# Critical illness insurance



## jamesbe (May 8, 2010)

What are your thoughts on this? My agent wants me to buy in...

$120 a month for the next 30 years.

Payout is $100k on a bunch of illnesses like cancer, heart attack etc etc

If you cancel at 65 years/old you get your money back at what seems like compounded 3% interest (although they claim 7% the numbers tell me 3%). 

If you die before you get your money back, the 3% is tax free (not sure how they get around that...).

Thoughts?


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## NorthKC (Apr 1, 2013)

They are waaay cheapy critical illness insurance out there with higher payouts. You might want to shop around for some more. Also double-check to make sure that any pre-existing conditions will not deny you any of these payouts.


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## LifeInsuranceCanada.com (Aug 20, 2012)

jamesbe said:


> What are your thoughts on this? My agent wants me to buy in...
> 
> $120 a month for the next 30 years.
> 
> ...


Thoughts? Nothing too deep, but I'm not a fan. Hmmmm. Some rhetorical questions:

What loss are you insuring against?
What do you _need_ $100K for if you have a heart attack/etc?
Do you only need $100K if you have one of those conditions? Or are there other conditions that might require the same $100K but aren't covered? (and if so, why are you buying a product that doesn't provide complete coverage?).

Secondly, here's a chart of various coverages from the different companies:
http://www.savingandinvestingbook.ca/wp-content/uploads/ci.pdf

If you want a multi-company quote, pm or post me your DOB and whether you smoke, and I'll either (at your discretion) post the multi company comparison or email them to you - no obligation, no followup etc.. 

In terms of the money back option let me again offer some rhetorical questions to consider:
- what do YOU think of someone who tells you they'll get you 7% when your own numbers tell you clearly it's only 3%? 
- what would you do if your car insurance broker suggested you pay them extra money into your policy so that after 20 years you got your premiums back at 7% but actually 3%? Who does that? So why are you considering it with your life insurance? (Life insurance is not an investment BTW. It's insurance.) 

The tax free return is probably because death benefits are paid out tax free. In fact I'd assume the return of premium benefits paid out are also tax free because they're just that - return of your own premiums. 

If you want a full treatment, the website I linked to above has an e-book you can buy for $10.50. I wrote the chapter on insurance in that book and it expands on the concept of catastrophic financial loss as being the basis for insurance, and talks about critical illness insurance. Assuming you have proper life insurance and proper long term disability insurance then the question is, where's the loss if you develop one of the conditions? By contrast, if it's not a loss, then it's wealth creation...and that's absolutely no different than playing scratch and win except with scratch and win you don't have to have a heart attack to claim the prize. (Incidentally, the two moderators of this site also each wrote a chapter in that ebook).


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## jamesbe (May 8, 2010)

Thank you LIC. Those are all very great points.

I was thinking similar things to myself but you made it more clear. I do have LTD and STD at work, although I also work self employed for half my income but I don't feel it would be required in a case of illness.

My biggest concern with the policy is that I don't like monthly payments I'm locked into. I could invest $120 a month for 30 years and skip a payment and still get my principal back (say if I put this in GICs). Where as in 5 years if I lose my job with this plan and can't pay the $120 a month I've lost the input credits and I'm hosed.

I'll PM you my info for a quote just to see.


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## LifeInsuranceCanada.com (Aug 20, 2012)

Critical Illness only, Male Nonsmoker, regular health, $100K. Quotes vary by premiums structure over time. *NO* return of premium option:
Premiums level to age 65: 
Manulife $71.01

Premiums level to age 75:
SSQ - 58.68
Western Life - 73.01
BMO - 79.92

Premiums level for life:
SSQ 75.69
Industrial Alliance $99.54
BMO 100.71

Premiums level for 10 years (like a term 10 life insurance policy):
SSQ - $30.51
BMO - $33.30

Premiums level for 20 years:
SSQ - 37.26
BMO 43.47

Same thing, but with added Return of Premium option and Return of Premium on Death:
Level to age 65: 
Manulife - $129.60


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## jamesbe (May 8, 2010)

So similar pricing structure as my quote is return of premium at 65 and it was $120. I believe it is $91 without return of premium so that is less expensive with other companies. 

Oh my quote was sunlife


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## jamesbe (May 8, 2010)

I guess what I need to understand is what my LTD covers at work. If it also covers these critical illnesses then as you say it's like playing the lottery.


