In this Insurance Planning post, we will go over the first of the ‘Living Benefits’ topics, which is Critical Illness protection (the second being Disability Insurance, which will be in another post). People often think that Insurance Planning is only about Life Insurance – in other words, planning for death
– but it encompasses a lot more than just that. Unfortunately, most are not aware of the risks of some of the things that can happen while you’re still alive, and a huge part of that is because many Advisors are not even discussing this with their clients. Illness and injury are very common occurrences in most people’s lives that often go overlooked, yet can be a huge burden on you and your family’s live if they were to happen to you. ‘Living Benefits’ is a term used for the type of insurance that people get to cover unforeseen circumstances of illness or injury, while still alive – hence the name.
In this post on Critical Illness protection, some common questions will be answered, such as: What is it? Do you need it? How much is needed? What types of coverage are there? etc…
What is Critical Illness Protection?
Critical Illness Insurance is a type of ‘Health Insurance’ that provides a lump-sum payment if you were to become seriously ill. It is also given the name “Living Benefits”, because you don’t have to die to receive the payout. It is considered to be a type of an Insurance to protect your lifestyle, and to help you recover from a serious illness.
Although the illnesses that are covered vary from company to company, you can be covered for most (or all) of the following:
Alzheimer’s disease
Aortic surgery
Benign brain tumour
Blindness
Cancer
Coma
Coronaryartery bypass surgery
Deafness
Heart attack
Heart valve replacement
Kidney failure
Loss of limbs
Loss of speech
Major organ transplant
Major organ failure on waiting list
Motor neuron disease
Multiple sclerosis
Occupational HIV infection
Paralysis
Parkinson’s disease
Severe burns
Stroke
Do You Need It?
Of course, no one plans to get sick, however, if something were to happen to your health unexpectedly, you want to make sure that you’re financially prepared to take care of the situation at hand.
While healthy lifestyle choices can be your best defence against some health risks, a critical illness such as cancer, stroke or heart disease can strike anyone at any time. Consider the following:
– One in three Canadians will develop a life-threatening cancer
– One in two heart attack victims are under 65 years old
– Each year, 50,000 Canadians suffer a stroke. Of all stroke victims, 75% will be left with a disability
(Source: http://www.rbcinsurance.com/healthinsurance/critical-illness-insurance.html)
There are many statistics around about different type of illnesses and the chances of getting them, but the bottom line is that you are far more likely to get a critical illness before age 65, than you are to die. Also, due to medical advances, people are living longer and longer, and are more likely to survive a critical illness than ever before. Therefore, the need to be aware of it and to be covered is very important and definitely must be addressed.
To determine if Critical Illness protection is needed, and how much is need, you can do some basic calculations. Basically, what you should do is to determine what your financial hardships would be if you were to become seriously ill. Many things need to be taken into consideration, such as:
– income replacement
– hiring a home-care nurse
– hiring a nanny
– business needs
– debt payments
– medical treatments
– travel etc…
How much do I need?
There are several different ways to calculate the potential amount needed for coverage, and most insurance companies offer some sort of ‘calculator’ online, but a good starting point for the overall need for an average person would be 2 times the net (take home) income. Several of the critical illnesses a person can get can take up to 2 years to fully recover – this doesn’t mean the person will be ‘cured’ within 2 years, but rather that they would generally be able live a fully functional life i.e. work, raise a family etc… However, for a more detailed and precise number, a calculator is a great tool to use.
Types of coverage
Most insurance companies will be able to offer Critical Illness insurance, either as a stand-alone policy, or as a rider (addition) to a regular Life Insurance Policy. Many group insurance policies from work will offer some sort of combo of life/disability/critical illness protection, but often the amount covered and conditions covered are limited.
Although different companies will offer different products, generally the types of coverage offered would be a 10-year term, 20-year term, to age 65, to age 75, and in some cases to age 100 protection. Often, the 10 year and 20 year term policies are renewable – however, just as term insurance on the Life Insurance side, the rates upon renewal can be substantially higher.
Making a Claim
Making a claim is not as difficult as some might think. What you need is a licensed medical physician (in Canada), who specializes in your illness, to diagnose you with that condition or an illness covered in your policy.
Once approved, the insurance company will pay out a lump-sum payment, usually 30 days after the claim has been put through. The great thing about having a lump-sum payment is that there is no restriction on how the funds can be used. You can go on a vacation, go to another country for treatment, pay off debt, etc…
Generally, once the policy has paid out, the policy is now considered to be ceased and is no longer active; however some companies do offer a ‘Second Event’ feature that allows there to be an additional payout if there is a second diagnosis of a different illness. A bonus is that even if you recover from the illness, you keep all the funds provided to you.
What if there is no claim made?
In some cases, someone will go their entire life (or most of it) without getting any critical illness (and therefore not making any claim). Depending on the insurance company, some will provide you with an option for getting ‘Return of Premium’, which means that if the policy expires and you have not made a claim, you will receive all your premiums paid into the policy back in full. Also, if a person were to die before making a claim, the premiums can also be returned back to a beneficiary designated in the policy. This is one thing that insurance companies use to pique the interest of clients, but can be seen as a great value added feature, and many clients do take advantage of it.
Critical Illness protection can be offered by any Life Insurance Agent/Representative or can be offered by most Life Insurance Companies directly. As mentioned before, it can be an addition to a regular Life Insurance policy, and if combined, will often be cheaper than getting a standalone policy.
The need to be protected in both Life and Death is something that should not be overlooked. The reality is, the likelihood of getting sick or injured before 65 is much higher than the potential of death before 65, so many will also argue that getting Living Benefits coverage is as important, or maybe even more important, than getting Life Insurance coverage. Having an Elite level Financial Advisor can help go through all the details, coverage types and also help you to determine what you actually need for your and your family’s protection. There is never a ‘one size fits all’ solution, and having a knowledgeable Advisor and team working with you can help you get the most value out of your Financial Plan.
Recent Comments