Critical Illness Insurance and Why You Need It

Brian P. has been a great reader and commenter of this blog and he was inspired to write a guest blog post about critical illness insurance and the necessity of it (versus just regular insurance paid out in the event of death).  I know that most people end up physically disabled and unable to work instead of dying “straight up” so to speak, so should someone get insurance for that as well?  Well, Brian hopes to answer the question.  I agree that critical illness insurance is important to consider, because you never know what might happen to you.  I heard as statistic once that as working adults, we have 1 in 3 chance of being disabled (for some reason or other, e.g. needing surgery, having cancer and needing chemotherapy, having a stroke) long term and being unable to work.  So here are Brian's thoughts on this.  Enjoy! (Well, not sure how much you will enjoy it since it IS a depressing subject… but important to discuss nonetheless!)

The History

Critical Illness Insurance was developed by Dr. Marius Barnard (the brother of Christian Barnard, the doctor who performed the first successful open heart transplant surgery) in South Africa in 1983. Dr. Barnard saw an need for insurance that paid a “living benefit” to those who survived a major illness to offset lost income and pay additional expenses.

Why would some consider Critical illness insurance?

When one has cash one has options.

Crisis happens anytime and usually the worst time. Your health is your most important asset!

It is like having a moat around your savings like RRSPs, TFSAs, and not using a line of credit.

Company disability plans  pays maybe 60% of someone’s income, the question is can one live with almost half their pay cheque?

What is critical illness insurance? Conditions currently covered in Canada include:

  • heart attack, stroke, cancer coronary artery bypass surgery, multiple sclerosis, kidney failure, paralysis, blindness, deafness, rheumatoid arthritis, benign brain tumour, loss of limbs, major organ transplant (or on waiting list), Alzheimer’s disease, Parkinson’s disease, motor neuron disease (a.k.a. ALS or Lou Gehrig’s disease), coma, loss of speech, severe burns, occupational HIV infection, late onset insulin dependent diabetes, aortic surgery, heart valve replacement, loss of independence

One  could  get a lump sum up  $2,000,000   paid thirty days after diagnoisis.   This money has no effect on any disability payments…meaning one’s lifestyle financially would not have to change for quite a period of time.

If one had a heart attack or cancer as an example in as little as six months they may able to go back to work..which means no disability payments.  With money one could still put kids through school, pay off a mortgage take more time off work and spend it with their family and do what he/she wants to do.  Also he/she as access to some of the best doctors (known as best doctors that may work privately, so to speak)  for a much needed second opinion.

Many people have insurance on their cars, homes and would want full replacement value if destroyed.  Since a person's human life value is so expensive people somehow feel one can be self-insured… which for only a few people this is possible given a long time and a lot of money.  Critical illness insurance helps fill the gap since the reality is many people do not die right away… they get sick and survive many serious illnesses like cancer or stroke as an example.

Why won’t some people buy this type of insurance?

Here are some common objections:

  • It will not happen to me.  It’s like saying I have never being in a car accident because I am a careful driver.
  • My family history is excellent no one has ever had cancer, heart attack, stroke or any other illness they just passed away in their sleep of old age!
  • It costs too much!  (most common).  I’d rather save the money, if I need it I can get it.
  • (similar) How about just being self-insured, rather than paying high premiums?

Ok, here is some math why (saving is not possible for many people) this may not work for the average person.

Especially in this market.  In this example 10% rate of return for 20 years is needed

Example 40 year old female wants to compare been self-insured vs having  critical illness insurance coverage for $100,000 which would be paid out after thirty days of diagnosis.

Premiums would be $128 per month she has the option to get all her money back after 20 years coverage is up to age 75.  Or if she died within the 30 days the premiums would be refunded to here beneficiaries

If she was to invest the $128 per month for twenty years  and could get 10% return guaranteed she would have $97,199 which she would pay taxes on.  240 months X 128= $30,720

$97,199- $30,720 = $66,479 X 50% (capital gains) = $33,239 X .45% (personal tax bracket)  = $14,957 taxes owed to CRA

Her net cash would be $82,224  a far cry from $100,000 even with a 10% return every year on her money after 20 years!

