Critical Illness Insurance – Factors to Consider Before Applying?
Recent studies show that an average 25-year-old male non-smoker has a 24 percent chance of having a critical illness (cancer, heart attack or stroke) prior to turning age 65. In other words an average 25 year old male is 3 times more likely to suffer from a critical illness than pre-maturely dying before the age of 65. Thankfully due to advancements in medical technology, any individual suffering from a critical illness has a much greater chance at recovering than was the case in generations past.
A critical illness insurance policy typically covers up to 25 different illnesses and pays out a lump sum tax free benefit if the insured is diagnosed with a critical illness and survives the 30 day waiting period. When applying for critical illness insurance there are factors to consider, as discussed below:
1. You might be too late to apply for critical illness insurance, if you have already been diagnosed
Several times over the years I have been asked about critical illness insurance after a diagnosis. Unfortunately a life insurance company is unlikely to pay out a claim retroactively however this does not necessarily preclude you from receiving critical illness insurance. It is likely in this scenario the life insurance company would issue a policy if approved with a exclusion, ie the policy would not cover the specific critical illness
2. Decide between a basic or comprehensive policy
Statistics show that 91% of critical illness claims are one of a heart attack, stroke or cancer. Several life insurance companies offer both a “basic” and comprehensive critical illness plan. The basic plan typically includes the 3 major illnesses and could save you a few extra dollars of premium.
3. Permanent or temporarily coverage?
Similar to life insurance coverage, critical illness insurance has terms of 10, 20 years along with to age 65, 75 and 100. The general rule of thumb is the shorter the term (ie period where the cost is fixed) the more cost effective the coverage. The advice here is to ensure you have the right amount of coverage and extend for a term you are most comfortable with.
4. Return of premium on expiry (or maturity)?
Critical illness insurance in Canada has a very unique feature from multiple insurance carriers which allows a return of premium or ROP. ROP allows the owner of the policy to cancel after a specific number of years and receive back 100% of the premiums paid. This can be very enticing as it guarantees coverage for a number of years and allows all money returned if the policy is deemed no longer required or a critical illness claim has been paid.
5. If wanting return of premium on expiry, after how many years?
ROP allows 100% of premium refunded typically after 15 or 20 years or to age 65 or 75. The longer the waiting period is, the more cost effective the ROP enhancement. For example a 35 year old may decide he or she wants coverage to 65 and opts for a return of premium feature after age 65 as opposed to a 55 year old that may opt for return of premium after only 15 years.
6. Return of premium on death
As an added layer of cost protection, insurers will allow the owner to add ROP on death which returns all premium paid in case of premature death.
7. Disability waiver of premium
Also as an added layer of cost certainty, insurers will allow owner to add a disability benefit which effectively means if the owner suffers from a disability and satisfies a 3-6 month waiting period, the insurance company will cover future critical illness insurance premiums.
8. Family history can matter
If you have a family history of a particular critical illness, the insurance company may deem you at a great risk. Applying from carriers who are “more underwriting friendly” to the specific condition or have a simplified underwriting process may help you successfully place the policy you desire.
Working with a critical illness insurance specialist can help you find the best solution to fit your particular situation.
We would be happy to provide further analysis for your family’s specific circumstances. Contact Protect Your Wealth today to learn more! We are not only critical illness agents, we are critical illness brokers who are able to shop the market and find the best solution for you.