So you’re a newcomer to Canada? Congrats, on getting your PR. All set to enjoy the snow and maple syrup, eh?
Lemme tell you a little story of a young couple, I know. They came to this country with dreams and driven by ambition. They had enough funds to survive for a year, job hunt, get the certifications done, credentials assesses and all that jazz that comes with job hunting in a stranger country. One day, the dude woke up toa chilly Canadian morning. Today is a big day for him. He has an interview with one of the Big Banks here in Canada. As was his habit, he decided to take a mild cold shower in the morning for God knows why. He went into the shower, he felt the chilly water in his body, in a minute, he also felt a chill in the spine. Some uneasiness, difficulty in breathing, he got out of the shower, managed to open the door and succumbed to a fall in the floor. Turns out he had a minor stroke. He was hospitalized for three months.
Today, the couple tells me they were lucky to have a critical illness cover. The dude credits his wife of advising him of choosing a risk-minimizing strategy and opting for critical illness insurance while in Canada. They credit their critical illness payout for allowing them to take three months off job hunting so they could recoup to normal lives. Now the couple is gainfully employed and is marching right ahead with their financial goals. Their story prompted me to take critical illness cover when I landed in Canada.
What is Critical Illness Insurance ?
It is an Insurance cover used to provide a lump sum of cash to help cover unexpected costs associated with the diagnosis of a critical illness disease. The rule of thumb in the insurance industry is that the coverage should equal to 70%-100% of gross annual income. Critical illness insurance may be effective at covering costs that your disability insurance at work doesn’t.
Why You Need One? Especially, if you’re a Newcomer to Canada!
a) Time Period
Even if you’re employed and receive disability insurance cover from your employer, according to me, it makes complete sense to have a separate critical insurance cover for you. Unlike disability insurance, which protects your income to age 65 and generally kicks in only after 90 days of disability, critical illness insurance pays out a lump sum in the event of critical illnesses such as cancer, a stroke or a heart attack, usually after 30 days of diagnosis.
b) You are not fulltime employed with benefits
Maybe the most compelling reason to have a critical insurance cover would be for someone who isn’t eligible for disability insurance — for instance, a stay-at-home parent who doesn’t have an income to replace or as in my case, a newcomer to Canada.
c) To protect your Retirement Savings.
If you have no emergency fund, then critical illness insurance becomes that line of defence for those that don’t want to cash in their RRSP and compromise on their retirement goals and for a newcomer, like I was, with no RRSP or much savings.
Downside or Caveat Emptor?
a) There are often specific definitions of disease, which needs to be met for being eligible to the payout. For example, not all kinds of Cancer and every stage may not be covered. Usually, only that falls under the definition of ‘life-threatening’ Cancer will be covered.
b) To be eligible for a critical illness lump sum you also have to survive a waiting period, which is normally 30 days. For disability insurance, it is 90 days.
c) The nature of critical illness insurance is such that you won’t get any more than the sum insured. So, it is to be noted that you won’t receive any more money beyond the lump sum.
Why Critical Insurance should not be a replacement for your Disability Insurance?
Critical illness insurance should not be used as a replacement for disability insurance as it covers only specific occurrences of specific critical illnesses.
Is it Expensive?
Younger the better. If you’re 25 something, you could get premiums as low as 10$. That’s two coffees at Starbucks! On the other hand, A $200,000 policy with a 15-year term for a healthy 35-year-old man would cost about $80 a month.
Hope you had a brief understanding of critical illness cover and why you need one. As any stoic philosopher of the Roman medieval era will tell you about the rotation of the wheels of fortune. The Wheel of Fortune, or Rota Fortunae as they call it, is a symbol of the capricious nature of Fate. The wheel belongs to the goddess Fortuna who spins it at random, changing the positions of those on the wheel: some suffer great misfortune, others gain windfalls. If you and I are at the receiving end of misfortune, let’s at least be prepared for it.