Critical Illness Insurance

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Managing risk is something we do in many aspects of our lives. When I give seminars on financial planning, I like to ask the audience what they think their biggest asset is. Most will answer, their home, especially in the Lower Mainland.

Your biggest asset is you. In fact it is your ability to earn income over time. Take that out of the equation, and your financial plan could be seriously derailed. More importantly, more risk would be added to your situation, inevitably leading to stress and uncertainty.

Now we all insure our homes- this is a no brainer. And we all insure our cars- it’s the law. But do we all insure ourselves? Think about this- your largest asset is yourself and your ability to earn income, so why not protect it?

Traditionally in the insurance realm, life and disability insurance have provided protection for people when they die and when they’re alive. But Canadians are now living longer, (82 years life expectancy in Canada) and the statistics say it all- 1 in 2.2 men and 1 in 2.4 women living in Canada will develop cancer during their lifetime. Enter critical illness insurance.

Critical illness insurance was invented by a doctor from South Africa, Dr. Marius Barnard. Barnard was motivated by the financial hardship he saw his patients suffer after he had treated their critical illnesses. This conviction was so strong that he convinced South African insurance companies to introduce a new type of insurance. Barnard argued that, as a medical doctor, he can repair someone physically, but only insurers can repair a patient’s finances. The first critical illness insurance policy was launched on August 6, 1983, and history was made.

So, who is critical illness insurance for, what does it provide as a benefit, and how does it work? Because it is relatively new to the financial planning industry, in my experience, it is not well known among most people and may be poorly understood among those that have heard about it.

Critical illness insurance is for anyone seeking financial protection to help cover the costs associated with recovering from a life-altering illness. This includes protecting yourself and the people around you that you care about the most.

It essentially works like this: there is a list of diseases critical illness insurance covers (the most prevalent are cancer and heart disease). If you meet the survival period for a covered illness (30-180 days depending on the illness), the coverage will pay you a tax free lump sum of cash to use however you need while recovering. This gives people much needed flexibility as the money, which is paid in a lump sum, can be used for any purpose, providing instant liquidity at a potentially difficult time.

There are also different types of critical illness coverage – term and permanent. Term lasts for a specific amount of time and then the coverage expires, while permanent, as the name suggests, lasts forever. There is also a unique option that people can elect to add to their coverage - return of premium. Imagine paying into an insurance policy where if you never use the benefits or make a claim, you get your payments back. Sounds too good to be true, right? Well, critical illness insurance has that option. Usually after a specific amount of time depending on how your policy is structured, if you do not claim on the policy, you can get all the money back that you paid in. The coverage ends if you choose this option, but it gives you an extra layer of security.

Some insurance carriers also have a value-added service built into critical illness insurance policies called “Best Doctors.” This gives you access to a network of 53,000 peer-nominated physicians who can provide you with an expert medical opinion about the right diagnosis and treatment.

I have had personal experience with critical illnesses amongst my immediate family and friends, and I would not wish it upon anyone. Specifically, one of my clients a few years ago found out he had cancer.

A few years before his diagnosis, we did some financial planning work together and we decided that critical illness insurance was going to be part of his financial plan. I was upset when hearing the news, but knew he had protection in place. When we sat down for lunch to chat, he didn’t even think about making a claim, as his mind was on recovery and taking care of his family. I brought up the fact that he had critical illness insurance in place, and we were going to make a claim. After putting the claim through, it was accepted, and he received a lump sum tax-free payment. This provided much needed flexibility for his family during a difficult time. ■