Unpacking Critical Illness Insurance and Why It Matters
No one wants to be told they have a terminal or critical illness. If you suffer from a heart attack, stroke, or cancer you could lead a normal life again. However, you need to plan for the financial cost of surviving a life-altering illness. In this article, we discuss key points about critical illness insurance and ask two Wiegers Financial & Benefits staff members with firsthand experience to explain the impact it has had on their lives.
Pat Kyle’s husband was diagnosed with a critical illness a few years ago after suffering a stroke at the age of 52.
Pat says: “You never think it’s going to happen to you. Everyone lives in a bubble. Even the healthiest people may have an illness at some point.
In the moment, you’re so removed from your day-to-day and fixated on your situation that you don’t even think about it. In my case, I came back to work and it wasn’t even on my mind to apply. I was so concerned about my husband’s health. It wasn’t my top priority to fill in the application to submit the claim, but I knew it was there.
As the first employee at Wiegers to go through the critical illness insurance process, it was emotional and gratifying to know that I have that piece of the program to support me. It was very helpful to be able to put a claim in and ease the financial burden. It took away stress. Just the fact that we had it made all the difference in the world. That lump sum payment is a beautiful thing.
I’m now an advocate of both critical illness and life insurance. To me, they’re more important than purchasing an RRSP.
My husband had a stroke, then a heart attack, and it builds. These things all work together. Strokes can happen at any time. It doesn’t matter what age.
There are so many fundraisers or steak nights for people who are sick. You may know someone who has pulled money out of RRSPs to help their child have a chance to survive. Critical illness insurance protects the wealth that you’ve created and that others around you have created, too. It supports the family, not just the person affected by the illness.”
Kim Chicoine’s husband was involved in a serious accident at a young age that left a lot of uncertainty about whether he would survive.
Kim says: “Sitting in the hospital beside my husband, I didn’t have to worry about the finances if things went the other way. Knowing that there wasn’t going to be a change in our finances because we had that critical illness piece in our puzzle was so huge.
There was the potential that if his condition didn’t improve, we could have a critical illness payout. We ended up not getting the payout because he got better.
It’s great when it pays out, but it’s also great when it doesn’t. The money stress is not there. You know your finances aren’t going to change and you’re covered.”
What is critical illness insurance?
Critical illness insurance is meant to relieve the financial burden of recovery, so you can focus on the task at hand. It can be purchased for children as young as 60 days up to those at or nearing retirement.
It’s one of the newest products on the personal insurance market, having been available in Canada for approximately 20 years and internationally for nearly 40 years.
Critical illness insurance is a “wealth-protecting product”, says Pat Kyle. It keeps your finances at status quo – maintaining your debt, bills, mortgage, etc. – while you focus on getting better.
Why did the need for critical illness insurance arise?
A South African cardiac surgeon, Dr. Marius Barnard, pioneered critical illness insurance after he noticed his surviving patients were struggling financially. While it was excellent that his patients were living after experiencing a life-threatening illness like heart disease, Dr. Barnard observed they experienced a significant drop in their standard of living. The patients who had overcome surgery had emerged to a world where their quality of life suffered due to the costs associated with recovery.
Which conditions are classified as a critical illness?
Each insurance carrier’s definition of critical illness differs slightly. In general, there are 26 covered conditions with the top three being stroke, heart attack, and cancer.
What’s the benefit of using critical illness insurance?
The payout is designed to help support yourself and your family during extremely difficult personal health challenges. You can get policies starting as low as 25 thousand dollars in a tax-free cheque that you don’t need to declare on your tax return.
The value of critical illness insurance is totally dependent on your personal situation, for instance:
- a stay-at-home parent could provide for their family with their partner’s critical illness payout;
- a self-employed individual would need critical illness insurance to cover them in the absence of workplace benefits such as long- and short-term disability;
- or a recent grad would be able to maintain their student debt payments, etc. while going through treatments.
It’s important that you consider both life insurance and critical illness in tandem. Each situation will vary in priority as to at when they’re paid out. There is no one-solution-fits-all insurance product.
When is the best time to buy critical illness insurance?
The ideal time to buy critical illness insurance is when you’re healthy. If you’re not in good health, it’s a more difficult application process.
Kim Chicoine’s husband is still young, but his health has changed. If the Chicoine’s didn’t have critical illness insurance prior to the accident, they would likely be declined. Because they had it, they will continue to have it in the future.
Family history also comes into play during the underwriting process of critical illness. Your parents’ diagnoses can affect your application, so it’s best to apply while they’re healthy.
What happens to your life insurance after using critical illness insurance?
Nothing happens to your personal life insurance after you use critical illness insurance. It depends on your personal life insurance that you’ve been medically underwritten for with an insurance carrier. If you’ve continued to pay the premiums, your life insurance is still enforced.
It is difficult to get life insurance after making a critical insurance claim, so it’s better to have both products beforehand. You’ll want your advisor to package life insurance with critical insurance when you’re healthy.
How long, on average, does it take to get paid after a diagnosis?
There is a clause that says you need to pass a survival period of 30 days. After that, payment can take anywhere from a few weeks to a month. After the survival period, your doctor will need to give evidence to support the need. The decision to payout is dependent on the attending physician’s statement and all other sources.
How can the funds be used once they’ve been distributed?
If you pass the 30-day survival period, there are no restrictions on how you use the money once it’s been paid out. You decide how to use it. For example, you could use it to cover experimental medical treatment to see specialists that may not be covered by the Canadian health care system.
What will purchasing a premium do?
You can upgrade a base policy with a simple lump sum payout by adding riders. When you add additional riders it adds additional costs, but it can help in certain situations to have the return of premiums.
Here are a few riders to consider:
- Return of premium on death rider: the lump sum won’t get paid out, but your beneficiary will be paid out what you have paid into the policy.
- Disability waiver premium: if you become disabled, the insurance company waives the premiums.
- Rider name? If you have a policy for 15 years, you can give back the policy and get back everything you put into it. Once the policy is finished you get all your premiums back.
- Second event rider: pays out if the second condition is different than the first.
Prioritize your future self
Pat Kyle says: “Critical illness insurance manages the risk of what could happen in your early years, so you don’t have to take money out of savings. My financial priorities are: 1. life insurance, 2. critical illness insurance, 3. slush fund, 4. RRSP. Yes, saving is important. But if something comes up your savings aren’t going to last.
In my opinion, it’s not about “should I get critical illness insurance?” it’s “why shouldn’t I have critical illness insurance?” Protect your future self.”
Kim Chicoine says: “Peace of mind is important. In Pat’s situation it paid out, in mine it didn’t. But I wouldn’t have wanted to be in the hospital without it. I wouldn’t have been able to focus on my husband; I would have been stressed out about our finances.”
Your ability to earn an income is worth more than your house and vehicle combined. Everyone gets coverage for their material possessions and it’s important to insure yourself, too. The best time to start the process is when you’re healthy and you don’t think you’ll ever need it. Speak to a financial advisor at Wiegers Financial & Benefits about finding an affordable critical illness policy.