BY: ANDREW STEWART
The fact that critical illness (CI) insurance hasn’t caught on in Canada may be a reflection that it’s a flawed, poorly designed and overly expensive product. Here are some of my thoughts about the drawbacks of critical illness insurance.
It’s incomplete. Insurance is good if it protects you against all perils. When you buy home or car insurance, it’s comprehensive. You want to make sure you’re not just protecting these assets against very specific causes of damage. In the same way, critical illness coverage should be comprehensive. But it’s not.
Critical illness insurance is limiting. Clients may or may not be covered for benefits, depending on how their illness arose. Pre-existing conditions or a history of the specific condition in the insured’s family may further become a reason for exclusion of coverage.
How the product is sold to consumers is through fear. In part, because of the emotional fear response associated with the mere mention of conditions such as cancer and heart disease. Other fatal conditions seem to have a lesser impact, although their consequences are no less dramatic or life-threatening.
If you’re shopping around for critical illness insurance, here is some information that may be helpful. Definitions of different illnesses vary from company to company, making matters murky for advisors and clients to understand. Non-standardized definitions make product comparisons difficult and end up causing a battle between who has better definitions, rather than who offers the best services, claims experience and prices.
To make their products more attractive, many insurers offer the return-of-premium feature. Critical illness insurance actually offers two return-of premium features, one in the event of death and another at maturity which is usually after 15-20 years. They are riders you add to the contract, to have the premium returned (paid out to a beneficiary) in the event of death as a result of something other than critical illness, getting hit by a car, for instance is a cheap rider to add. Return of premium upon maturity is more expensive. This is a living benefit feature, whereas if you select to cancel your policy after it reaches maturity the premiums you paid will be returned to you.
The benefit of critical illness insurance to me is choice! We will never choose to get ill, it’s something that happens to us. Yes, our lifestyle has a lot to do with what our bodies go through such as smoking and drinking. Critical illness insurance is there to help to pay the costs associated when we are faced with life-altering illnesses. The ability to choose not to rush back to work cause the bills are piling up. The ability to choose where we get treatment and possibly get access to better medication. The ability to choose not to be a financial burden to our family and friends.
Medical science is constantly evolving, and as a result, people are getting diagnosed with illnesses sooner and surviving longer—the average age of a critical illness insurance claim is about 42 to 45. And that’s the age you need an influx of cash for various other needs.
So, what’s the alternative and how can we prepare ourselves if we don’t have or choose to purchase a critical illness policy. One way to protect against a critical illness is to set aside a reserve equal to three to six months of income saved or to consider a $50,000 critical illness insurance policy to get you through the period you’d be off work. Unfortunately, if we do nothing we might have no choice but to create a GoFundMe account. GoFundMe is a crowdfunding platform that allows people to raise money for events ranging from life events such as celebrations and graduations to challenging circumstances like accidents and illnesses. While it’s completely free to create a fundraising campaign, GoFundMe will deduct a 5% fee from each of your donations, and you’ll also be charged a 2.9% + $0.30 fee from WePay for each payment you request. Before this option may have been viewed as begging but our world is changing and these types of websites have changed how we look at personal situations financially.