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## LifeInsuranceCanada.com (Aug 20, 2012)

STD isn't insurance either. Disability insurance covers loss of income due to disability (generally for any reason). If you're disabled for a month or two, then back to work, then that's an emergency fund and fails the catastrophic financial loss part (because such a loss should not be catastrophic, therefore you don't need to insure).

Loss of income due to disability for a long duration is catastrophic. You need long term disability insurance for this. I expect your work coverage should cover you for disability due to any reason - accidental or medical. Doesn't matter how you got disabled, just that you are disabled. The coverage will likely have a waiting or deferral period before benefits are paid (you fortunately have STD to cover this gap) then pays for a length of time. That timeframe should be to age 65 (ask). The amount of benefit should be 66% of your income (ask). But the 66% is not a taxable benefit - so it's actually pretty darn close to 100% of your take home anyway. 

So lets say you have proper long term disability and proper life insurance. BOOM, jamesbe has a heart attack.
1) You're off work for a short time, then back to work. Well, that's your STD or emergency fund.
2) You're dead. Well, CI doesn't pay in that event anyway (whoopsie!). But you have proper life insurance coverage.
3) You're off work for a long time for the heart attack. Well, your meds are covered because we're in Canada. So you lost your income. But you've got almost your full take home pay coming in from your disability policy already. So what's the $100K for then?

Replay the same event, but instead of a heart attack you get run down by the bus. You have the same problem as a heart attack, and CI won't pay. LTD will.

So CI is normally sold based on wealth creation (scratch and win lottery) instead of a catatrophic financial loss (which is insurance). It goes like this:
:broker - if you had a heart attack, wouldn't it be nice to have $100,000? You could take your family on one last trip to disney.
:jamesbe - yes, yes it would. If I have a heart attack, a $100,000 cheque would sure make me feel good. 
:LIC - hey, can I get a trip to disney without having to have a heart attack first please? 
:sunlife - sure LIC, we'll give you a free trip to disney. All you have to do is sell enough critical illness policies! (Sun life's not offering disney trips to my knowledge, at least not right now. But two years ago I got the wink wink nudge nudge say no more from an insurance company that if I only sold one more policy, I got a week at their condo in florida. but i digress...)

Anyway, I maintain that if you have proper life and DI, the need for CI is almost non-existent. That doesn't mean you shouldn't buy CI. It means you should look at the reasons they're suggesting you're buying the CI for, realize it's probably not actual insurance but instead is feel good coverage, and buy it or not based on that.

In addition, reviewing 'what happens if I have a heart attack' should make you very very nervous about ensuring you have really good LTD coverage.


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## jamesbe (May 8, 2010)

Very good info! Thank you!


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## Karen (Jul 24, 2010)

> The amount of benefit should be 66% of your income (ask). But the 66% is not a taxable benefit - so it's actually pretty darn close to 100% of your take home anyway.


I don't think this is necessarily correct. I was off work (as a federal gov't public servant) for 13 months in 1997 when I had some serious heart surgery. I was covered by my Sun Life Long Term Disability benefit - 70% of my salary - but it was fully taxable as regular income. My husband worked for the BC provincial government at the time, and I knew that his LTD coverage was also for 70%, but was non-taxable, so I enquired about the difference. I was told that it depended on whether the employee paid the premiums or whether the employer did. In the case of federal public servants, the employer paid our premiums, so the benefit was fully taxable.


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## LifeInsuranceCanada.com (Aug 20, 2012)

Karen said:


> I don't think this is necessarily correct. I was off work (as a federal gov't public servant) for 13 months in 1997 when I had some serious heart surgery. I was covered by my Sun Life Long Term Disability benefit - 70% of my salary - but it was fully taxable as regular income. My husband worked for the BC provincial government at the time, and I knew that his LTD coverage was also for 70%, but was non-taxable, so I enquired about the difference. I was told that it depended on whether the employee paid the premiums or whether the employer did. In the case of federal public servants, the employer paid our premiums, so the benefit was fully taxable.


You are absolutely correct. If you're paying the premiums with pretax dollars, the benefit is taxable. If you're paying the premiums with after tax dollars, the benefits are not taxable. I'm quite surprised that you/your employer would be paying the premiums with pretax dollars.


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## Karen (Jul 24, 2010)

The government was definitely paying the premiums up until 2006 when I retired. Unless PSAC (the Public Service Alliance of Canada) union has negotiated a change since then, I assume it's still the same, and I don't think they have.


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