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Money Management Newsletter: Insurance
Critical Illness Insurance - A growing need
There is a relatively new product in the Canadian insurance
market called "Critical Illness Insurance". This type of insurance
is different from the more traditional types of insurance such as life
Life insurance policies generally only payout if the insured person dies,
although in some cases individuals who are terminally ill can receive
a partial payout from the policy while they are still living.
Disability insurance is designed to cover a loss of employment income
for the period when an individual is disabled, but normally requires continuous
medical evidence to support ongoing benefits.
Critical Illness insurance on the other hand is designed to payout the
policy amount tax free in a lump sum upon the initial diagnosis of any
of the covered illnesses while the insured is still living. Conditions
that are covered under most policies include heart attack, stroke, vital
organ transplants, kidney failure and blindness to name a few. The definitions
of covered illnesses are normally carefully worded in the policies to
avoid any confusion, however some insurer's definitions may be a little
more liberal than others.
Immediate lump sum payout upon diagnosis is an important feature because
certainly there seems to be greater workplace stress that can initiate
a critical illness, while medical advances have increased the survival
rate after the onset. Recovery may be long or with some illnesses damage
is permanent but in both cases large expenses may be incurred such as
travel to distant hospitals, accommodation for relatives, special drugs
and equipment, as well as replacement of lost income.
There are many industry statistics to support the need for this type of
coverage. One of the recent reports I saw showed that for a 55 year old
non smoker the odds of incurring a critical illness over the next 20 years
is 1 in 3.5 for a male and 1 in 5.3 for a female. As with all insurance
you must determine whether the need really exists for coverage and if
so how much coverage is required. Policy minimums and maximums vary among
companies, with some minimums as low as $25,000.00 and maximums as high
The cash sums paid out can be used for any purpose and as such there are
many different applications for this type of insurance ranging from business
key person coverage, asset protection for self employed professionals
to medical care and private nursing costs for individuals. Be aware however
that with many of the insurers coverage stops at age 75. This may be acceptable
for business applications because the coverage ceases well after normal
retirement age, however it may not be practical for individual uses where
the main purpose is to provide for financial and continuous care needs
if a critical illness occurs later in life. In this case select a company
that offers permanent coverage. The premiums are more expensive but the
coverage will be around when you are more likely to need it.
If the need is there be aware that there are many companies
bringing out this type of coverage in the near future so there should
be a wide selection of product available with varying features for you
to choose from.
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