There’s nothing like a pandemic to drive home the potential financial impact of enduring a critical illness, yet awareness hasn’t turned into action among the vast majority of Canadians.
Although 82 per cent of the benefits plan members in Canada that Medavie Blue Cross surveyed recently are concerned that a critical illness or major injury would affect their finances, just 3 per cent have purchased critical illness insurance since the COVID-19 pandemic began.
Advisors working to protect clients outside a benefits plan have seen a similarly slow uptake of critical illness insurance policies. Frank Valicek, co-president and financial advisor with the Upper Canada Capital Inc. team at Manulife Securities Inc. in Toronto, attributes that to critical illness insurance falling out of the budget as clients take steps to meet other higher-priority protection needs.
“From the client’s perspective and even ours, [often] there’s a clear need for the life insurance to be boosted up, there’s a clear need for the long-term disability coverage to be boosted up, and by the time you get through those two processes from a budgeting point of view, for most clients there’s not enough cash flow left to look at critical illness insurance,” he says. “Critical illness insurance is not … a big sales generator because as much as the need is there, other needs are a bigger priority.”
That said, Mr. Valicek says there are situations when critical illness insurance should be bumped up the priority list even though it protects only from illness, not injury. For example, long-term disability insurance is generally not the best choice for someone who is newly self-employed. That’s because most insurance companies require proof of at least three months of income before considering a long-term disability application and often limit the benefit amount and duration strictly until there’s a two-year history of income.
“A critical illness insurance policy would be a good stop-gap until you’re at a point at which your income is being recognized for long-term disability insurance financial underwriting purposes,” he says. “Critical illness insurance is not incumbent on your income, [so] that’s a scenario in which critical illness insurance, normally Plan B, becomes Plan A.”
Aaron Moser, a certified financial planner with The ReFrame Group in Vancouver, says another business-related use for critical illness insurance – key person protection – prompted several clients to approach him about these policies in the past year.
“The havoc [the pandemic] wreaked made people take things into perspective,” he says. “Even though COVID-19 isn’t covered under critical illness [policies], it made them think [about having insurance in place] for sure.”
When it comes to clients who aren’t associated with a business, he says the challenge is that, pandemic or not, younger people often have “superman syndrome,” believing that a critical illness couldn’t possibly happen to them – and then, by the time people reach middle age and become more conscious of health vulnerabilities, critical illness premiums can be prohibitively expensive.
That said, Mr. Moser feels a case can be made for critical illness insurance even at older ages. For example, someone who is 55 years old and 10 years from retirement could put $500 a month into a guaranteed investment certificate that pays negligible interest rates or, assuming the application is approved, $500 a month into a critical illness policy with a return of premium rider.
If the client stays healthy, the difference in savings at the end of those 10 years will be modest. If the client is diagnosed with a covered condition and survives the waiting period, the critical illness policy could protect retirement savings to the tune of tens of thousands of dollars.
“It makes a lot of sense in today’s environment because with the volatility out there, are you going to risk that, 10 years out, to get a [slightly] better return?” Mr. Moser says. “When I started in the industry 12 years ago, if someone had a previous condition it was really hard to insure. But now, there are a lot of these simplified issue products that might be a little more expensive, but I’ve been able to go back and get clients [insured].”
Despite the increased awareness of critical illness insurance driven by the pandemic, it remains “a product that really has to be sold by the advisor,” says Jeremie Campbell, a financial security advisor with Freedom 55 Financial in Halifax.
He also likes using the return of premium rider, referring to it as “essentially a savings plan, but you are out of the market, so the only thing you’re missing out on while having that protection is market growth.”
Furthermore, he’s found that millennials are “very interested” in critical illness insurance when he brings up the topic.
So, now he makes a point of leading off meetings with new clients by explaining how important it is to protect their ability to make money – generally younger people’s most significant asset.
However, he also feels being physically in front of clients is more persuasive and that as communities across the country emerge from lockdown, sales numbers will rise.
“I foresee [critical illness insurance] taking off in the near future, I really do. It’s a fantastic product,” Mr. Campbell says. “[It can] give clients a nice coat of armour around their retirement savings plan.”