Question. I saw an advertisement on television recently, regarding critical illness insurance. I’m not currently familiar with this type of insurance, so I checked my group plan at work to find out more, but critical illness insurance isn’t a part of my group benefits plan. I asked my HR department, and they’ve indicated that they have no intention to include this coverage in our group plan in the near future. How do I know if I need it or not, and is this something I should purchase on my own?
Answer. Critical Illness insurance, often referred to as CI, is one of three key types of insurance that fall into the category of protection known as living benefits insurance. Unlike life insurance, which pays a benefit upon death, living benefits insurance products pay benefits to individuals while they are still alive. The three main types of insurance products that fall under the umbrella of living benefits are disability insurance, long term care insurance, and critical illness insurance.
Although some group insurance benefit plans now include critical illness insurance coverage, it is not nearly as common as life, disability, and health coverage that is included in most plans.
Not too long ago, in the early 1980s, the concept of critical illness insurance was created by cardiac surgeon Dr. Marius Barnard. It’s interesting to note that Barnard’s brother, also a cardiac surgeon, performed the world’s first successful human heart transplant.
According to Barnard, he saw the need for the payment of an insurance benefit for an individual who had survived a major illness, and hence the concept of critical illness insurance was born. CI insurance was subsequently introduced into Canada about a decade later, in the early 1990s.
How Does it Work?
Critical illness insurance is often said to bridge the gap between life and disability insurance. Consider a situation where an individual suffers a severe illness, but is still able to work. In this case, the individual is still alive, so life insurance benefits would not be payable. And since the individual is still able to work, disability insurance benefits would also not be available.
Hence, CI insurance has been designed to address this gap. The payment of CI insurance benefits is in no way related to one’s ability to work – if you’re diagnosed with any of the conditions listed in the policy, you receive a lump sum benefit. Simple as that. And there are no restrictions whatsoever on how the money can be spent.
The conditions covered by a CI insurance policy can vary from one insurance provider to another, and typically include 25 – 30 pre-determined conditions. While there is some variance in terms of the coverage across different insurance companies, most policies cover a standard set of basic conditions, such as:
- Brain Tumour (Benign)
- Cancer (Life Threatening)
- Dementia (including Alzheimer’s Disease)
- Breast Cancer
- Prostate Cancer
- Heart Attack
- Kidney Failure
- Loss of Independent Existence
- Loss of Limbs
- Loss of Speech
- Major Organ Transplant
- Multiple Sclerosis
- Occupational HIV Infection
- Parkinson’s Disease
- Severe Burns
Features and Benefits
Similar to life insurance, you can generally select the amount of CI insurance benefit you desire. Typical coverage amounts range from $25,000 to $1,000,000, although some companies offer even higher benefit amounts. CI policies are typically offered as a permanent plan, a term plan, or as a rider to another type of insurance policy. Similar to life insurance, CI term plans have a fixed premium for a specified term, after which the policy either expires or can be renewed, often at much higher rates.
Critical Illness Insurance – Do You Need It?
Now that we’ve covered some of the basics, let’s return to the original question – do you need CI insurance? As with most other issues pertaining to personal finance, the answer is, “it depends.” So, how can you decide if it’s right for you?
Consider the case where you are diagnosed with a critical illness, and have adequate CI insurance coverage. You may need that money to make modifications to your house (especially in the case of blindness or loss of limbs), or perhaps to travel abroad to receive the best treatment available from a leading medical specialist. Of course, modifying your home to accommodate your illness, or travelling to another country to seek treatment from a top physician, can be very costly.
Granted, people with significant investment assets may choose to forego CI insurance, and instead self-insure against such risks. However, for others, being diagnosed with a critical illness could prove detrimental to overall wealth, and could significantly impair retirement, as well as other investments and savings.
How can you decide whether or not critical illness insurance is right for you? Deciding whether or not to purchase insurance, any insurance for that matter, is an important decision with many factors to consider.
If you want to speak with a professional advisor, or if you have any other questions about CI insurance, or any of our services at ModernAdvisor, just contact us.