Remember, having money is equivalent to having more choices.  Choices such as taking time off work if needed and spending it on yourself or with family so that you can get better and recover.  Serious illness can last for months or years and financial backing is critical to protect yourself, your family, and your money.

Here are a few more points he wanted to add that paint the picture further:

Trends for health care…Ontario.

  • The Ontario Auditor General has revealed that government funding projections for the next two years mean $1 billion would have to be carved out of hospital spending and $2.05 billion out of OHIP. At the same time, home care funding increases would be less than one-third of the rate of the last eight years and long-term care homes' funding would be half the rate of the last eight years.
  • More than 30,000 Ontarians are waiting for a hospital bed, long-term care placement or home care:
    • 24,000 Ontarians are on wait lists for long-term care placement.
    • 10,000 Ontarians are on wait lists for home care.
    • At any given time, 592 Ontarians are waiting in emergency departments for hospital beds.
    • 2,271 Alternate Level of Care (ALC) patients are waiting in hospital for a long-term care bed, while 773 ALC patients are waiting in hospital for another type of hospital bed and 135 ALC patients are waiting in hospital for home care.

Another link people may want to check out     http://www.hrsdc.gc.ca/eng/disability_issues/reports/fdr/2010/page08.shtml:

Some highlights:
The Alzheimer Society estimates that approximately 500 000 Canadians are currently living with Alzheimer’s disease, and it is expected that prevalence will increase by up to 50% within 5 years.

24.3% of Canadian adults with disabilities who visited at least one health professional in 2005–2006 had out-of-pocket expenses for those visits.

 

In a nutshell Critical illness & disability (can do a seperate blog) helps fill the space for our failing safety net.  As governments look to cut costs.

more..

http://www.bclocalnews.com/news/136017258.html

Nutshell…here for you in BC

By Tom Fletcher – BC Local News
Published: December 21, 2011 11:00 AM
Updated: December 21, 2011 2:34 PM

VICTORIA – The federal government's new formula for health care transfers is expected to cost B.C. $256 million a year starting in 2014.

The change is not related to Ottawa's move to tie health funding to economic growth, which doesn't take effect until 2018. Before that happens, the federal transfer is moving to a per-capita formula and ending dedicated funding aimed at certain surgical wait times and other priorities identified in past federal-provincial agreements

Readers, what do you think about the graphic above?  Shocking isn't it?  What are your thoughts on critical illness insurance?

46 Comments

  1. Joe on February 29, 2012 at 5:02 pm

    I work at 700 University (the building that partially collapsed today — www.citytv.com/toron…-collapses). Really glad that I’ve got LTIP.



  2. Invest It Wisely on March 1, 2012 at 8:32 am

    Interesting; I need to look into the coverage now that I’m on my girlfriend’s insurance plan! That is a neat graphic; less people died from accidents than I would have imagined. It will be amazing when new medicines and techiques can eventually bring the death rate from disease and cancer down to zero.



  3. popthoughts on March 1, 2012 at 8:56 am

    Good post on an important topic. It can be hard to think of addressing these morbid scenarios (like writing a will), especially at a young age, but if you put it off too long and find out you have a condition, it will be too late and you will either not be able to get insurance or pay an arm and a leg for it. One thing to consider is to get a rider where you can get return on your principal at 65 or 75 if you have not made a claim.



  4. Brian Poncelet,CFP on March 1, 2012 at 11:34 am

    Since I am an old guy over 45! I will share my experience.

    I bought my first policy when I was 35 (permanent) cost me $100/month for $100,000 which includes return of premium at death. This means if a bus hits me all my premiums I paid go to my wife. If I get a heart attack…live for 30 days I get $100,000.

    Later I believe I when I was 40, I felt I needed another $150,000 coverage (of course this cost more and I was rated…which means I pay more!!) I should have done it when I was 35 !!

    Anyone who is self-employed or may leave their government job or could be let go, should consider getting this…as our health care crumbles it is nice to have cash when you need it…which of course later in life.

    Here is an other reason. Best Doctors www.bestdoctorscanada.com/How-it-works.aspx This is included in one’s own policy.

    From their website:
    “Best Doctors has reviewed tens of thousands of cases and has changed a diagnosis 22% of the time, modified 61% of treatment plans and reduced invasive procedures 67% of the time.”

