Critical illness insurance benefits dulled by cumbersome restrictions

by Leo Almazora18 Jan 2017
Ninety per cent of insurance advisor Bonita Boutilier’s sales are derived from critical illness insurance. That could be because she’s living proof of its value: following an MS diagnosis in 2010, she was able to collect a lump-sum payment from a policy she bought in 2003. It covered time off work, her mortgage, her car payments, and travel to Mexico and California to undergo a $13,000 experimental treatment.

“I would have had to use my savings, take out a loan or asked family to help,” the 49-year-old Boutilier told the Globe and Mail.

Critical illness insurance is available for time horizons ranging from 10 years up to the age of 100, with the option to lock in premiums. The number of conditions covered also varies from three to as many as 24. Add-ons such as return-of-premium riders, second-event riders, and disability waiver-of-premium riders allow further customization.

Monthly premiums depend on factors like age and health habits. For example, a 40-year-old non-smoking male may pay a monthly premium of $70 for a $100,000 policy, while a 50-year-old non-smoker may pay $100.

Such plans can act as valuable safety nets for those without benefits coverage or life or disability insurance, but they do have drawbacks. Critics point to their restrictiveness: the limited number of illnesses covered and very specific descriptions of conditions can make getting claims approved very troublesome.

Such was the case for Dave Courtney, who suffered a heart attack in 2015. It took three months and a stack of medical documents – evidence to prove conditions like “the death of heart muscle due to obstruction of blood flow” – before his claim was honored.

Glenn Cooke, president of LifeInsuranceCanada.com, believes that getting critical illness insurance is not so critical. “[I]t’s purchased for emotional reasons – not financial reasons. I advise consumers to buy critical illness insurance only after they have lots of life insurance and lots of long-term disability insurance,” he said.

Cooke further asserts that the value of critical illness paying for medical treatments outside Canada and expensive drugs is exaggerated. “For most Canadians, our health care is basically free and any potential costs are not catastrophic.”

He also advocates for a “buyer beware” mindset when getting the extra protection: aside from considering premiums, the number of critical illnesses covered and the availability of basic and deluxe packages should be considered in weighing costs and benefits. Many insurers have recently made changes to their coverage, and they often put conditions on riders, such as a requiring 15 to 20 years of premium payments before a return-on-premium rider is honored.

The question, ultimately, is whether the specialization and complexity of the product makes it worth the expense for buyers in general. As Mark Seed, owner of the blog MyOwnAdvisor.ca, put it: “It may be a great product. But I don’t think the average consumer understands the nuances.”


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