Let’s get started.
Insurance has been around since ancient times but
Critical Illness Insurance is a relatively new product. It has only been in existence since the early
1980’s when Dr.
Marius Barnard, a heart surgeon from South Africa,
worked with an insurance company to design a product to help with the financial
health of people surviving a critical illness.
For those of you outside of Canada, this may be called Dread disease
insurance, Trauma insurance, serious illness insurance, or living assurance.
So what is Critical Illness Insurance or CI for
short? It’s an insurance product where
the insurer typically pays the policyholder a lump sum cash payment if they are
diagnosed with one of the critical illnesses listed in the insurance policy.
(A) Purchased
via Group plan or individually. A person can purpose a policy through a group
benefits plan (e.g. from your employers’ benefit package) or can be bought
individually. According to Andrew Tsoi-A-Sue, Principal, Eckler
Ltd. <Disclosure: Andrew is a co-worker of my wife
Ellen>, “most of the new Critical Illness implementations
(offered via group plans) are employee-paid and probably less than 20% (of
employers offer this).”
Stats are not easy to find on who has CI but below are results from my survey. The sample set was relatively small (~70 people) but it does give us a feel. It shows ~55% have CI vs. ~45% don’t and for those having it, a little over half received it through a group plan.
(B) Illnesses
covered.
There is only a specific set of illnesses covered under each
policy. It can be as many as 26 and
you’ll see common ones such as heart attack and cancer across all of them but
the actual list of illnesses will differ between insurers. The list can also be significantly smaller
with a group plan compared to an individual.
(C) Confirmation via doctor’s diagnosis. This is required as a policy condition to show you have a specific illness before you get paid. Insurers have specific tests and results to meet their criteria for each illness. There is a benchmark set of illness definitions that most Canadian insurers use, but you’ll want to get an understanding of what the insurer considers the definition of each illness.
(C) Confirmation via doctor’s diagnosis. This is required as a policy condition to show you have a specific illness before you get paid. Insurers have specific tests and results to meet their criteria for each illness. There is a benchmark set of illness definitions that most Canadian insurers use, but you’ll want to get an understanding of what the insurer considers the definition of each illness.
(D) Survival Period. This is the minimum time period the policyholder must be alive for after the diagnosis and is typically 30 days.
(E) Access to specialists. Most policies provide access to a health care resources, specialists etc. who are available to review your medical records to confirm your diagnosis or some could go farther in making them available for more than just a second opinion. You’ll see some insurers use the “Best Doctors” organization for this value-added service.
How do you decide whether you need to buy CI and how
much? This is a very complicated
question. Here are some things to
consider:
(1) How do you feel about risk?
a. Is
there family history of health issues?
Some of the survey respondents gave this reason for buying coverage.
b. How
do you feel about to risk related to getting a critical illness vs. unexpected
death vs. others? This is a very
individual decision and it comes down to what helps you sleep at night. My wife, for example, hates to fly even though
she knows the probability of something happening while flying is so much lower
than during her daily commute to work.
c. The chances of getting a critical
illness are generally higher than a premature death but the impact could be
greatly different. Here’s a couple of
sample links for more reading on your “chances” - Premature
Mortality from The Conference Board of Canada, Cancer
Statistics at a glance from the Canadian Cancer Society.
(2) Group vs. Individual and Amount of
coverage. “Typically
coverage (for a group plan) is for smaller amounts and covers few
illnesses. Downside is no cost control
(i.e. premium amount not locked in) and you lose coverage when you change
employers. Recommend using it as a
top-up to an individual policy so when you move employers you still have your
base coverage.” From Liz Horn, Program Manager, Insurance, RBC
Wealth Management Financial Services Inc.
<Disclosure: Introduced by my RBC financial advisor. Haven’t bought any insurance products through
RBC >
Some good points but
how much do you really need? CI is
trying to fill the other financial gaps left after considering your disability
insurance. For those of you that like
detailed calculations I found an interesting calculator
to help you plus a listing of expenses
that you may have.
(3) Who will be affected? If you’re single with no dependents then the answer is pretty straightforward. If you’re married and or in a domestic partnership and with kids the answer gets more complicated. Someone reminded me it’s not only the main breadwinner you need to think about. What about the case when there are children and the one of the partners is the sole childcare provider? If the partner providing the childcare gets sick, the breadwinner could also be greatly affected.
(3) Who will be affected? If you’re single with no dependents then the answer is pretty straightforward. If you’re married and or in a domestic partnership and with kids the answer gets more complicated. Someone reminded me it’s not only the main breadwinner you need to think about. What about the case when there are children and the one of the partners is the sole childcare provider? If the partner providing the childcare gets sick, the breadwinner could also be greatly affected.
(4) Is CI more or less important to you
than life insurance or disability insurance? This depends on many variables. For example, if you’re single with no
dependents, CI and disability insurance would be more important. Also, disability insurance is income based
and replaces a portion of you income and require ongoing proof of income loss
to keep getting the benefit and ends when you start getting income again
whereas CI is typically a one-time payment and it’s not associated with your
income.
Liz Horn suggests “a good idea
is (to use Critical Illness) as a top-up for disability insurance because there
is not the same kind of waiting period (e.g. 90 days) and therefore you can get
more flexibility on a going back to work decision.”
(5) How can I get the most benefit for my money?
(5) How can I get the most benefit for my money?
a. To
limit your costs, perhaps you don’t need the Return of Premium option.
According to Liz Horn, “(you) get
back all your premiums paid but the cost of this is 30-40% higher than just the
base coverage. It’s a forced savings
plan but you lose the opportunity cost on the money. In the end, it’s about how
much budget you have – the Return of Premium option is attractive to many
people and if you can afford it, it makes sense...”
b. Starting
your policy when you are younger can be a lot less costly since the insurance
companies know the older you get and not yet had a critical illness, the
probability is higher so they will charge you more.
c. Look
at the differences between costs of a term (i.e. set period of time) policy vs.
a permanent policy.
I’m going to have to cut this off now.
There is so much information on this topic I
could fill multiple postings but my objective was to increase everyone’s
(including my own) knowledge on the topic and I hope I have done that. As for myself, my wife and I made the decision
years ago to not get critical illness insurance due to the expense of the
premiums and our ability to cover unexpected expenses. In the insurance industry, people would say
we are “self-insuring”. After
researching this posting, I’m going to re-look at this decision.
James Whelan
moneymatters4life@
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