    You may also call Best Doctors if you need help navigating the healthcare system or have questions about your healthcare. Our Best Doctors 360



  5. Brian Poncelet,CFP on March 1, 2012 at 11:52 am

    One question is what if I get Cancer and live for the next 20 years?
    Like stage A prostate cancer?

    The lump sum is paid no matter how long you live afterwards.

    Brian



  6. Juan on March 1, 2012 at 2:04 pm

    Life certainly is expensive. Imo with the uncertain stock market returns it may be a good idea to by insurance like this. Savings accounts provide such a low rate of return I would feel much safer buying insurance than praying that I get 7% returns over the next couple decades.



  7. The Dividend Ninja on March 1, 2012 at 3:39 pm

    Y&T This post rocks! I like the colourful “Deadly results” pic. 😉

    Cheers



  8. The Dividend Ninja on March 1, 2012 at 3:41 pm

    Nice job on this post Brian!



  9. Brian Poncelet, CFP on March 1, 2012 at 7:12 pm

    Thanks Ninja!

    I hope I am not putting Young’s readers to sleep! I should have added Investors Group and mutual funds to get the comments rolling! I may to get a Heart Defibrillator too!



  10. young on March 2, 2012 at 12:37 am

    This pic was Brian’s idea. I love the picture too- kind of scary. Especially when cancer has recently overtaken heart disease as the number one killer. Cancer’s disability before death is much longer than heart disease, unfortunately.



  11. young on March 2, 2012 at 12:39 am

    Not to be a pessimist, but I can see us dying or living chronically with disability more often than our parents. We grew up with so many chemicals, toxins, radiation (wifi, cell phones etc.) I wouldn’t be surprised if this happened to us and wouldn’t be surprised if our life expectancy is shorter than our parents. 🙁



  12. young on March 2, 2012 at 11:30 pm

    @Brian Poncelet- At $1500 a pop for a defibrillator? I hear they have ones that are the size of cell phones now you can carry. 🙂 Haha, you should have. People seem to get riled up about Investors Group. Most of my other posts about talking to your loved ones about what their wishes are weren’t very popular. I guess it’s still taboo, talking about death and disability 🙂



  13. young on March 2, 2012 at 11:33 pm

    @TDN- I agree love the picture and the message is clear and very convincing!



  14. young on March 2, 2012 at 11:39 pm

    @Juan- Hmm that’s true, but are you saying that you’re banking on getting a critical illness to receive the cash out? 🙁



  15. young on March 2, 2012 at 11:43 pm

    @Brian- Interesting. Did you read the article in the WSJ about how Doctors Die Differently?
    online.wsj.com/artic…33962.html

    They don’t get the most expensive treatment for cancer, they don’t try and fight for their life, they choose to spend their last days with quality of life.
    It was a good article and good food for thought.



  16. young on March 2, 2012 at 11:45 pm

    @popthoughts- Couldn’t agree more. My other post on creating a will didn’t receive too much attention lol. I guess my readers don’t like my morbid posts like youngandthrifty.ca/relat…versation/



  17. young on March 2, 2012 at 11:49 pm

    @Joe- Oi! Scary stuff! Did anyone get hurt?



  18. Brian Poncelet, CFP on March 3, 2012 at 3:16 am

    Interesting I have a surgen who suggested that said the same thing. The problem is you can live for years not months (like the old days) with drugs etc.

    So the question is can I work as well as I can if I am sick or wish to slow down?
    Do I have the resoures?

    A classic example would be a heart attack. One survives but how work this effect one life especially if one is self-employed.

    Here is a quote from the Heart and Stroke web site.

    www.heartandstroke.com/site/…ct=5055835

    Dr. Gustavo Saposnik, a Heart and Stroke Foundation funded researcher, and colleagues looked at 3,631 patients admitted to 11 Canadian hospitals for ischemic stroke (caused by a blood clot). Only 2% of patients died within seven days when they received organized post-stroke care, compared to 22.5% of patients who didn



  19. Brian Poncelet, CFP on March 3, 2012 at 3:20 am

    Juan,

    You really want to do both. First Risk management, disability Life insuance & Critical illness insurance. Remember you need money to retire!

