3 Big Fat Myths about Critical Illness Insurance
The current darling of the insurance world is critical illness insurance, insurance that pays a fixed amount if you develop one of the covered conditions such as heart attack, cancer, or stroke (*). This seems like a great product for everyone but there are myths I want to bust today and we’ll get to the asterisk soon.
I recently launched an online Canadian critical illness calculator that compares premiums, benefits and contractual clauses. To develop the quote calculator I had to read many policies in painful depth. As a result of that reading, I’m cautious about the simplistic industry claims of ‘have a heart attack, cancer or stroke and receive $100,000 or get all your premiums back’. Let’s get to the myths…
Myth #1 – (*) Get $100,000 if you have a heart attack, cancer, or stroke.
It’s entirely possible to have a heart attack and NOT get paid, same for cancer, same for dozens of conditions. Let’s look at the definition of a heart attack as an example. The insurance companies do not use the consumers’ definition of heart attack or even the medical industry’s definition- they use their own. Here’s the definition of heart attack from The University of Maryland Medical Center:
A heart attack occurs when blood flow to a part of your heart is blocked for a long enough time that part of the heart muscle is damaged or dies.
Reads like a heart attack definition to me. But here’s a definition found in a critical illness insurance policy:
Heart Attack means the death of heart muscle due to obstruction of blood flow, that results in the rise and fall of biochemical cardiac markers to levels considered diagnostic of myocardial infarction, with at least 1 of the following:
- heart attack symptoms;
- new electrocardiogram (ECG) changes consistent with a heart attack
- development of new Q waves during or immediately following an intra-arterial cardiac procedure including, but not limited to, coronary angiography and coronary angioplasty.
Exclusion: No benefit will be payable under this Critical Illness Insured Condition for elevated biochemical cardiac markers after an intra-arterial cardiac procedure including, but not limited to, coronary angiography and coronary angioplasty, in the absence of new Q waves.For greater certainty, ECG changes suggesting a prior myocardial infarction does not satisfy the above definition of Heart Attack.
The diagnosis of heart attack must be made by a specialist.
At a minimum you should notice two ‘outs’ for the insurance company. First “due to obstruction of blood flow,” means that only heart attacks resulting from the obstruction of blood flow are covered. Second, there are testing requirements in the definition; biochemical markers, ECG’s and Q waves. If your tests and results do not fall into the above rigid definition, even if you have had a heart attack, then you are not covered.
My advice: read your policy and just as importantly deal with a broker who is familiar with the definitions and differences amongst different companies’ products.
Myth #2 – If you don’t have a claim, get all your money back. (Return of Premium rider)
That’s catchy and it turns out, this claim is actually true for policyholders. The difficulty lies in whether you are actually going to be able to take advantage of the benefit. Oh yeah, this option isn’t free, it’s a rider or add-on to your policy. If your critical illness policy is a term policy, then the return of premium is actually ‘return of premium at expiry’ benefit. The catch here is you must keep the policy until it expires, typically at age 75. Cancel beforehand and your full premiums will not be returned. Let’s follow a quick example for premiums associated with a male, non-smoker, age 40, $100,000 benefit:
- Age 40-49: $608/year
- Age 50-59: $1643/year
- Age 60-69: $4583/year
- Age 70-75: $12,251/year
If you drop the premium because the $12,000 per year in your retirement years are way outside your budget, you will not ‘get all your money back’.
My advice: if you’re going to purchase a policy that has this “return of premium” option, make sure you know how long you have to keep the policy to get your premiums back, and what the future premiums look like.
Myth #3 – Critical illness buys peace of mind
Be cautious of emotional sales ahead of sound financial decisions.
What are you buying? Peace of mind or insurance?
If you’re buying insurance, you’re really transferring risk, so you should have a clear definition of loss. A loss doesn’t mean it will feel good but it should mean for insurance purposes it cripples you financially. Think of it this way: assume you have sufficient life insurance and sufficient disability insurance to cover your income. If you develop a covered condition, why do you need $100,000? Where did you lose $100,000? What’s not already covered by either life insurance or disability insurance?
Well, the answer could be one of two things. First, critical illness insurance can be used as an emergency fund. If you get taken out of work due to contracting a covered condition, the funds can be used to bridge the gap between work and disability benefits kicking in. Second, the benefit can be used to cover additional costs like childcare and other unexpected expenses. These are both reasonable purposes for critical illness insurance however they can both be dismissed by having a suitable emergency fund built up. I expect many young families do not have a large enough emergency fund, so a small amount of critical illness insurance may actually make sense.
