License to Ill
There are a number of insurance products available in the life insurance marketplace, however, disability and critical illness are the two least utilized. After all, most people have life insurance, but how many have proper disability and critical illness insurance? In this article the focus will be on individual income replacement insurance, as well as critical illness coverage.
Many Canadians feel that somehow they will be protected if they are stricken by an illness. The feelings seem to be that there are sufficient other sources of income: government, savings, spousal income or cash obtained from sale of assets.
There are a number of sources of disability coverage that can be utilized: group, personal, association and corporate paid executive plans.
One thing that is absolutely certain, when it comes to disability protection, you pay for what you get because insurance companies design programs to reflect premiums paid. Group Long Term disability and association plans are limited and often exhibit reverse discrimination against professional as well as executive clients.
The most comprehensive coverage is obtained through an individual guaranteed renewable plan. These policies can be obtained on an individual or corporate paid basis.
We will focus on specific features of a guaranteed renewable plan.
Duration of Coverage
You should look at a contract that provides a disability payout until Age 65 or possibly lifetime.
Guaranteed Plan
Premium and contractual guarantees are a must in any well designed program and guaranteed plans have these features.
Definition of Disability
"Own Occupation" is the most desirable contract definition, because at the time of claim, this is the first clause that will be looked at to determine if the insured satisfies the definition of covered disability. With this clause, a corporate tax lawyer will not be forced to work as a court clerk.
Typical definition would read: "The insured is unable to perform the substantial and material duties of his/her job" and "He or she is under the regular care of a physician."
Should the individual not be able to perform "Own Occupation" but is able to work in another job, disability income and income from the job would be paid for in full.
Waiting Period
This is also known as the qualification period and ranges from 30, 60, 90, 120, 180, 360 and 720 days. The insured receives their claim cheque 30 days after their waiting period is satisfied. There are contracts that will allow the insured to satisfy waiting period over a 12 month period. The waiting days can be satisfied from partial, residual or total disability.
Partial Disability
This feature enables the insured to collect income based on percentage of time he or she is not able to work. Example: Half the monthly benefit is payable if the insured is able to work half of the hours on his/her regular job.
Residual Disability
This provision will have a direct impact on the percentage of income lost due to a disability. Take an example of an accountant that becomes a diabetic and is able to put in an 8 hour day. Through this 8 hour day, the accountant is fatigued and is not able to complete the work that he once did, which reduces his billables. With residual coverage, if he or she has more than a 20% loss, then there will be a disability payout by the insurer.
Recurrent Disability
Most contracts state that if within 12 months of returning to work the insured is disabled from the same or related condition, there is no need to again satisfy the elimination period. The monthly payout would be paid out as if it was a continuation of the old claim.
These are some of the major provisions of a contract that one should be certain exist when obtaining disability coverage.
As mentioned before, insurance companies are not known to be philanthropists so if you are paying a lower premium, read your contractual obligations.
Here is an example of a clause that is present in most of the association plans.
"Accidental injury has to be independent of all other causes."
Let's use an example of an individual having a heart attack while driving and receiving a broken back from losing control of a car that runs into a building. With the stated provision, there is coverage for the heart attack but not the broken back.
I urge you to take the time to read the contractual obligations of the coverage you are insured under, as it could be the best 10 minutes you ever spend.
There are only a small number of disability insurers that we consider to offer exceptional coverage to professionals as well as executive clients. Some of these are Great West Life, Manulife, and Canada Life etc....
Disability contracts can be customized to meet your individual needs. Here are some of the areas to look at:
Seek the services of a professional insurance advisor that specializes in risk management and has not only sold policies, but assisted clients at the time of claim. Ask the advisor for references of people who have used his/her services.
Critical Illness insurance was created in South Africa in 1983 and it arrived in Canada in 1993.
It is of great importance to know why this product was created in the first place. Due to improved medical treatments and medications, people are now living longer than ever before, but are doing so with disabilities.
The unique value of a Critical Illness policy is that it pays a lump sum benefit upon the insured being diagnosed with a certain condition and surviving for 30 days.