    You may want to read my story on annuities. www.milliondollarjourney.com/how-a…s-work.htm

    If you set this up you will get 8% or better in your mid to late 60’s guaranteed.

    cheers,

    Brian



  20. Brian Poncelet,CFP on March 4, 2012 at 7:33 pm

    Hi Young,

    I was following. a tweet regarding critical illness insurance. the TD bank sells the most Critical illness policies in Canada (on their mortgages)

    Why avoid buying thorugh the TD Bank for this type of insurance?…from their site.

    If you’re a Canadian resident between the ages of 18 and 55 and are a new or existing TD Canada Trust mortgage customer, you’re eligible to apply for this unique protection. As long as your mortgage payments are up-to-date, coverage continues until your mortgage is paid off or until you reach age 70.

    So you sell your house, pay off your mortgage or switch from say TD to CIBC coverage is gone.

    As your mortgage drops so does your coverage!

    Less conditions covered. TD… What Critical Illnesses are covered?

    Cancer (life-threatening), Acute Heart Attack and Stroke as defined in the Certificate of Insurance. Some restrictions apply

    Your own plan same as TD

    heart attack,
    stroke and
    life threatening cancer,
    Plus

    coronary artery bypass surgery,
    multiple sclerosis,
    kidney failure,
    paralysis,
    blindness,
    deafness,
    rheumatoid arthritis
    benign brain tumor
    dismemberment / loss of limbs
    major organ transplant
    Alzheimer’s disease
    Parkinson’s disease
    motor neuron disease (ALS – Lou Gehrig’s disease)
    coma
    loss of speech
    severe burns
    organ transplant (or getting on the waiting list for that)
    major head trauma
    occupational HIV infection
    late onset insulin dependent diabetes
    aortic surgery
    heart valve replacement
    loss of independence



  21. Brian Poncelet, CFP on March 5, 2012 at 11:47 am

    Hi Young,

    Here is some information for you…

    Cancer Causer Found in Coke, Pepsi, Group Says



  22. Miiockm on March 10, 2012 at 8:42 pm

    I had thought many plans included disability insurance as well? Are they usually separate?



  23. Brian Poncelet, CFP on March 11, 2012 at 5:13 am

    Milockm,

    I will try to answer your question.

    Disability (lets say for example your group coverage) replaces a percentage of your earned income. Usually no more than 60%. If you were in a car accident broke your legs and could not work for 2 months your disability coverage should cover 2 months. Let say you were in a car accident and were paralysized. You’d get up to 60% of your earned income ….which means your lifesyle would change! Critical illness insurance would pay a lump sum.

    So if you had both disability and critical illness insurance you may as an example get 60% of you earned income and say $100,000 tax free. Not perfect, but with money, you have some choices.

    The key is to consider having both. If you are self-employed and your earned income is low all the more reason to have your own critical illness coverage, since earned income (taxable) is lower than most people who may work for an employer. If you change jobs, most people never review their benefits coverage!!

    Does this help?

    Brian



  24. Brian Poncelet, CFP on May 13, 2012 at 9:08 am

    Here is some information I came across on health care costs

    Quick facts on spending:

    Canada is expected to spend $191.6 billion on health care in 2010, up from an estimated $182.1 billion in 2009 and $171.8 billion in 2008.
    Health care spending is forecast to reach $5,614 per Canadian in 2010, up from an estimated $5,397 in 2009 and $5,154 in 2008.

    From: Canadian Institute for Health Information (CIHI).

    www.cihi.ca/CIHI-…SE_28OCT10



  25. Teacher Man on May 13, 2012 at 5:28 pm

    Great info Brian.



  26. Mitch Reynolds on July 12, 2012 at 12:52 am

    Reading this article, I think I should surely get critical illness cover as soon as possible. Emergency can arise any moment and instead of standing blank in front of my family, I should be financially strong to support them always and take care of myself too. Thanks for sharing the information.



  27. Brian Poncelet,CFP on November 14, 2012 at 7:23 pm

    Hi Y&T,

    My wife went to a living benefits seminar here in Mississauga. Which covered topics like Critical Illness insurance.

    One of the speakers was Brian Goldman Emergency Physician at Mount Sinai Hospital in Toronto.

