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Critical Illness vs. Long-Term Disability

By | FAQ, Individual Health Plans, Individual Services, Living Benefits | No Comments
Which coverage is right for you?
A great career, a happy family, a beautiful home —  everything you’ve worked so hard to achieve, as well as your ability to enjoy it, depends upon your health.

Despite the many measures you may take to ensure your wellness, life can be unpredictable. Recent statistics from Canadian Cancer Society indicate that:

  • 1 in 2 Canadians will develop cancer in their lifetime
  • 60% of people diagnosed with cancer survive at least 5 years

And according to Stats Canada:

  • a 35-year-old has a 50% chance of being disabled for 3 months or longer
  • and a 38% chance of having a disability lasting longer than five years

Clearly, the chances of being diagnosed with a life-altering illness or injury are higher than ever. However, people are surviving and living through these challenging situations with greater frequency and for longer than ever before. The impact can be devastating, both financially and emotionally.

Aside from living a healthy lifestyle, what is the best way to protect your income and the life you have built with it? Both Long-Term Disability and Critical Illness insurance are solutions that can help. However, there is often confusion about these 2 unique types of protection.

So what’s the difference?

First and foremost, the payouts are quite different:
Long-Term Disability (LTD) Insurance offers a regular monthly payout after a waiting period of typically 90 or 120 days, payable to age 65, while

Critical Illness (CI) Insurance offers a one time lump sum payout of the entire CI benefit 30 days after diagnosis

No two situations are the same, and as a result, there is no one perfect solution.
An LTD claim can last for decades, and pay out millions of dollars for a long-lasting illness or injury, but is typically paid in monthly increments after the waiting period, and while you are unable to work. CI claims are paid out in full 30 days after diagnosis of one of the covered conditions, whether you are working or have a loss of income or not.

Let’s look at a quick breakdown of some other key differences.

Long-Term Disability (LTD) Insurance

Essentially, LTD assures that you will continue to receive a portion of your income in the event that you are unable to work due to injury or illness. Your ability to work is your greatest asset, and LTD is the most effective way to protect it.

HOW MUCH ARE YOU WORTH?

Based on current annual income, here are two examples of potential earnings to age 65, assuming a 5% increase per year. This is the risk that LTD Coverage looks to protect.

At Age 35:

$60,000 = $3,986,331

$96,000 = $6,378,129

$180,000 = $11,958,993

At Age 45:

$60,000 =$1,983,957

$96,000 =  $3,174,332

$180,000 = $5,951,872

What qualifies as a disability?

Disability insurance covers illnesses or injuries that impact your ability to work. Some of the most common causes of LTD claims are mental health disorders, musculoskeletal (back pain, arthritic conditions), cancer, heart disease, and injury as a result of accidents.

It is important to understand that different types of policies provide varying definitions of Disability, and the better the policy, the more reasonable the definition is to satisfy in order to satisfy and thus receive a disability benefit.

How is it purchased?

There are three common ways that people obtain Long-Term Disability Insurance:

  1. Coverage provided through your employee benefit plan
  2. Purchasing a stand-alone individual policy
  3. Supplementing an existing group or other disability plan, which may have inferior definitions, or limited coverage amounts

For example, an executive earning $250,000 might be eligible for as much as $10,000/month of disability income protection. However, their group plan may provide coverage that is limited to $5,000, as an example. In this case, the executive is well under-insured, and may be eligible for a discounted “top-up” policy to get to the appropriate level of coverage based on their income.

Individual disability policies can include Riders that provide additional benefits, including:

  • Increasing disability benefit to keep pace with the cost of living
  • Guaranteed option to increase insurance in the future without medical evidence
  • Occupational HIV protection for health professionals
  • Potential for a Refund of Premiums if you never have a claim

Individual policies are also fully portable. If you lose your job or have stopped working for a period before age 65, you may be eligible to receive disability benefits even if you did not have employment income at the time.

Critical Illness Insurance (CI)

Critical Illness insurance is designed specifically to help with the financial needs associated with recovering from a serious illness.

The benefit can be used in any way you choose:

  • Replace lost income for self and spouse/caregiver
  • Repay your mortgage and other debts
  • Gain access to private medical services or treatment outside Canada
  • Private nursing, home care and childcare services
  • Take an extended vacation
  • Make modifications to your home and/or vehicle
  • Maintain your lifestyle and retirement planning
How is Critical Illness insurance purchased?

Critical Illness is not included in as many employee benefit plans, so it is up to each individual to consider their own needs and seek out this valuable protection. Policies can be obtained on an individual basis, in a similar fashion to life insurance, where premiums can be fixed for a level term like 10 or 20 years, or on a permanent basis.

Coverage is not tied to your ability to work or earn an income, and benefits can be used for any purpose you desire. Since LTD benefits are tied to earned income reported on tax returns, CI is often used to bridge the gap for people who may not take significant income, but still have a lot at risk if they had to step away to deal with an illness. It is also used often to protect a non-income earning spouse, since the working spouse’s income would likely be impacted if they family were dealing with a serious illness.

Benefits of CI:

Benefits are paid out as a tax-free lump sum, 30 days after diagnosis of a covered condition. This provides a quick solution to replace lost income, pay for excess care, eliminate debt, or simply provide peace of mind and reduce financial stress.

