Is Critical Illness Insurance Worth It?

Picture this: You're building the dream house of your life, brick by brick, with hard work and passion. As you focus on the design and decor, there's one crucial element you might overlook – a safety net for unexpected storms.

Critical illness insurance does just that: it provides you with a safety net in the event that you develop an illness and are unable to work.

When it comes to critical illness insurance, you may be wondering:

Is critical illness insurance worth it? How much does it cost? Should I buy it? What are its differences from disability insurance?

In this blog post, we will address some of the most frequently asked questions about critical illness insurance. After reading, you'll know if critical illness insurance is the right option for you and your loved ones.  

‍What is critical illness insurance?

Critical illness insurance coverage pays out a cash payment if the policyholder is diagnosed with a specific illness.

How does critical illness insurance work?

The cash payment can be used to pay for anything, but is commonly used for medical expenses.

Common disorders that critical illness insurance covers include:

• cancer,
• heart attacks, and
• stroke

Some plans also cover Alzheimer's disease, kidney failure, and major organ transplants.

Even though a critical illness insurance policy does not cover every possible health issue, it can be a useful method to protect your finances if you become ill. It provides a financial safety net, helping to cover expenses like medical treatments, recovery costs, and everyday bills when you're unable to work. While not all conditions are included, having this coverage can significantly reduce the financial burden of a serious health event, allowing you to focus on your recovery without worrying about the economic impact.

How much does critical illness insurance cost ?

Your age, current health status, and the amount of coverage you seek all play a role in determining the price of your critical illness insurance. Younger, healthier applicants typically pay lower premiums, as they are considered lower risk. Conversely, individuals with existing health issues, such as high blood pressure or a family history of chronic conditions, may face higher rates or exclusions for certain illnesses. The amount of coverage you choose also directly affects the cost—higher payout amounts or longer coverage periods will generally result in higher premiums. Additionally, the length of the waiting period before benefits are paid can influence the cost of the policy. It's important to assess both your health risks and your financial needs to select the best coverage at an affordable price.

However, the cost is often far less than that of traditional health insurance. Critical illness insurance may seem like a good deal because of the low monthly payment, but payouts are only made in the event of a diagnosis of a covered sickness. Consider the potential downsides thoroughly before committing to a policy.

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Who should purchase critical illness insurance? 

Some people feel that it is necessary to have this type of insurance, while others do not feel that it is worth the cost of critical illness insurance, particularly when considering the long-term premiums and potential exclusions.

This coverage could be especially helpful for people who are self-employed or who work in jobs that do not provide paid sick days. This is because if they became sick and couldn't work, they'd be completely out of luck financially because they won't have any coverage. 

Critical illness insurance is a good option for those with preexisting health conditions or a family history of fatal diseases. This is because of the increased likelihood of illness or the potential challenges in obtaining affordable regular health insurance, providing critical financial support during difficult times. It ensures policyholders are prepared for unexpected medical emergencies, offering peace of mind for both individuals and their families, who might otherwise face significant financial strain.

There are plans available that cover a variety of critical illnesses, have varying payout levels, and provide optional perks such as the possibility to switch your plan to another type of insurance.

Unlike disability insurance, critical illness insurance is intended to cover only emergency needs, while diability insurance covers are mostly permanent.

Disability insurance is another option. Diability insurance is usually less expensive than critical illness insurance, but it provides a steady monthly payout instead of a lump sum payment.

When is the best time to buy critical illness insurance? 

When deciding to purchase critical illness insurance, here are a few things to think about:‍

Age: critical illness insurance premiums increase as you get older, so it is generally best to purchase a policy when you are young and healthy.

Health history: If you already have health problems, you may not be able to get insurance or you may have to pay more. It is important to disclose your health history upfront so that you can find a policy that meets your critical illness coverage needs.

Family history: if your family has a history of serious illness, you may be at a higher risk of developing a condition yourself. 

How you live: If you have dangerous hobbies or a dangerous job, you may have to pay more for insurance or not be able to get it at all. 

