Critical Illness insurance has been around for 25 years or so and it is still misunderstood by many.
Regular disability insurance provides monthly income. Why bother with it?
Monthly income is good but some illnesses and conditions have an upfront capital component that is not easily satisfied by monthly income.
In its simplest form, critical illness insurance covers cancer, heart attack and stroke. Another 20 or so conditions in its extended form. It pays a lump sum, usually 30 days after a qualifying diagnosis.
Monthly disability insurance pays for your normal day to day living costs. The capital component of a disability includes things that are not covered by medicare or group insurance. Sometimes the ability to pay means that you can go elsewhere and get treatment more quickly or perhaps can take advantage of promising experimental treatments. Maybe an uncovered implanted defibrillator at $100,000, instead of a pacemaker at $20,000.
For many, these possibilities will not matter. My client experience has been more mundane. The cost to attend at remote hospitals for cancer treatment is not inexpensive. Amounts paid to the parking bandits at hospitals adds up. One patient I know claims to have incurred more than $20,000 in out of pocket costs for transportation, hotels near the hospital, parking and meals. Not insurmountable but a nuisance at a bad time. Multiply by 10 if you are going from Canada to the US for treatment.
There are numerous policy options, the idea being to find a fit with the client’s needs and ability to pay premium.
One of the options is return of premium. This provides that if there is no claim after 15 years (somewhat different from insurer to insurer) the insurer will refund the premiums you have paid if you give up the coverage. A nice deal if you can do without coverage. The cost to the client then is just the interest that could have been earned on the premiums. Get a check for sure. Either a large claim check or a somewhat smaller refund.
There are two caveats.
- No one is presently certain about how that refund will be taxed. Presently it is not taxed but there have been noises in the department of finance about how they can make some of the money returned be interest or its equivalent. Changes of this sort are usually not retroactive so early action is warranted.
- The check for sure idea is invalid if you die from another cause or if you do not live 30 days after diagnosis. The 30-day wait is important and you should be aware that it exists. Most people hold a little more life insurance to deal with the possibility. Return of premium at death is an option but its expensive compared to real life insurance options.
Experience shows that many people cannot qualify medically for this kind of insurance. Family medical history matters. So do some manageable conditions. Find out for sure. You should not decline yourself; that is the job of insurance underwriters and you should let them do it.
There are many huge critical illness policies in force. Not everyone needs $2,000,000 but I think it safe to say that everyone would benefit from some coverage.
Don Shaughnessy is a retired partner in an international public accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.