My advice: if you’re purchasing critical illness to cover short-term expenses, you may have those very same expenses for other reasons (sadly you suffer a debilitating depression, you slip and fall, or as I did, get into a tobogganing accident (really). I’m OK, but critical illness didn’t cover my accident and it won’t cover everything so consider how this product will work for you.
There are a number of great insurance products on the market, so in closing, do your homework and get professional help with the fine policy print. Some financial myths deserve to be busted or at least not always trusted.
Glenn Cooke is an independent life insurance broker and president of Life Insurance Canada.com Inc.
Critical illness insurance consumers and insurance agents and brokers would be well advised to check out, on the internet, the lawsuit filed in Manitoba by Alfredo D’Agui , a hairdresser, against Great West Life, and his broker, . in 2015..Agent misrepresentation is alleged and the case is still before the courts. Mr. D’Agui apparently suffered a heart attack, but was denied insurance coverage by Great West, a giant in the industry, on the grounds that the policy was made null and void due to material misrepresentation. Instead, they refunded his premiums in full. Goldfinger Law Firm, based in Ontario, claim that they have successfully sued to recover millions of dollars in unpaid critical illness claims on behalf of clients from a slew of critical illness insurers in that province. Apparently, however, they cannot accept clients from Manitoba.. I do not recall the website, but a google search will easily locate the website set up by Goldfinger Law Firm.
As a financial planner, worked for large banks then became a small business owner I would agree private insurance is better than company insurance. Will you still have your SAME job in 10 years, in 20?
My husband had kidney failure and we fought with the insurance company over how sick he was. I get it there are malingerers but their definition of too sick to work , “total disability” was very different to the Doctors and we were stuck in between. The doctor told him to get exercise, the insurance company called one day to speak to him. My 18 year old son innocently said he has gone for a walk. My husband was then told if you are well enough to go for a walk you are well enough to go back to work ( he was in a physical trades job at the time ).
Having been through that I would rather deal with a CI plan that has definitions. you can debate the line they draw but if you read the small print and sign up you pretty much know what you are getting.
I have also seen self employed people who want to get back to part time running their business or go and checkup on it and that would cause problems with their disability. If they had a CI policy they could bank the cheque , work when feel up to it and focus on how much better they feel rather than proving how sick they are.
Main thing is do something 80% of the population doesn’t.
Kathy Your Net Worth Manager fee only financial planner
Wow, thanks for sharing your story Kathy.
“My husband was then told if you are well enough to go for a walk you are well enough to go back to work ( he was in a physical trades job at the time ).”
That is nuts, for the company to make a comment like that…
CI can make some sense Kathy. I think it depends on how much you need to get you/a family through a very rough patch.
Here is an update.
I have a client who had a serious illness. (Back at work within 3 weeks)
Got paid a lump sum. Dave was kind enough to post his thoughts on video.
See link below.
http://www.youtube.com/watch?v=5VOZsO3_kZs
Regards,
Brian
Thanks Brian.
And that’s a perfect example of myth #3 and traditional insurance marketing. It’s about feel good, not insurance. The entire video ignores any need for the insurance or any specific loss. Instead, Dave actually uses the words ‘feel good’.
This stuff is being sold as winning the cancer lottery, not loss protection. OK, if you’re selling to cater to emotional desires.
You missed the point Dave is self employed. In his case he was back to work within weeks.
Winning the Cancer lottery comment is foolish.
Mark, how about a blog to show some numbers here and let the readers decide?
Let me know.
Hi – just curious. I don’t see how the insurance company definition gives them an “out”. A heart attack is an obstruction of blood flow – otherwise, how is it a heart attack?? Of course they require some kind of defined objective proof from a specialist, otherwise you would suddenly have people trying to make claims based on paperwork from their chiropractor that they had a “heart attack” due to their recent breakup. (I’m not specifically trying to pick on chiro’s here, just needed a ridiculous example and that came to mind first).
The difficulty with any type of “health insurance” as opposed to property insurance, is that it’s pretty easy to tell if your house burned down, not so much if you have pain or other symptoms. If insurance companies paid all the claims they got based on what the consumer thought, either they would be out of business or premiums would be so high no one would ever be able to pay them.
As an aside, I don’t have critical illness, cause I don’t think the premium is worth the risk, but my wife and her business partner do (paid for by their business I think) while they are paying off business loans.
