and get the health care they want.
June 22nd, 2008 at 4:24 pm
Hi Gail,
I have a series of topics about life, disability and critical illness insurance on the Million Dollar Journey starting June 26th (thursday) and for the next several thursdays.
Gail, you are right about disability insurance …get it! Your readers may not know every one who has a mortgage can get coverage! This has no effect on any current disability coverage owned already.
Only about 5% of insurance agents talk about disability insurance in any meaning full way. A recent poll at the Toronto Congress Centre by Blue Cross asked about 500 insurance agents “how many sell 10 or more disability policies a year”? About 25 hands went up.
Financial advisors score worse! Why? Disability insurance is more expensive, because it pays! Usually about 8 times more likely to pay for a disability (over 90 days) than a life insurance term policy.
I’d be happy to go into detail about this topic if you wish.
regards,
Brian Poncelet, CFP