When pur­chas­ing crit­i­cal-ill­ness in­sur­ance could make sense

The Guardian (Charlottetown) - - BUSINESS - BY DAVID HODGES

It was about eight years ago that Brooke Robin­son bought a crit­i­cal ill­ness in­sur­ance pol­icy due to her fam­ily’s his­tory of breast can­cer, only to trig­ger it six years later for an en­tirely dif­fer­ent and un­ex­pected rea­son.

“I ac­tu­ally ended up with mul­ti­ple scle­ro­sis and it was a very ag­gres­sive ver­sion of it,” says Robin­son, 33.

“I was di­ag­nosed in April of 2015 and by Oc­to­ber of 2015 I was walk­ing with a cane.”

To­day, she cred­its her crit­i­cal ill­ness pay­out for al­low­ing her and her hus­band to take three months off work so they could move from Toronto to Ot­tawa where she un­der­went an ex­per­i­men­tal pro­ce­dure that has al­lowed her to walk again with­out as­sis­tance.

While Robin­son’s work­place dis­abil­ity in­sur­ance made up for some of the cou­ple’s lost in­come, she says it wouldn’t have been enough to cover the $15,000 of ex­tra ex­penses they in­curred.

“With­out the treat­ment I had, I would be in a wheel­chair right now and I wouldn’t be able to work or be in an of­fice,” she says. “We would have had to sell our house and move into a condo. It would have been a dis­as­ter.”

Crit­i­cal ill­ness in­sur­ance may be ef­fec­tive at cov­er­ing costs that dis­abil­ity in­sur­ance doesn’t.

Fi­nan­cial plan­ner Rona Biren­baum says the most com­pelling rea­son to buy a crit­i­cal ill­ness pol­icy would be if some­one isn’t el­i­gi­ble for dis­abil­ity in­sur­ance - for in­stance, a stayat-home par­ent who doesn’t have an in­come to re­place.

But it could also help some­one un­pre­pared for the fi­nan­cial hard­ships that may come with a crit­i­cal ill­ness di­ag­no­sis such as the cost of med­i­cal treat­ment or for a spouse to take time off work.

Un­like dis­abil­ity in­sur­ance, which pro­tects your in­come to age 65 and gen­er­ally kicks in af­ter 90 days of dis­abil­ity, crit­i­cal ill­ness in­sur­ance pays out a lump sum in the event of crit­i­cal ill­nesses such as can­cer, a stroke or a heart at­tack.

“If you find your­self in­cur­ring a large ex­pense and your ex­penses don’t al­low you to build an emer­gency fund, then crit­i­cal ill­ness in­sur­ance be­comes that line of de­fence for those that don’t want to cash in their RRSP and un­der­mine their long-term sav­ings,” says Biren­baum, founder of Toron­to­based firm Car­ing for Clients.

A po­ten­tial down­side is that to re­ceive a pay­out you must of­ten meet very strict and spe­cific def­i­ni­tions of dis­ease, says Dan Hal­lett, vice-pres­i­dent of HighView Fi­nan­cial Group in Oakville, Ont.

An­other caveat, adds in­de­pen­dent in­sur­ance bro­ker Lorne Marr of LSM In­sur­ance in Markham, Ont., is that to get a crit­i­cal ill­ness lump sum you also have to sur­vive a wait­ing pe­riod, which is nor­mally 30 days. The na­ture of crit­i­cal ill­ness in­sur­ance also means that those re­ly­ing solely on it won’t re­ceive any more money be­yond the lump sum.

Like Biren­baum, both Hal­lett and Marr say that crit­i­cal ill­ness in­sur­ance should not be used as a re­place­ment for dis­abil­ity in­sur­ance.

Biren­baum says crit­i­cal ill­ness in­sur­ance pre­mi­ums can be ex­pen­sive. A $200,000 pol­icy with a 15-year term for a healthy 35-year-old man would cost about $80 a month.

“It re­ally be­comes about what’s af­ford­able and it never makes sense to over-in­sure be­cause you’re a scared per­son,” she says. “If you’re talk­ing about a lump sum amount that would make a dif­fer­ence to some­one, we’re prob­a­bly talk­ing about $50,000.”

As for Robin­son, she says be­cause she pur­chased her crit­i­cal ill­ness pol­icy at the age of 25, it only ended up cost­ing her $6 a month in pre­mi­ums.

“That’s a cou­ple of cups of cof­fee,” she says. “It’s well worth the se­cu­rity and the safety of not hav­ing to worry about fi­nances when some­thing tragic is hap­pen­ing in your life.”

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