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Pros and Cons of Critical Illness Insurance Coverage

Critical illness insurance is a relatively new type of policy that is often misunderstood. Today we are going to clarify what it is and what it covers.

How Does Critical Illness Insurance Work?

Critical illness is similar to term life insurance, except that it pays when you are diagnosed with a covered illness, rather than on death. However, some people confuse this type of insurance with disability insurance, which replaces your income if you become disabled.

Health insurance, like term life insurance, is paid in a lump sum, in the event that you are diagnosed with a predefined disease such as cancer. You decide how this amount will be spent: some people put you on additional medical treatment (especially if there are some treatment methods that are not covered by provincial health care), others decide to take time off from work to spend with family or to to travel.

As with many insurance products, this type of insurance plan comes with an extensive insurance quote, application, and underwriting process that the insurer reviews before you can get a policy; And as with any insurance policy, a critical illness policy has both pros and cons.

Let’s take a closer look at the pros and cons of this type of insurance.

Benefits of Critical Illness Insurance

There are several positives:

  1. Funds That Can Help Where Needed: The lump sum you receive if you are diagnosed with a serious illness will allow you to receive better treatment and hopefully make a full recovery in some cases. You can also spend these funds on other needs or projects (such as travel or removing items from your wish list).
  2. Protection for your own business: If you run your own business, you may have to work part-time, after a serious illness is diagnosed (reduced working hours are common when extensive medical treatment is required). Close the financial gap created by the reduction of hours in your company. With the funds, you could hire someone to help you with your business.
  3. Stackable protection: Unlike disability insurance, critical illness coverage is “cumulative.” With disability insurance, coverage is limited because it is based on your income and you cannot exceed that limit even if you have multiple disability policies. However, you can have multiple policies with different amounts of coverage for different diseases. If you have, for example, two policies with benefits of $ 250,000 and $ 300,000, you can get a payment of $ 550,000 when you make a claim.

Cons of serious illness insurance

  1. Expensive: This type of insurance policy is not cheap. For example, a 10-term insurance policy with coverage of $ 500,000 (term 10 means a policy that covers you for 10 years) for a 35-year-old non-smoking male with no preconditions costs about $ 180 / month (exemplary quote ) while a term life insurance policy 10 with coverage of $ 1,000,000 for the same person costs about $ 50.
  2. Definitions matter: If a diagnosed illness, such as a heart attack, is not aligned with the definition of this illness in the policy, your claim may not be paid.
  3. It doesn’t cover you right away: The policy generally comes with a waiting period (for example, 90 days) during which it is not covered.
  4. Payment is not immediate: If you are diagnosed with a serious illness, there is a “survival period” (for example, 30 days). If you die within that period, your claim will not be paid.

Summary

Critical illness insurance provides strong coverage for the unexpected diagnosis of critical illness, but this coverage comes at a cost. It’s a good idea to work with an insurance broker to get a critical illness insurance quote and apply for a policy. The brokers have access to multiple insurance companies and will help you navigate through the complex application process, especially if you have prior medical conditions.