Chris, the definition that’s included in critical illness policies is shown above. You’ll notice that it says it has to be death of heart muscle caused by obstruction of blood flow. But not all death of heart muscle is caused by obstruction of blood flow. I’m no medical expert, but I’ve been led to believe that what you and I would call a heart attack can be caused by things other than obstruction of blood flow. If not, then why did they clarify that it must be caused by ‘obstruction of blood flow’, if not to exclude causes other than that?
You’ll also notice you must have the heart attack, per that definition, AND at least one of the other three things mentioned above (symptoms, change in ECG, or the Q-wave thing). If you don’t have one of those three things, then you don’t get paid even if you did have a heart attack.
Thus, it’s entirely possible you could have a heart attack, your doctor could agree you had a heart attack, and you still can’t get paid on your claim.
Cancer’s similiar. Not all types of cancer are covered.
Stroke? Here’s an excerpt of the definition:
“Stroke means an acute cerebrovascular event caused by intra-cranial thrombosis or haemorrhage, or embolism from an extra-cranial source, with:
– acute onset of new neurological symptoms; and
– new objective neurological deficits on clinical examination,
persisting for more than 30 days following the date of Diagnosis.”
So having a stroke isn’t good enough. You have to have all of a) a stroke, b) acute! symptoms and c) neuroligical deficits. And then they have to last for 30 days. Or, sorry, no claim.
The point is, it’s not as simple as you have a heart attack, get cancer, or have a stroke. You have to have the condition per the definition in the contract, not your definition. AND you have to meet the other criteria including testing and symptoms. AND then you have to survive 30 days after diagnosis.
Not all heart attacks will pay a claim. Not all cancer victims will pay a claim. Not all strokes will pay a claim. Caveat emptor.
I’m not a cardiologist either, but I’m pretty sure a true “heart attack” is caused by obstruction of blood flow, unless you get electrocuted. I suppose hearts can get weak due to progressive disease, I think very few people would have heart muscle death without obstruction of blood flow. Unfortunately, I think insurance companies have to be that specific with their criteria, otherwise, someone with angina would find a doctor who would complete a form saying they had a heart attack so they could get their claim. As for the other symptoms, those just verify it was actually a heart attack – nobody has a true heart attack without symptoms, and if they have cell death, there will be biochemical markers. Otherwise, it wasn’t really a heart attack. Same for stroke. Many people will get “TIA’s” or transient ischemic attacks, which are essentially “mini-strokes” to a very small area of brain that doesn’t get enough blood flow. If you don’t meet the other critera they mention, then you didn’t really have a stroke. I agree with you completely that people need to read and understand what they are buying, but I don’t think it’s fair to make it sound like the insurance companies are purposefully trying to trick people into buying coverage which is somehow “false”. The criteria have to be set and must be specific, otherwise people would claim all sorts of things that didn’t exist and all our rates would explode.
Chris, you and the doctor above are arguing that the definition is good enough for your purposes.
I only have this information secondhand, which is why I don’t put it into an article directly. But I’ve been told by some of my peers that they’ve seen claims denied for people who had heart attacks, because the heart attack was caused by something other than obstruction of blood flow – a virus I think. And I’ve also been told they’ve seen claims denied due to problems with the testing – improper to too-late testing done, claim gets denied. And I’m hearing lots of background chatter in the industry that people are having claims denied due to definitions.
So we can discuss all we like as to whether the definitions are acceptable but that’s cold comfort if your claim gets denied – because then you’re in the position of fighting an insurance company.
I don’t disagree with you, certainly there are always exceptions. However, there is almost no situation in life where money changes hands that doesn’t have some type of definition associated with it. Without the definition, there would be endless arguments, so the definitions are chosen and are (in most cases) available to be read up front. Again, I’m not arguing for critical illness, and don’t have it personally, just saying that when industries are required to pay for something, there will always be definitions around when they pay, and as you said – caveat emptor, as the definition may not be what we all think it is.
Well I feel much better informed and educated thanks for the post and dialogue. Canadians are one of the most insured people in the world and the comment made about sales tactics which make you feel guilty and irresponsible rings loud and true. I hadn’t realized why I had felt so defensive about not having purchased CII. I am more comfortable with the decision for both the economic and emotional reasons. I have a very close friend who was diagnosed 6 weeks ago with acute leukaemia. Money should not be an issue for him, getting better is the only thing that matters to him and his family and friends. Just maybe an investment in family and friends to be there when you need them emotionally and financially makes more sense than giving it to an insurance company, just saying.