ILLNESSES COVERED
Heart Attack
Heart Valve Replacement
Cancer
Stroke
Alzheimer's Disease
Bacterial Meningitis
Benign Brain Tumor
Blindness
Coma
Coronary Artery Bypass
Coronary Artery Disease requiring surgery
Coronary Angioplasty
Deafness
Kidney Failure Loss of Limbs
Loss of Speech
Loss of Independence
Major Organ Transplant
Major Organ Transplant Waiting
List
Motor Neuron Disease
Multiple Sclerosis
Occupational HIV Infection
Paralysis
Parkinson's Disease
Rheumatoid Arthritis (Severe)
Severe Burns
Aorta Surgery
The maximum amount of coverage that an individual is able to buy is $2,000,000. Insurers will issue a personal policy that will be a multiple of the insured's annual income. Example – 9 x income.
Underwriting is stricter than that of a life or disability policy. The applicant's family history plays an important role when the underwriter is deciding whether to issue a policy standard, rate a policy, exclude a condition or outright decline to offer coverage.
We generally take applications from two insurers and this enables us to obtain better results for our clients. Our clients have been declined by one insurer while in the same process offered coverage from another insurer.
The challenge exists in the fact that Critical Illness contracts are not uniform and definitions of Critical Illness differs from one insurer to the next.
All contracts in Canada have a 90-day moratorium on cancer. The cancer coverage will begin after 90 days from when a policy is issued.
Critical Illness contracts come in different forms and premiums will reflect the type of contract you obtain. Here are some of the plans: 10 Year Term, 20 Year Term, Term to 75 and Term to 100. These contracts can be customized to have a return of premium on death if the insured has not had a claim. Further options are those that provide a payout to the insured if they surrender a contract before claim at pre-determined years.
You may be wondering where most of the claims are paid out under the Critical Illness contract.
TO see a claims experience male vs. female comparison chart, click: www.ottawabusinessjournal.com/www/claims-malevfemale.pdf
There are a number of good reasons one should obtain Critical Illness coverage. We will examine some of them.
Our health system is overloaded and with natural aging and it will only get worse over time. Current waiting times to see a specialist in one Province is 26 weeks, and that is just not acceptable. Critical Illness provides you with tax-free cash to obtain treatment anywhere in the world and in some cases within a few days.
With new medications, most of them are not covered by our group or government plans due to costs. Herceptin, a breast cancer drug, cuts the chances of recurrence in half and could cost $35,000 to $40,000 per year. Critical Illness insurance can provide you with necessary funds to be able to afford the type of treatment you want.
A Critical Illness can change a person's life forever. Some take time off to get their lives in order, others have decided to work a four day week. Some have decided to change their jobs to spend more time with family. With money, decisions are easier to make.
Both spouses should have critical illness coverage, because even with one critical illness, lives are affected. Think of a situation where one spouse is working inside the home and they get a critical illness. The working spouse's life is affected and the ability to earn an income may also be negatively impacted.
Corporations can use Critical Illness to protect their future if a Key Person becomes critically ill. We have seen term sheets that have demanded that a Key Person have critical illness coverage for the benefit of the firm.
A partnership as a shareholder agreement can be funded with a critical illness program. The tax treatment is not the same as the creation of a CDA account as is the case with life insurance, but it still has huge merit.
Many professionals and executives are working now beyond age 65, and some are earning more income than ever before in their lives. Critical Illness insurance protects their financial well being that would be impacted by an illness.
I believe that Critical Illness insurance is the best product to come around in my 25 years of being a risk management specialist. The critical illness policy should not replace a well designed disability policy but it should add to the level of protection.
Disability Insurance and Critical Illness insurance are unique products that need to be examined carefully and acquired whenever possible. Both of these products serve different needs and they can be customized to create a security net for each client.
There are many professional advisors that are able to guide you through various disability and critical illness coverage options. Work with an independent advisor who is able and does represent a number of insurers.
We in Canada are fortunate to be able to offer exceptional products with guarantees built in that are not available in other parts of the world.
"Doctors keep you alive medically Critical Illness insurance keeps you alive financially"