    He talked about the fact Canada’s population is aging rapidly. Out of pocket prescription drugs (new) is beyond the pocket-book of many of us. Five million Canadians can’t find a family doctor. His book is called Night Shift and is the Host of CBC Radio’s White Coat, Black Art.

    Another Doctor was Jean Leclerc who talked about the most common cancer for men …prostate Cancer. The value of and methods of early detection. (Which better Critical Illness insurance covers). This is timely since many men are trying to grow a mustache. See www.prostatecancer.ca/ for more information.

    brian



  28. Teacher Man on November 14, 2012 at 9:05 pm

    Thanks for the interesting comment Brian. I am definitely one of the guys growing a mustache to raise awareness.



  29. Brian Poncelet,CFP on December 27, 2013 at 12:10 pm

    I Thought I’d drop a line and share an experience with one of my clients.

    I first sold a $100,000 Critical illness policy to a client who is self-employed about 12 years ago. Later I came back and sold an other $50,000 policy.

    In October my client (I will call him Marty). Had a heart attack.
    Without going into a lot of details Marty went unconscious the paramedics used a defibrillator and brought him back.

    Marty was back at work in two weeks. His disability policy did not pay anything. His critical illness policies paid $150,000.

    How important is that?

    Look self-employed have it hard. They work long hours. So having cash in the bank means Marty bought time.

    Money buys time. How long does it take to have $150,000 cash in the bank? Most people I’d say at least 2 years or longer.

    Cheers,

    Brian



  30. Lev on March 22, 2014 at 2:41 pm

    Brian,

    In your example with your client, financially speaking, how did the $150,000 help him? I mean, what specific financial needs, caused by the heart attack, did it help him fill?

    Lev



  31. Brian Poncelet,CFP on March 23, 2014 at 2:58 pm

    Hello Lev,

    Here is an update.

    I have a client who had a serious illness. (Back at work within 3 weeks)

    Got paid a lump sum. Dave was kind enough to post his thoughts on video.

    See link below.

    www.youtube.com/watch…VOZsO3_kZs

    Regards,

    Brian



  32. Lev on March 23, 2014 at 8:34 pm

    Thanks for the reply Brian.

    I’m an advisor as well. I asked you the question because I guess I’m kind of ambivalent about CI.

    I also recently read a good critique of it online, I’ll have to find the website and link it here, but the guy was saying that he sees CI as more like a lottery: of course anyone would like to have a bunch of money paid to them in case something bad like a disease happened to them, but question remains: what actual financial impact does a CI have on somebody? I thought here in Canada our health care is paid for through our taxes? Therefore, what else is there? It would seem to me that it is critical to protect your income through DI, that is certain. If you’ve got the income coming in, then isn’t that the most important thing?

    The video you posted is nice to see and sincere and everything, but the only way that I noticed that he says the CI helped him financially is that it helped him pay for transportation to his treatment; would he have been unable to pay for that without the CI?

    In the end I guess it’s just a question of our clients’ budgets: how much disposable income do they have, and what is the best use of that money. If there’s only so much disposable, I would prioritize DI, LI, and savings.

    Thoughts?



  33. Brian Poncelet,CFP on March 23, 2014 at 8:48 pm

    Lev,

    In his case this brought him a years worth of income.

    He goes down to the US so his travel insurance would be going up in a very big way as one example.



  34. Brian Poncelet,CFP on March 24, 2014 at 8:27 am

    Lev,

    Disability is important, however if you are self-employed and say had a heart attack you are going back to work in many cases within a month. In the end no one product is perfect.

    I can tell you I have sold this to Doctors as well.

    The question is really do you know what one’s health is going to be in the future? Look at the chart above. The odds of a heart attck stroke, cancer etc. is high.

    RBC has dropped their coverage for permanent Critical illness insurance.

    www.advisor.ca/news/…ance-81965

    “RBC is suspending new sales of its permanent insurance products effective June 23, 2012, citing the current economic and regulatory environment.

    The decision comes on the heels of similar changes made by some insurance companies, and confirms a pattern of companies trying to de-risk their long-term offerings”.



  35. Brian Poncelet,CFP on March 24, 2014 at 8:34 am

    @ LEV:

    “I thought here in Canada our health care is paid for through our taxes?”

