Is Critical Illness Protection Just Hype?

You may have heard advertisements for critical illness protection. You may have decided it's a lot of hype. I had too. Perhaps it's the way that it's advertised, with a lot of focus on the terrible illnesses that people can get.

Then I read an article in my weekend newspaper that gave the best reason to get this protection that I've ever seen.

Critical illness protection, unlike other insurance that deals with life or death issues, benefits the living. Like disability insurance, it kicks in when you can't work, but unlike disability insurance, you don't need to have worked in order to qualify. And that, dear readers, could be the main argument for this insurance.

You can get a variety of types of disability insurance on a working person. Generally, this coverage will provide some level of income protection (which may be insufficient to cover all the costs associated with a serious illness). However, you can't get disability insurance on someone who hasn't been doing "paid" work. So, what can you do to protect a stay-at-home spouse? Obviously, if a stay-at-home spouse suddenly becomes seriously ill, all the work that the spouse does suddenly becomes "paid" work. You may have to pay for services of all sorts to run and maintain a home. Perhaps you now need a nanny, who can run your whole home, as well as provide childcare -- but that's a whole new salary that your family has to pay. On top of that, you may have other additional costs associated with a serious illness, and the working spouse may be losing time from work (and earnings) while the other is sick.

Critical illness insurance will provide a lump sum benefit (and coverage) whether you've been in the paid workforce or not.

Another interesting argument is that with today's medical advances, the issue is not that you get sick: the issue is that you live, but remain dependent on others. Critical illness insurance will pay out a lump sum amount that can help with all aspects of that ongoing dependency, including renovations to your home for a new wheelchair ramp.

Disability insurance, while a vital piece of your financial plan, can leave you without the resources to best take care of yourself. Replacing income is very expensive; for instance, if you want to replace $2500 in monthly income, you are likely looking at about $2500 in premiums over the course of a year. There is a limit on how much disability insurance you can buy. In general, you can only replace up to 70% of your gross income.  In addition, there can be ongoing challenges with your insurer regarding your disability benefits. Unfortunately, you go from being a good client, to being an adversary looking for money out of the insurer's pocket. Even those with a good policy from a good insurer can face delays in payment, legal disputes and other ongoing hassles. With critical illness insurance, you go through the claims process once, and your lump sum benefit is paid. There's no ongoing claims review or medical proof required, after that one claim is submitted and all relevent documentation provided.

Here's an interesting statistic for you: you have a greater chance of getting cancer, heart attack or stroke -- which are the big ticket illnesses covered by critical illness protection -- than you are likely to be disabled for greater than 6 months. This would seem another reason to look at critical illness insurance rather than disability insurance. However, the premiums on critical illness insurance are going up and affordability is a real issue.

Be warned that you may not be covered for pre-existing conditions or for conditions that are prevalent in your family. You'll also have to be ready for a very lengthy underwriting process, that includes a lot of questions. But you'll have some peace of mind if you end up in hospital with a serious illness and you are covered.

Monique L. Attinger 

Posted by on May 14,2007 at 7:30 PM

Thanks for responding to this post, Phil! I'll be interested to speak with you.

Posted by Phil Halpern on May 14,2007 at 2:37 PM

Hello Monique

Thanks for your blog post on Critical Illness Insurance - we are the 'culprits' responsible for the radio ads you mentioned.

Please reply with your contact info - I have some ideas for your consideration

Looking forward to hearing from you

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