Like Glenn, I dislike the emotional pitches than come with products, insurance or investing or otherwise. I think insurance and investing should be based on needs and logic, not emotion.
Emotions do make us human after all and so we take the good and bad along with it 🙂
Thanks for the dialogue Chris, always great to hear others’ perspectives.
Nice post Glenn. This is interesting stuff.
It just further reinforces my desire to get to the point where I have enough cash flow from investments to cover all my expenses. Just so I’ll never have to argue with someone from BIG INSURANCE over what the definition of a heart attack is.
I’m with Chris, I think the premiums are a little too high for what you get. However, I’m in the financial position where I could survive a few months without working. If someone is living paycheque to paycheque with young kids, I can understand having a different attitude.
Hey Nelson, great to hear from you…
I’m thinking the same: “my desire to get to the point where I have enough cash flow from investments to cover all my expenses.”
Thanks for the comment.
Very interesting comments. People wondering why they would need $100, 000 if they got cancer?? How about asking someone with cancer and see what they say. I imagine they would have a few places that money could go! And here’s the deal (with any insurance that is) if you have it there is a chance of getting paid out. No insurance is 100% guaranteed to pay when you think it should. Just ask the flood victims in Alberta last year. Agreed there are always ways companies can get out of paying a claim. But with out insurance there is zero chance of getting any claim. With a young family myself I couldn’t imagine not having this coverage and am happy to pay the premiums. Yes read the fine print and understand when your policy will pay and when it won’t, which applies to any insurance product. I also think sometimes you need to take some personal responsibility and not always assume your employer provided coverage is adequate. My two cents.
You raise some good points Matt, as in “why they would need $100, 000 if they got cancer??”
Potentially for income replacement, medical bills not covered by OHIP (in Ontario), lots of reasons.
No insurance is 100% guaranteed, agreed, which is why I like to consider insurance as risk transference. You are transferring the liability of self-insurance to someone else. Without any insurance, you’re so right: “there is zero chance of getting any claim.”
Which is why I think disability insurance if you can get it is very important and if you don’t have that through work, other forms of insurance are worth looking into with a professional broker.
Your comment about “personal responsibility” is a great one. Thanks for your two cents!
I just went back and read the cost for $100k of insurance. For me it was 4600+ per year. 10 years the premium cost is almost 50%. Matt you may only be paying 600 a year and have a young family. Double that if your wife is covered. Will you continue to buy this insurance for both into your 60’s? I still find it a tough sell and I think I’m pretty responsible.
I’m with you Chris and you sound like you’re very responsible, including doing the math.
I wonder what types of cancers it covers and what scenarios they exclude–there would be a lot of “grey” areas that could let them squeak out of a claim.
We haven’t bought this particular type of insurance so I haven’t tried to read through any of the policies. Our homeowner’s insurance is confusing enough, particularly since they keep amending almost random paragraphs every year.
Thanks for the insights, Glenn!
I think disability insurance would be a much better product for most Canadians. Glenn did a great job with this post.
They cover most types of cancer (based on the definition of cancer) but exclude certain types like some types of melanoma, ductal breast cancer and early stage prostate cancer. And there’s no coverage if you develop symptoms of cancer in the first 90 days of the policy or die within 30 days of diagnosis.
Thanks for those details Glenn, I can count on you to know your insurance stuff.
Thanks for the good read. I don’t have critical illness insurance because of the fact I did the research. I was more worried about all of the provisions especially if they turn around and say no it’s not covered etc.
Thanks, Glenn did a great job with the article. He and other insurance brokers I know definitely think of the customer. The product has to meet their needs and I think for most Canadians, they are better off with disability insurance however not everyone qualifies for that. So, critical illness may fill a void, in some rare cases.
I don’t have critical illness insurance privately, but we are covered for some things through a work policy. Myth #1 that you’ve listed seems sneaky on the company’s part, but I guess it’s expected for insurance companies.
A good point of this post is, buyer beware and always read the fine print. I think all financial products deserve this attention. Thanks for your comment Daisy.
I find most insurance policies to be vague, confusing and open to interpretation. When I picture the policy being written I have a clear image of 5-10 high priced lawyers writing a policy that allows the company to get out of paying. You always hear horror stories like this. And I agree – a CBC marketplace special dedicated to insurance polices would be great
I have the same image running through my head Dan, which leads to me to a few observations, 1) it is critical to have an insurance broker on your side, being very customer-focused and 2) like my comment to Daisy, it behooves all investors and customers to read the fine print.