    Last year in Canada, we spent an estimated $200.5-billion on health services. About 70 per cent of the total, $141-billon, was paid from public coffers and the other $59.5-billion with private insurance and out-of-pocket.



  36. Brian Poncelet,CFP on December 13, 2014 at 10:40 am

    I am trying to find your blog on disability insurance. Is there a serach bar for this?

    Thanks,

    Brian



  37. Kyle on December 13, 2014 at 8:53 pm

    I prefer to just use the Google Search feature to find stuff on any sight Brian. Simply type in the website into the search bar, then leave a space and enter in the term you want to search for within the site.



  38. Brian Poncelet,CFP on December 14, 2014 at 9:53 am

    Thanks Kyle,

    I tried that but I believe there is no information on disability insurance,
    correct?

    Brian



  39. Kyle on December 15, 2014 at 7:17 pm

    I actually don’t remember writing about it off the top of my head tbh!



  40. Brian Poncelet,CFP on December 15, 2014 at 7:46 pm

    Let me know if you want the 411 on it vs group disability.



  41. Kyle on December 17, 2014 at 8:37 pm

    Will do Brian, thanks!



  42. Shawna Somerville on January 30, 2015 at 10:02 am

    I have worked in the industry for 8 years now, and I have seen critical illnesses affect both those close to me, and complete strangers. I am cannot urge the importance of CII enough! I myself have Critical Illness, Disability Insurance and Life insurance, and as soon as my daughter was old enough (6 months) I purchased Child CII for her as well (and have most recently purchased life insurance). Sure, Life Insurance is great, but people just don’t realise (because they haven’t been educated) just how important a Living Benefit is. Survival rates have been on the rise since the 80’s; more and more people are surviving heart attacks, stroke and cancer but so have diagnosis so it only makes sense that you would want to protect yourself financially in the event that an illness strikes, without the possibility to have to withdrawal cash (with heavy tax implications) from your RRSP’s.



  43. Jimmy on October 15, 2016 at 1:45 pm

    Brian,

    You keep on saying you have sold tons of CI policies to doctors. But they have lots of disposable income.

    I don’t have a doctor’s income. I have to make hard choices on life insurance, disability, RSP and TFSA. I couldn’t make CI contributions fit in my limited budget.

    As far as I’m concerned, Critical Care Insurance a nice to have but there are more important areas I had to focus on first to protect and provide for my family when/if I cannot.

    Jimmy



  44. Brian Poncelet on October 17, 2016 at 12:52 pm

    Hello Jimmy,

    It’s hard to say what you should have since I don’t know your situation.

    Disability is important. If you have to take time off work disability may pay 66% of your income. How would you make up the difference? Would you stop contributing to your RRSP? Would you withdraw? RRSPs and TFSA’s don’t protect your family unless you have a lot of money and plan on withdrawing them. If you do this early in life the money you withdraw will be multiple times greater over your lifetime.

    Think of it this way life insurance is because you love your family. Critical illness insurance is because you love yourself.



  45. Jimmy on October 18, 2016 at 3:17 am

    Hi Brain,

    You neglected or forgot to mention, that even though it pays about 60% of your salary, it’s tax free. That’s because the premiums were already taxed. Would I be paying the 40% income tax anyways. So I don’t think I would be changing what I’m already doing now as far as retirement savings.

    Think of it this way: Critical Care Insurance is a lottery that gives you a one time payout. And Disability Insurance covers your income so you can support you and your family ’till you’re 65 years old.

    My employer covers 2 years own occupation, and after that, if there is a job I can work sitting down, I will gladly work and be a productive member of society.



  46. Fania on November 15, 2017 at 9:05 am

    This is for the person, I believe Lev, who says he is an insurance advisor, but doesn’t believe in the value of CI.
    Do you know people who were affected by a critical illness like cancer, heart attack or stroke?
    I would guess no. If you had you would know the financial impact it has on the family.
    When one suffers a critical illness, family members need to take time off work to look after them, they may need to hire help to look after the children, they may need to buy tickets and take time off work to fly in to support a loved one, or simply hire help to have a mental and physical break from caring for someone with a critical illness.
    This is another huge reason why to have CI.
    And sorry to say that if you ,as a financial professional are asking questions like that, I feel sorry and sad for your clients.



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