How to make a claim about your critical illness coverage 

The specifics of making a claim will vary depending on your insurer. However, there are some general steps that you will need to follow. 

1. Notify Your Insurance Provider

• What to Do: Contact your insurance company as soon as you receive a diagnosis of a covered critical illness. Most insurers require notification within a specified timeframe, which can vary between companies.
• How to Prepare: Gather initial medical documentation, such as a diagnosis letter or a specialist's report, to substantiate your claim.

2. Submit Medical Documentation

• Details Needed: Provide detailed medical records that confirm your diagnosis and align with the policy's terms. This might include test results, doctor's notes, or hospital records.
• Tip: Ensure your medical documentation clearly states the diagnosis and confirms it meets the policy's criteria, including survival periods (e.g., typically 30 days after diagnosis).

3. Complete the Claim Form

• What It Entails: Fill out a claim form provided by your insurer, which will ask for personal details, policy information, and specifics about your condition.
• Supporting Documents: Attach all required supporting documents, such as:
  • Proof of identity.
  • Copies of any prior medical history or test results requested by the insurer.
  • Signed authorization allowing the insurer to access further medical records if needed.
• Pro Tip: Double-check the claim form to ensure accuracy and completeness, as errors can delay the process.

4. Review and Processing by the Insurer

• What Happens: Once your claim is submitted, the insurer reviews it to confirm that:
  • The illness is covered by the policy.
  • All documentation meets their requirements.
• Duration: This stage can take weeks, depending on the complexity of your case and the insurer’s claim handling process.

5. Receive the Lump-Sum Payment

• Payout: If approved, you will receive a one-time, tax-free lump sum payment (in most cases in Canada). This payment can be used for:
  • Medical treatments not covered by provincial healthcare.
  • Living expenses, such as mortgage payments or childcare.
  • Travel costs for treatments or recovery.

Tips for a Smooth Claim Process

• Understand Policy Terms: Review your policy thoroughly to know what conditions and documentation are required for a successful claim.
• Consult Your Insurer or Broker: If unsure, reach out for guidance on preparing and submitting your claim.
• Keep Copies: Maintain copies of all submitted documents for your records.
• Seek Help if Denied: If your claim is denied, ask for the specific reasons and work with your insurer to provide any missing information. You can also escalate to an ombudsman or legal advisor if necessary.

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Pros and cons of critical illness insurance

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The Pros of Critical Illness Insurance

1. Family Security

For families dependent on a primary income earner, critical illness insurance ensures financial stability during an unexpected medical crisis. The payout can cover significant expenses like mortgage payments, childcare, or education, alleviating stress during recovery. It can also provide funds for alternative treatments not covered by provincial healthcare or services like home care. This financial cushion allows families to focus on healing, without the added burden of worrying about finances. Critical illness insurance helps maintain the family's standard of living even in difficult times.

• Example: A single parent with dependents may find peace of mind knowing their children's needs will be met even if they face a prolonged recovery.

2. Tax-Free Lump Sum

Critical illness payouts are generally tax-free in Canada, allowing policyholders to utilize the full amount for any purpose, such as non-covered treatments, home modifications, or everyday expenses.

• Key Tip: Ensure the insurer confirms the payout is tax-free as per Canadian regulations to avoid unexpected tax implications, especially in the case of large lump-sum payouts. This can help you plan your finances accordingly.

3. Guaranteed Premiums for Long-Term Stability

Opting for guaranteed premiums provides cost predictability over the life of the policy. While renewable premiums may appear cheaper initially, they often increase significantly at renewal. A level premium policy (e.g., until age 65 or 75) prevents unexpected hikes.

• Example: A younger buyer locking in a long-term policy avoids the sharp cost increase that could make coverage unaffordable later.

4. Comprehensive Coverage

Many policies cover up to 26 illnesses, including cancer, heart attacks, and strokes. Coverage varies by insurer, so it’s important to review policies for conditions like early-stage cancer or degenerative diseases. Understanding your policy ensures comprehensive protection, and comparing plans helps avoid surprises.

