Do I need Critical Illness Coverage?
Written By: John Klotz
Many of you have read stories of people who have elected to travel to another country for access to medical treatment not otherwise available in Canada, and have heard the staggering costs associated with these decisions. Others may have read of families renovating homes to accommodate their loved ones suffering from serious illnesses. Not only have these families endured life-threatening illnesses but also significant financial costs.
Founded in South Africa in 1989, by the brother of the famous heart surgeon, Dr. Christian Barnard, critical illness insurance was first introduced to Canadians in the mid-1990s.
In Canada, more than 15 companies now offer variations of this important insurance policy. While you may say that you have planned for this unexpected illness with the purchase of life and disability insurance, critical illness insurance fills a void in financial planning. While life insurance policies pay out upon death (and in some cases upon the diagnosis of a terminal illness) and disability insurance covers lost wages due to illnesses or accidents, critical illness insurance attempts to bridge the gap. Upon the diagnosis of a critical illness, a lump sum payment is made to the insured individual (usually paid 30 days after diagnosis of the covered condition but policy conditions will vary).
Do I Need It?
Each year 1 in 4 Canadians will contract heart disease, and the approximate acute care costs are $27,500 per stroke (Heart and Stroke Foundation of Canada – 2001 Statistics). The average Canadian male and female is at a 40% and 35% (respectively) risk of developing some form of cancer, but at a much lower risk of dying from this cancer diagnosis (Statistics Canada – Health/Status 2002). These serious illnesses are often described as “life-altering” because of the need for large amounts of cash, in order for families to put their lives back together again. How would you pay for the extra medical costs not covered by provincial healthcare plans, or make your mortgage and bill payments? What can you do to protect yourself and your family in the event that you suffer from a life-threatening illness?
When diagnosed with a critical illness, the first few months following diagnosis can often be the most traumatic and expensive. Critical illness insurance provides a “living benefit” without specifying or restricting benefits. In other words, the money from the insurance contract can be used to cover unusual costs, such as renovating or retrofitting your home or automobile to accommodate your illness, to access available treatment in another city or country or to infuse cash into your business.
How Do I Search For The Right Policy?
Each insurance policy is different, so examine policies closely. Be sure to read the detailed descriptions of which medical conditions are covered or not covered. There may be exclusions for certain illnesses. A family history and a personal medical history may be taken and coverage for a pre-existing condition may result in its omission from your policy. In most cases a recurrence of an original illness may not be covered.
When conducting your review, ask how long before the policy is paid out after diagnosis. While 30 days seems to be the norm, there could be exceptions. While most policies are available to Canadian residents between the ages of 18 to 65, some can be renewed until the age of 75 or even for life. Premium amounts are usually determined by your age, gender and whether or not you are a non-smoker. Many critical illness insurance contracts have an interesting provision that provides a full refund of premiums without interest (or a minimal amount) at death or at maturity, if no benefit has been paid during the life of the policy.
How Much Do I Need?
The best way for you and your financial advisor to estimate your coverage is by constructing a cash flow statement. Consider the immediate loss of income before your long-term disability benefits begin. Think about debt elimination, ongoing loss of income during your recovery and initial and post-illness expenses. You may also require personal care during your recovery or alternative forms of treatment available in another province or country. While all of these considerations are difficult to answer, you can see that the critical illness policy can go a long way to help take the pressure off at a vulnerable period of your life.
A proper or well-executed financial plan and an estate plan should include life insurance and disability insurance as well as critical illness insurance. Whether you are an employee, a business owner, or the sole income provider for your family, your ability to earn income is your biggest asset and an unexpected critical illness represents a risk to your financial plan.
For further information, contact John Klotz. John is President of Northwood Mortgage Life. You can reach John at firstname.lastname@example.org or call 416-969-8130 ext. 230