Many Canadians are opting for critical injury insurance to bridge gaps in their health insurance coverage. Is it worth the cost?
Critical illness insurance can work well, but make sure you understand the policy terms.
Many Canadians are opting for critical injury insurance to bridge gaps in their health insurance coverage.
They are worried that some expensive drugs aren’t covered by medical plans and that with the insurance they will be also able to pay for additional expenses such as rehabilitation costs or a spouse having to leave work to provide care.
Critical illness insurance gives a lump sum for a diagnosis of the critical illnesses listed in the contract, things like cancer, coronary artery bypass surgery, heart attack and stroke. Depending on the policy selected, up to two dozen other conditions may also be covered. The policy ends when the benefit is paid.
But if you buy the insurance, you really have to understand how it works or you could be in for a nasty shock when a claim is submitted says Glenn Cooke, a life insurance broker who runs Life Insurance Canada.com. The site has resources that help compare premiums, benefits and contractual clauses.
Here are three of the common pitfalls of critical illness insurance Cooke sees.
Pitfall #1: Critical illness insurance buys peace of mind
It’s nice to think that you’ll get a payment to cover unexpected bills if you get sick. But you can end up paying a lot in premiums just in case you develop a limited number of conditions listed on the policy.
You may encounter the same expenses for accidents or illnesses not covered by your critical illness policy, say if you fall and break your hip or suffer a debilitating depression. That’s why Cooke says you should have adequate life and disability insurance, plus an emergency fund before you buy critical illness coverage.
Pitfall #2: You will be paid a lump sum if you have a listed condition
An illness you think is covered may not meet the policy definition.
For example, the Heart and Stroke Foundation defines a heart attack as occurring when the blood supply to the heart is slowed or stopped because of a blockage.
But Cooke notes that a typical definition in policies offered by most major insurers is quite different. They require sophisticated tests that show recent biochemical changes confirming the damage is not due to a previous undiagnosed heart attack. If for some reason the tests are never performed, the insurance company could refuse the claim.
Cancer coverage can also be problematic. Claims for cancers discovered within 90 days of coverage are generally barred. Cancers which are sometimes non-life threatening such as skin cancer, prostate cancer and ductal breast cancer (70-80 per cent of all breast cancers diagnosed) may not be fully covered.
Pitfall #3: The premiums are reimbursed if you don’t make a claim
A return of premium rider is a costly add-on that could double your monthly premiums. And getting your money back is not a slam dunk.
For example, suppose a 40 year-old man buys a $100,000 critical illness policy with a return of premium rider. He will have to keep paying premiums that increase every 10 years until age 75 without a claim in order to get back the full amount of premiums paid.
In a typical policy, annual premiums increase a lot with each decade. They go from a low of about $600 per year between 40 and 49 to over $12,000 per year between ages 70-75.
Cooke says this steep increase in premiums is why some policy holders may not stay the course and then are surprised to learn that they are ineligible for full premium reimbursement.
“Critical illness insurance is a great product but you have to understand the risks you are insuring and the exclusions,” he says.