We are living longer — in fact, on average 10 years longer than just 50 years ago according to United Nations estimates. Our average life expectancy is now about 82 years and many of us have adjusted our retirement planning and expectations to reflect the possibility that we may even live for 100 years! As medical science evolves, people are being diagnosed with illnesses much earlier and successful treatment rates are increasing. As a result, as part of the overall financial planning process, critical illness (CI) insurance has become an important consideration.
CI insurance is a relatively new type of insurance that has been around for more than 30 years. It may be helpful in relieving the financial strain that may result from a serious illness especially in cases where existing public or private health insurance does not provide adequate coverage.
What is CI Insurance?
CI insurance is a form of health insurance that provides a tax-free lump-sum payment if the policy holder contracts certain serious diseases. CI insurance is different from disability insurance in that a lump sum payment will generally be provided almost immediately if the insured individual survives a prescribed waiting period, most commonly 30 days. Disability insurance often doesn’t get paid out for several months or longer because of the claim validation process. As well, disability insurance generally is only paid if the individual can no longer work in his/her usual profession, which is not a requirement for CI insurance payments. CI insurance can provide assistance to individuals and their families by helping them to remain financially stable during what will likely be one of life’s more difficult times.
Here are some things you should know if you are considering CI insurance:
The cost of a CI insurance policy has risen quite dramatically over recent years. As such, when determining the need for CI insurance, consider the benefits that may already be available through other insurance policies such as life insurance or employer health insurance, as there may be adequate coverage available in the event of a critical illness. If CI insurance is a consideration, locking in a contract in the earlier years may be beneficial since premiums may increase dramatically for policy holders in their late 50s.
CI insurance premiums are generally higher than the premiums for life or health insurance due to the high probability that an individual will develop a critical illness. But, many insurance companies offer an optional rider for an additional fee, called a “return of premium”, that will return paid premiums when the policy expires and if a claim has not been made. Often, this occurs at the age of 75 years, but some riders also allow for a partial return of premiums at an earlier age. In some cases, the premium may also be returned if the policy holder dies from a cause other than a critical illness.
As with the purchase of any insurance product, buyers should carefully review and understand the terms of the policy. CI insurance has generally had a higher denied claims rate among insurance products. Benefit claims may be denied or reduced depending on findings at the time of the claim. Therefore, it is important for the applicant to provide complete disclosure at the time of application to reduce the likelihood of future claim issues. In many cases, family history will play an important part in determining whether or not a person will be covered for a particular illness.
Purchasers should also be aware that policy definitions may vary greatly among insurance providers.
We’re Here to Help
Given our knowledge of your financial situation, we may be able to assist in evaluating your particular situation to determine if CI insurance may be beneficial in buying peace of mind for your future. Please let us know if we can help.