Get adequate life and disability coverage first
Critical illness insurance has become quite popular in the past few years. But do you really need it? I’m often asked this by younger professionals with high incomes and new families. What if something were to happen – an illness that suddenly prevents them from supporting their families? Wouldn’t critical illness insurance be a benefit? My answer is that it can be…sometimes. There are a few key points to consider before you sign on the dotted line.
It basically provides a cash payment should you become ill with a specified major disease, like cancer. The money may be used for any purpose, for example, to offset medical and drug costs, cover income shortfalls, and so on. But the premiums can be expensive, depending on the level of coverage you want. Covered illnesses and diseases are specifically spelled out in the policy, and not everything is covered at all times by every policy. In addition, there’s a waiting period before coverage starts after a claim is made.
But looking at critical illness coverage before you have adequate disability and life insurance coverage is getting things the wrong way around. Both of these are actually more important than critical illness coverage. That’s because if a critical illness is terminal, your life insurance coverage will pay out at death. Critical illness insurance may not, especially if death occurs within 30 days of diagnosis, as may happen with a heart attack or stroke. In addition, if your illness leaves you permanently disabled, the total of regular disability insurance payments is likely to exceed a lump-sum critical illness payment.
Still, critical illness insurance may be useful for short-term disability coverage, medical and drug costs not covered by provincial insurance plans, in-home nursing care, special equipment or devices, and so on. For younger families looking to set up an emergency medical fund, critical illness coverage of between $25,000 and $50,000 is typical. For higher net worth families, a more comprehensive formula should be used, including at least six months’ income, estimated medical expenses, living expenses, debt coverage, and so on. Coverage can range upwards of $100,000.
If you’re bound and determined to get critical illness coverage, don’t just sign up for the first policy that’s offered to you. Insurance companies are endlessly creative in providing different types of insurance with varying levels of coverage to meet different budget requirements. And the industry has been bundling critical illness insurance with other types of insurance. For example, Manulife Financial’s Synergy product bundles three separate insurance policies into one – disability, critical illness, and life insurance. Their target market is young to mid-market clients (between the ages of 18 and 50) with families, who do not already own all three types of insurance.
The money in this type of bundled policy is pooled and provides financial protection to help maintain your lifestyle if income is disrupted because of illness, injury, or death. You can choose from face amounts of $100,000 to $500,000 of insurance. And, of course, one of the big selling features is the lower premium compared with the combined premium of buying equivalent plans separately. This may be a solution if your cash flow is tight.
Get help with the fine print
As always, though, it’s important to read the fine print, because terms and benefits can differ widely. Your best bet is to contact a licensed insurance agent for more information and an independent assessment of your needs.
© 2014 by Robyn K. Thompson. All rights reserved. Reproduction without permission is prohibited.