Insurance that pays while you're still alive: Critical illness

National Post

Saturday, April 3, 2004
Page: IN2
Section: Financial Post: Money
Byline: Gigi Suhanic
Source: Financial Post

When Jan MacDougall signed up for critical illness insurance, her timing proved impeccable. Eighteen months after purchasing the policy, which pays out on the diagnosis of diseases like cancer, heart attack and stroke, the Victoria resident discovered lumps in her neck and was told by doctors she had lymphoma -- a cancer that develops in the lymphatic system.
"It was just amazing because I didn't buy it thinking ... nobody expects illness will happen to them," Ms. MacDougall says.

Critical illness insurance is being called one of the hottest things in the Canadian insurance market" with the number of policies sold increasing 20% in 2003, according to LIMRA International.

Invented by South African heart specialist Marius Barnard, the product pays out a tax-free lump sum 30 days after the diagnosis of a dread disease as long as you're still alive. Basic policies cover the big three -- cancer, heart attack and stroke. Further coverage is available for 20 other conditions, among them coronary bypass surgery, Alzheimer's disease, coma, and heart valve replacement.

"It's really a hot item because the incidence [of the diseases covered] is so high. But the premiums become pretty high as you get older," says Doug Lamb, a Toronto-based certified financial planner.

Anthony Windeyer, a certified financial planner in Vancouver, agrees the odds for critical illness insurance are in its favour.

"The chances of a long-term disability are approximately one in 14 of being disabled past 90 days for a couple of years. But the chances of having a critical illness like cancer, heart attack or stroke before the age of 65 is one in three," Mr. Windeyer says.

Statistics from the Heart and Stroke Foundation and the Canadian Cancer Society show that one in two men and one in three women aged 40 and under will develop coronary heart disease in their lifetime; one in four Canadians is at risk for stroke; and almost one in three Canadians will develop some form of cancer in his or her lifetime.

Russell Smart, who runs the Web site critical-illness-insurance.com and provides quotes from almost all the insurance companies offering critical illness insurance in Canada, likes the product because it pays out while the policy holder is still alive.

"Life insurance says, 'if something happens to me, my family is looked after. That's a really loving thing to do. Critical illness says, 'if I get a critical illness both me and my family are going to be looked after while I recover,'" Mr. Smart says.

Ms. MacDougall, who, after a 25-plus-year career as a nurse, sells critical illness insurance, recalls when the product first came out she didn't think twice about applying for it.
"I was a nurse beforehand so when it came out I thought, 'why would I not buy this? I could put several faces to every diagnosis that triggers payment," she says.

But, critical illness insurance isn't for everyone and not everyone can get it.
For one thing, it can be pricey.
 
"The reality of it is that it's not inexpensive coverage just due to the fact that the occurrence of the covered event is so high," Mr. Windeyer says.
 
As with all insurance there are no guarantees of eligibility, especially if there's a family history of the diagnoses that pay out.
 
And policies can have specific requirements to qualify for payouts that policy holder may not be aware of, warns financial planner Janet Freedman.
 
Ms. Freedman is the co-author, along with Marie Howes, of Hit by an Iceberg: Coping with Disability in Mid-Career. Ms. Freedman knows whereof she speaks and writes after falling almost four years ago off her front step "in the middle of tax season" and breaking her neck.
 
Hit by an Iceberg has a chapter about critical illness insurance and Ms. Freedman, a Toronto resident, cautions consumers to be aware that the "critical" part of the insurance product's name is important.
 
"The problem is that people tend to look at the policies as covering heart attack, stroke and cancer. But it doesn't pay out if you had a very minor heart attack. Each company has definitions of what they will pay out for," she says.
 
Ms. Freedman also worries people may make the mistake of choosing critical illness insurance over disability insurance.
 
"Disability is number one," says the 55-year-old who reckons she has been collecting about $20,000 a year from her insurer since her accident "with no end in sight. They could pay until age 65," she says.
 
All this doesn't mean there's no place for critical illness insurance.
 
Mr. Lamb thinks one good time to purchase critical illness insurance -- when it's still relatively affordable and may be needed -- is when people are in their mid-30s with young children.
 
"I always say to people, 'Are you financially prepared should either or both of the parents die, become disabled or suffer a critical illness? Your insurable interest is you've got young children who need to be fed and schooled yet.'"
 
Ms. Freedman believes people in the following circumstances might want to consider critical illness insurance: the newly self-employed person who can't get disability insurance or people who quit their job to provide caregiving to a parent, child or spouse.
 
But with the product facing possible changes in Canada in the near future, many in the business believe now is a good time to jump in.
 
Because critical illness is still a relatively new product here many features are offered that are no longer available in countries like the United Kingdom and Australia where it has more history.
 
For example, Canadian insurers still offer long-term premium guarantees and a return of premium option where 100% of the premiums paid are returned if there's been no claim at the end of a policy's period. As the industry in Canada matures and more claims are paid out, changes in these areas are expected.
 
Says Ms. Freedman: "It [critical illness] has it's place. You have to make sure that's what you want and need and that that's what makes sense for you."
 
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