Is Critical Illness Insurance Worth It?

The question of 'worth' or 'value' depends on many factors and varies from person to person when it comes to buying critical illness insurance. What you are buying is peace of mind – for which cost is only one of the deciding factors to consider.

Here are a few other factors that may be important in determining if buying critical illness is worth it.

Critical Illness Insurance Basics

Critical illness insurance is packaged, wrapped, and presented in many different ways. From stand-alone policies to life policy add-ons and credit insurance products – each product has its benefits and associated costs. In most basic policies:

1. The cost of premiums include factors such as, amount of coverage, term length, number of covered conditions and riders or clauses.

2. Benefits consist of a tax-free lump sum payment, if diagnosed with one of the illnesses listed while the policy is in effect.

3. The most common covered illnesses are heart attack, stroke, and cancer – with policies ranging from these three to up to 24 covered illnesses.

4. Typical terms are 10, 15, and 20 years to age 75 depending on the type of coverage.

5. No coverage is available if a similar or related pre-existing condition or illness exists.

Read: The Basics of Critical Illness Insurance

Do I need critical illness insurance?

There are several reasons you might want to purchase a critical illness policy. For example, a stay at home mom could have a policy that covers her in case she can’t care for the kids or household. A young self-employed couple in the early years of business may not have the resources to cover monthly expenses and medical costs if one of them becomes ill.

Some families want to make sure that they have funds available for the best medical or alternative care options. While others want to ensure they have a way to continue to travel and enjoy quality of life.

The question of need comes down to cost, benefit, and perceived value, which is different for everyone.

How can you use the money?

One advantage of critical illness insurance is that the benefit comes as a tax-free cash payment that you can use however you choose. From paying your mortgage, to a luxury family vacation – what you do with the money is a personal choice.

Additionally, if the need that you purchased it for changes, you have the option to keep the policy for something else. This gives you choices and options, without you having to re-apply and go through a medical. As life changes or premiums increase, some people find value in keeping the policy, particularly if their health has worsened over the years.

Is critical illness worth the cost?

Like most insurance and financial decisions there are many factors that come into play when deciding on the coverage or benefits.

Let’s take the single stay at home mom we mentioned, for example. At 35 years old with three children under the age of 10, she is diagnosed with early-stage, but aggressive cancer. The lifetime cost of cancer treatment in Canada is between $25,000 and $30,000, depending on the diagnosis and other contributing factors.

In addition, she would need someone to come and stay with the children while she is hospitalized and under treatment. Her mother can stay with her, but she will have to take a temporary six-month unpaid leave from work. It will cost her $24,000 to replace her mother’s income. There could also be unanticipated costs of medical supplies, babysitters, housecleaning, meals and transportation to and from treatment.

Once all totalled, this could cost her over $60,000 over the six months of her treatment. Let's assume the average cost of her 10-year term $100,000 policy was between $31 to $98 per month. Would it be worth the cost in her case? I think we could all agree that in this scenario the benefits out weights the costs.

What if instead she was healthy and never made a claim and paid all those premiums? What if the policy also had the return of premium rider that is available on many policies? For some, this may seem like an easy question, but like most insurance, there is always more to the story.

Read: Is Mortgage Critical Illness Insurance Right for You?

So, what’s the downside of critical illness insurance?

When you hear statistics around the chances of being diagnosed with a critical illness., it's easy to assume that cost is the only thing that might hold you back. Everyone knows someone that has been affected by a heart attack, stroke, cancer, or any number of the other covered conditions.

What you probably don’t know is the kind of heart attack, when treatment started or what type of treatment they received. These are all the details that actually matter when it comes to policies paying out. The real downside to critical illness insurance is the fine print.

The if’s, when’s and but’s that most people don’t find out about until they submit a claim. There are many potential scenarios and covered conditions, all with exceptions attached that most people don’t understand or are unaware of. Things like when to submit the claim, the type of treatment you received or how seriously the illness affected your life.

This is not the type of fine print you want to discover when you are fighting for your life during a critical illness.

Which is why the real question about worth or value is, do you truly understand the critical illness insurance policy you are buying? And, more importantly, it this the best option for you?

Read: 25 Key Personal Insurance Terms You Should Know and Understand

Conclusion

The old saying “you get what you pay for” still rings true for critical illness insurance products. The way we shop and buy insurance and financial products have, and will change as we continue to move to the digital era.

Yet, the need to speak to a professional will be the one thing that remains constant in your financial future.

Like most insurance products, when it pays out, it's usually bittersweet and worth every penny. And, in this case of critical illness insurance, if it doesn’t, you are still left with peace of mind, your health and financial security.