Peter Boys, Boys Financial Services

Why You Need Critical Illness Coverage

Couple With Doctor

Though most Canadians understand the need for life insurance, they often don’t understand the need of critical illness coverage. The sad reality is that, one out of every three of us will suffer some type of critical illness prior to age 65, with cancer, heart attack and stroke the three biggest risks.

If you were to suffer a critical illness, which outcome would you rather have; the risk of losing your home, or tax-free cash to pay the mortgage for a year? A leading cause of home foreclosures is the inability to work due to a critical illness. It’s ironic that we could cover that risk for around 2% of our income! And if you never got sick, to have the option of having all your premiums returned tax-free.

For business owners with key employees, a shared cost strategy can work well. The business pays the base critical illness premium, while the employee pays for the return of premium rider. For businesses with partners who have shareholder’s loans, the critical illness payout can be used to pay some or all of the shareholder’s loan owed to the laid-up shareholder. If the policy was purchased to cover a key person, the payout can be used to hire a replacement for the laid-up key person. Some policies allow partial payouts for such things as a mild heart attack. Some can also be converted to cover long-term care expenses.

I have discussed before the risks of buying insurance coverage sold by banks, because their medical underwriting is done when you have a claim. When a licensed life advisor submits an application for you, the insurance company may require information about your medical history, prescriptions, lifestyle, height and weight, as well as blood and urine samples, depending on your age and the amount of insurance applied for.

An underwriter takes this information and determines if you’re insurable, assesses if health or lifestyle issues requires a higher premium, or if you qualify for a preferred class and lower premiums. If approved, the policy is issued and we deliver it to you. You sign a delivery receipt confirming that there’s been no change in your health from the time you applied. There’s a process involved, but one that ensures that the policy pays out when there’s a claim.

Compare this to lender coverage, where a loan representative asks you some vague health questions. You answer “no” and give the bank permission to take the monthly premium out of your bank account. They are thereby protecting themselves by paying off the amount you owe them. If there is a claim, they now spend the money to try and find some undisclosed medical condition or other reason not to pay.

Canada is the only country that still offers the return of premium option. However we could soon be facing some significant changes. There is growing pressure from insurers to drop the return of premium option, reduce the maximum coverage, and increase premiums to offset spiraling medical costs.

It’s human nature to mentally discount the likelihood of suffering a critical illness. Compared to what you’re paying every month to insure your vehicles, I think you will find that life or critical illness coverage is much better value!

If you don’t currently have coverage, don’t ignore what’s at risk for you and your family. Call a life licensed professional to get a quote.

Image licensed through Shutterstock

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