Critical Illness Insurance: Managing the Risk from Dread Diseases
An Introduction to Insurance and Risk Management – Part 4
We don’t die like we used to
Not that many years ago, Canadians routinely used to die from cancer, a heart attack or a stroke. Now, thanks to developments in medical treatment, there is an increasing likelihood that we survive these dread diseases.
Taking cancer as an example, the Government of Canada reports that cancer death rates are declining in Canada*:
- The mortality rate for all cancers combined continues to decline in Canada.
- Cancer death rates have been declining since 1988 among men, and since the mid-1990s among women.
- In particular, cancer mortality rates are decreasing more than 2% per year for lung, colorectal, prostate and oral cancers in males; breast and ovarian cancers in females; and Hodgkin disease and non-Hodgkin lymphoma, stomach cancer, and larynx cancer in males and females.
- Cancer mortality rates are notably increasing for liver cancer among both males and females, and uterine cancer in females.
What is Critical Illness Insurance All About?
If you purchase a critical illness insurance policy, what you get if you are diagnosed with any of the covered diseases and you survive at least 30 days after the diagnosis, is a lump sum benefit paid to you. The core diseases covered by critical illness insurance are cancer, heart attack and stroke, but some policies may cover up to 24 different conditions.
Differences from Life Insurance and Disability Insurance
If you buy a life insurance policy and yours is the life that is insured, the beneficiary is typically your spouse or children when you die. Critical illness insurance is paid to you directly and it is paid while you are still alive.
A disability insurance policy is tied to your ability to work. Critical illness insurance is not. While a critical illness may render you disabled and thus eligible for disability insurance payments, critical illness insurance is not concerned about the limitations put upon you by the disease, only that you have been diagnosed with a disease according to the criteria in the policy.
When is Critical Illness Insurance Useful?
- Having a lump sum provided to you upon diagnosis with a qualified illness can help you if you require your home or vehicle to be refitted to accommodate new needs.
- Funds from an insurance payout may allow you to afford to relocate in order to undergo extensive therapy that is not available in your own community.
- While critical illness insurance is not the same as disability insurance, it can serve as a functional equivalent if your or your spouse is a stay-at-home parent since the partner at home would not be eligible for disability coverage.
- An insurance payout can be used to fund time off work for you to care for the insured person in your family with the illness.
- Diagnosis with a critical illness may occur at a stage in the disease that, even if the prognosis is for an inevitable decline into disability and death, you can use some portion of the money to fund a vacation.
Is Critical Illness Insurance Worth it?
As one might expect, the premiums required for critical illness insurance vary depending on your age, your health, the amount of coverage you want, the number of illnesses covered by the policy, and the insurance company. As with most things, it is wise to think through your potential costs – several insurance companies provide online critical illness insurance calculators that will give you an idea of expenses to consider – and to seek quotes from a few insurance providers.
Critical illness may also be one of those risks that you would be better off retaining. If that is a choice you make, then building up an emergency fund to cover three to six months of living expenses becomes even more important.
In my next post, I will look into long-term care insurance.
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Disclaimer: This blog post is intended for general information and discussion purposes only. It should not be relied upon for investment, insurance, accounting or legal decisions.