Good read, I have been unable to justify buying this type of insurance. What’s a $100,000 going to do for you? Buying more is cost prohibitive. If you can afford the premiums you probably don’t need the insurance. I can’t see how this product is good for anyone at the premiums charged and with your added information about exclusions it makes about as much sense as buying a lottery ticket. Would love to hear some opposing arguments.
I think critical illness can make sense for some people but like most products, customers need to read the fine print to ensure the product meets their needs. I suspect the problems with many of these products, are the exclusions like you said Chris. If people can self-insure, that’s ideal but very hard to do.
What are your thoughts on self-insurance as much as possible?
Thanks for the comment Chris!
I never really thought of it as self insurance. More like if you don’t have it you live with the consequences. I think life insurance makes sense to get your kids through school, mortgage paid and hopefully that’s through an employer. After that maybe some reducing term insurance to cover any liabilities for the other partner to bridge to retirement. Auto insurance pretty much mandatory. When I was working disability insurance was available why would I go through the extra expense for critical illness unless there was a family history of problems. After you retire, a hundred thousand won’t help much, and the premiums are ridiculous.
Yes, but the consequences could be dire.
I prefer disability insurance to any critical illness insurance. Those products are good for many people.
I’m totally with you when it comes to life insurance; definitely needed as a young parent, get mortgage paid. It’s great if disability insurance and life insurance is covered by an employer but this doesn’t always occur. I’m with you on the term insurance. We have that and I’m sure you do as well?
Thanks for the great comments,
Mark
As a doctor, that definition is actually pretty good. You are pretty lucky now that biochemical markers are so sensitive that they catch things even when the heart attacks are small. If you feel crappy enough to go to the hospital for tests you meet criteria for “symptoms”. Sure this will not cover a cocaine induced MI (vasospasm), or a MI from severe hemorrhagic or septic shock but then you have other issues and may fit in some of the other categories for illness. Finally if you are not sick enough to actually meet the criteria, sorry you should be able to keep working – too bad so sad, this is not a lottery. I can’t say if the company can weasel out of it after the fact of a real diagnoisis but I am satisfied with their definition and the way it is written makes me feel I can defend MY position if need be. P.S. The comments on not all cancers being covered is true, in general cancers with a low risk of dying (eg. basocellular skin cancer) are not paid or at a lower rate. Again, you can still work and are not impacted, again not a lottery to win.
I agree that most people don’t need this insurance. Life insurance covers your family for death and disability should cover you for monthly expenses if disabled (make sure you can survive for that 1-3 months for you policy to kick in). Private insurance is ALWAYS better than company insurance. Will you still have your SAME job in 10 years, in 20? Because if you get a depression in 5 years, or throw out your back or anything else, if you lose your job you very likely will not be able to buy insurance at that point as you will be deemed too high of risk. If you join another company their insurance may place exclusions on you based on your history. The idea is to buy insurance early when you are healthy and the premiums are low. I feel one of the best wedding presents your parents could give you is 5 years pre-payment on a 20 year term life insurance policy so when you have kids you will already be covered by a reasonably priced policy (and just cut the cost of wedding by the same amount, come on people a down payment on a house is a hell of a lot better than a $20k+ 1 day party).
Anyways, I digress. The reason I and my wife have elected to have critical illness insurance (when we both have disability and life insurance) is that we are small business owners. My wife runs the business and draws no salary while building up and I work as a physician and subsidize to keep things running. We need the critical illness to provide a lump sum to pay off debts and insure we can hire expensive labor to cover my wife’s cheap labor should she be disabled for a prolonged period of time.
We went with critical illness instead of a much larger disability policy as the premiums for the size of disability we would need to survive would be extremely expensive whereas the critical illness policy will allow us to run the business for 2 years while we see if we expect to recover from the illness and keep operating or make a transition to sell without having the pressure to SELL NOW at a cutrate firesale.
Just my 2 cents.
Myth #1 was most interesting to me. I have tried for some time to learn something about how often insurance companies manage to get out of paying large claims. However, I haven’t found data on this for any type of insurance (car, home, life, critical illness, travel, etc.).
I thought Glenn did a great job explaining all the myths and #1 was an excellent example to use.
I’m guessing the data you’re looking for is very elusive. 🙂 I wonder if Ellen Roseman has any insights? Could be a great CBC Marketplace feature as well!
Just to clarify, it wasn’t a tobogganing ‘accident’. It was a tobagganing ‘on purpose’. I meant to do that.