An Intro to Critical Illness Insurance

Posted 06 Oct 2015 by Melissa Allan


Many people will be diagnosed with a critical illness (CI) at some point in their lives. How many people do you know who have been diagnosed with life-threatening cancer or suffered from a heart attack? I just made a donation last night for Run for the Cure and three weeks ago to Leukemia and Lymphoma Society – both to support friends who are participating in upcoming races for these causes that mean something to them because of a family member’s diagnosis.

As an insurance specialist, I get a sick feeling in my stomach when I hear someone has been diagnosed and I know that they don’t have critical illness insurance. I beat myself up thinking I should have done more to convince them to buy the coverage. Many people with whom I do discuss this product don’t take the coverage because it’s expensive. But in the end, can you afford not to have this coverage?

There are financial ramifications when you’re diagnosed with a critical illness. The cost for medical care can be expensive. You may have to take a leave of absence from work (without pay). You may have to dig into your retirement savings or stop contributing. You may want to seek treatment in another country. Critical illness insurance pays you a lump sum benefit upon diagnosis of an insured illness defined in your contract (if you survive the waiting period, which is typically 30 days). Most contracts insure you for up to 22 illnesses with “the big three” being life-threatening cancer, heart attack, and stroke.

Most carriers will allow you to add optional benefit riders to the coverage. The most popular in my recent experience is the return of premium option. Simply put, if you don’t make a CI claim you can get 100 per cent of the premiums paid refunded. This can be defined as a refund for “early surrender,” which is typically (in term life insurance policies) 15 years after issue or upon expiry of the contract. This optional rider is wonderful as it truly is forced savings. If you make a claim, you reap the benefit of the lump sum payout (the real purpose of the policy), and if you don’t make a claim you can get your money back (an interest-free loan to the insurance company).

I would strongly recommend implementing a critical illness insurance policy with your retirement plan. In general, I’d recommend a policy to insure one times your annual earnings. If being able to afford the premiums is a concern, one idea would be to reduce your systematic retirement contributions slightly to fund a critical illness policy with the return of premium option.

Keep in mind, underwriting is diligent as the underwriter has to factor in not only your personal health history but also that of your immediate family. Even if you want and can afford the coverage, not everyone qualifies.

If you would like to know how much one of these policies would cost you, let me know. If you love the product and the idea but the cost is a mitigating factor, we can work with you to build a plan that suits your needs so you have some protection.