• Comparison Tip: Create a side-by-side chart comparing illnesses covered by different Canadian insurers for a clearer understanding of policy scope.

5. Peace of Mind

The unpredictability of life-threatening illnesses can be overwhelming, bringing both emotional and financial stress. Knowing there’s financial coverage provides peace of mind, allowing policyholders and their families to prioritize health, recovery, and emotional well-being instead of being burdened by mounting economic concerns and uncertainties about the future.

• Example: Families with a history of critical illnesses gain reassurance, especially when navigating additional treatment costs not covered by provincial healthcare.

The Cons of Critical Illness Insurance

1. Additional Expenses

Critical illness insurance adds to the financial burden, especially for individuals struggling with basic living expenses. Balancing critical illness insurance with life insurance and disability insurance can strain budgets.

• Solution: Seek advice from an insurance broker to bundle plans or find affordable options suited to your income.

2. Exclusions of Certain Illnesses

Policies may exclude coverage for conditions like less severe prostate cancer, early-stage diseases, or rare illnesses that may not meet the insurer’s definition of a “critical illness.” Some insurers may also limit or exclude coverage for conditions that have a lower impact on survival rates. Carefully reviewing exclusions and understanding policy terms is crucial to avoid unpleasant surprises during the claims process. Always ask for clarification from your insurer about specific exclusions to ensure comprehensive protection. This helps ensure you’re fully covered for the conditions that matter most to your health and financial security.

• Tip: Look for policies offering partial payouts for less severe illnesses or advancements in critical illness definitions.

3. Impact of Existing Medical Conditions

Pre-existing conditions or family histories of high-risk illnesses can lead to higher premiums or exclusions for certain conditions under critical illness insurance policies. For instance, an applicant with a family history of heart disease might face additional underwriting scrutiny or exclusions, particularly if the insurer deems the risk factor significant. Some critical illness insurance policies may even deny coverage for specific conditions entirely or apply exclusions to diseases that are genetically linked. Additionally, applicants who have already been diagnosed with a condition may find that some insurers will not cover that specific illness. It’s essential to fully disclose any medical history during the application process and shop around to find the best critical illness insurance policy that accommodates these factors.

• Pro Tip: Disclose all medical history accurately during the application to avoid future claim denial.

4. Underwriting Challenges

The underwriting process is rigorous, often requiring detailed medical evaluations. This can lead to policy exclusions for conditions not deemed critical at the time of application, limiting coverage scope.

• Tip: Consider a simplified issue policy if medical underwriting is a concern, though this may result in higher premiums or limited coverage.

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Conclusion

Think of critical illness insurance like an umbrella you debate carrying on a cloudy day. It might feel unnecessary until a downpour begins, leaving you drenched and wishing you’d planned ahead. It’s about preparation and peace of mind—assessing your health risks, financial stability, and how much uncertainty you’re comfortable with. Making an informed decision means weighing these factors against the consequences of being unprepared when life takes an unexpected turn.

Remember, the sun might shine or the clouds might burst, but being prepared ensures you'll weather any storm.

Critical illness insurance can provide you and your family with peace of mind during challenging times. By understanding your health risks, researching policy options, and comparing insurers, you can find coverage tailored to your needs. This approach helps manage the financial impact of a critical illness, allowing you to focus on recovery and family well-being.

If you are looking for financial security in case of a serious illness, a Dundas Life advisor can help. We can assist you in finding the right insurance provider with the best product to match your needs.

‍Contact us today to learn more about our products and get a free quote.

FAQ

What is disability insurance?

Disability insurance is a policy that provides benefits to policyholders who are unable to work due to an injury or illness. The benefits of disability insurance can be used to cover living expenses and other bills.

What is supplemental health insurance?

Supplemental health insurance is a type of insurance that covers expenses not covered by your regular health insurance policy. It can help cover costs such as deductibles, copayments, and coinsurance. It can also cover certain types of services not covered by your regular health insurance, such as dental or vision care.