CI Policies can be structured to include some of the following benefits:

  • Term Policies can be Convertible, without medical questions, to Permanent coverage
  • Some policies provide a full Refund of 100% of all Premiums paid if you never have a CI claim
  • Many policies also include ancillary benefits to help get a Second Medical Opinion to be confirm a diagnosis or treatment plan, or to help access specialized care tailored for your condition

Both CI and LTD can serve as valuable solutions, depending upon your specific situation. Nobody knows what the future holds, but when we have protection for both the short term, while also covering the long-term risks as well, we have a solid foundation for financial well-being.

Our team at SC Insurance is always happy to answer your questions specific to your own situation. We’re here to help protect your wealth by protecting your health.

What qualifies as a Critical Illness?

There are Basic Plans that cover cancer, heart attack and stroke, and Comprehensive Plans that cover a longer list of illnesses. The majority of claims under all plans are for cancer, which make up approximately 70% of all CI claims in Canada.

Below is a list of conditions included in many Comprehensive CI Plans.

Some plans may vary, and the definitions of each condition are available for review. Most plans also include additional conditions which are eligible for a partial benefit payout, when one of the following conditions is not met.

Acquired brain injury

Aortic surgery

Aplastic anemia

Benign brain tumour

Bacterial meningitis

Blindness

Cancer (life-threatening)

Coma

Coronary artery bypass surgery

Deafness

Dementia, including Alzheimer’s disease

Heart attack

Heart valve replacement or repair

Kidney failure

Loss of independent existence

Loss of limbs

Loss of speech

Major organ transplant

Major organ failure on waiting list

Motor neuron disease

Multiple sclerosis

Occupational HIV infection

Paralysis

Parkinson’s disease and specified atypical parkinsonian disorders

Severe burns

Stroke

Note: This list is subject to change, and intended as a summary of coverage provided by many Comprehensive CI plans. The list of covered conditions and definitions for any policy or insurance company can be provided upon request.

Sc_Illustrations_LosingGroup

Losing Group Benefits

By | Employee Benefit Plans, Group Retirement Programs, Group Services, Individual Health Plans | No Comments
Important information for employees and employers to know whenever someone is leaving a group plan.

Whether it is due to leaving for a new venture, taking contract work, retirement, or other reasons, more and more people are going through changes that result in a loss of group benefits coverage. However, leaving an employer does not mean one has to leave this valuable coverage behind. The following is an explanation of some of the things that employees and employers should all understand in order to properly identify the options that are available at this critical point in time.

Health and Dental Coverage

There are 2 types of Health & Dental Plan options – Conversion Plans and Traditional Plans

The easiest solution to deal with the loss of health and dental coverage is to extend coverage using a Conversion Plan. Acceptance is guaranteed, and coverage is uninterrupted, as long as an application is made within 60 days of losing group coverage. These plans are available from several carriers, and each company offers different levels of coverage to choose from. There are no medical questions, and coverage can be provided for the same items that were provided on the group plan, and for anyone who was covered on the group plan.

The other type of Health Plan is referred to as a Traditional Plan. These plans require a medical questionnaire in order to be eligible, and they offer flexible and comprehensive coverage. In many cases, these plans will offer higher coverage limits than a Conversion Plan. Once a Conversion Plan has been secured, it may be worth investigating to see if a Traditional Plan is an option.

Conversion Plans
  • Guaranteed Coverage if you apply within 60 days of your group coverage terminating
  • No medical requirements
  • Pre-existing conditions are covered
  • Most plans include Prescription Drugs, Hospital Benefits, Vision Care, Paramedical Specialists, Dental Care, and more
  • Emergency Medical Travel Insurance may be available on some plans
Traditional Plans
  • A Medical Questionnaire is required in order to be eligible
  • Typically provides higher coverage limits
  • Flexible coverage to meet your needs
  • No restrictions based on employment status or prior coverage
  • Most plans include Prescription Drugs, Hospital Benefits, Vision Care, Paramedical Specialists, Dental Care, Travel Insurance and more

Group Retirement Plans

  • There are several options available at this point in time
  • A Group RRSP plan will offer an individual account that looks to mirror the existing investments where possible
  • You can transfer to an individual plan with another financial institution
  • You can transfer to another group plan if available
  • These transfers can be done between institutions, and without any tax implications
  • If you are leaving a Defined Benefit Pension Plan, you may require additional analysis in order to take advantage of your available options

Long Term Disability Insurance

  • There may be an option to extend coverage without a medical
  • Coverage would be extended for a period equal to any severance period
  • Financial underwriting and coverage limits based on former salary
  • There are specific terms and conditions which apply to these policies

Life Insurance & Critical Illness Insurance

If your plan included this coverage, it may be wise to investigate whether there is an option to convert any of this coverage

Application typically required within 30 days of losing coverage

Understanding your options is the first step to making a wise decision.

Identifying and selecting the right coverage for you and your family is a process that is based on many factors. By taking advantage of the conversion options available within your policy, you are in a stronger position to assess your situation, obtain the advice that you need in order to make the right decisions to protect yourself and your family.