Your real wealth is your excellent health. Many times, people take many years to understand this simple truth.
When the word “insurance” is uttered, people associate it with death. This is not true. There are insurance policies for the living as well.
What follows here is a simplified explanation of different types of insurances to help you when you live.
Critical illness insurance
Cancer, Heart attack, Stroke are known as core critical illnesses. All critical illness policies of all companies cover these. Further coverage may differ from company to company or with in the same company, among the different policy plans.
Goal/Benefits
Protection against the financial aspects of critical illness.
You get all the sum assured as a lump sum cash benefit, that can be used in any way you need. With this money, you can cover your mortgage or debt payments, adapt your home to better accommodate a physical disability, continue with your retirement savings, seek alternative care or just spend on anything you like. It’s totally up to you.
How it works
If you’re diagnosed with a covered critical illness, and have survived for 30 days, you will receive the cash payment. Thus, only two conditions have to be satisfied. 1. You were/have been affected by the covered illness. (Check before you buy the coverage and the definition of covered diseases). 2. Survived for 30 days (minimum)
Drawbacks
The only drawback, I can think of is the cost. Still you have alternatives to choose from. Different types of plans with different level s of premiums are available in the market.
Recommendation
Understand the costs and benefits; if cost is an issue, go for a basic coverage.
Buying a critical illness is strongly recommended for the following reasons
Critical illnesses are more common than you think.
Now-a-days, people don’t die at a young age; but often the quality of life suffers when affected by the critical illness.
Financial protection may give some comfort in such a situation.
Policies are available with return of premium. This is something like putting the money in the savings account of the bank, which does not offer great returns but your money is safe. With the return of premium option, at some point of time, you are bound to receive back, what you paid for all those years.
Some companies cover Long Term Care also under CII for no extra premium. If you can get one such policy, it is better.
Disability Insurance
Goal/Benefits
Protection of (part of) monthly income or regular cash flow, in case of disability.
How it works
The definition of “disability” is a variable feature of most policies. Some define it as being unable to pursue your regular work, while others define it as being unable to pursue any work. Some plans pay partial benefits if you return to work part-time, and some do not. So, know the limits of your plan’s coverage first, if you want to know how it works
Based on the definition, so long as you have disability, you receive regular payments from the insurance company.
Drawbacks
The costs of disability insurance are determined by the features and/or conditions of the plan, including the following:
Waiting period
Amount of benefits
Duration of benefits
Cause of disability
Payments for loss of vision, hearing, speech, or use of limbs
Inflation-adjusted benefits
Guaranteed renewal or non-cancellable clause
In general, the greater the number of these features or conditions that apply, the higher your premium.
All plans have a waiting period from the time of disability to the collection of benefits. Most are between 30 and 90 days, but some are as long as 180 days. The longer the waiting period is, generally, the less the premium.
Plans also vary in the amount and duration of benefits. Benefits are usually offered as a percent of your current wages or salary. The more the benefits or the longer the insurance pays out, the higher the premium. Some plans offer lifetime benefits, while others end benefits at age sixty-five.
In addition, some plans offer benefits in the following cases, all of which carry higher premiums:
Disability due to accident or illness
Loss of vision, hearing, speech or the use of limbs, regardless of disability
Benefits that automatically increase with the rate of inflation
Guaranteed renewal, which insures against losing your coverage if your health deteriorates
Recommendation
If you are self-employed or not covered by your employer, considering this insurance is more relevant
Understand the costs and benefits
Check whether any disability insurance is available through your employer
Some Government benefits are also available. Know what is available for you
After following all these steps, it will become easy for you to decide, what you want under disability insurance.
Long term care insurance
Long term care may include:
Nursing care
Rehabilitation and therapy
Personal care (help with activities of daily living like dressing, eating and bathing)
Homemaking services (meal preparation, cleaning, laundry)
Supervision by another person
When a person is dependent on another to perform any 2 or more of the 6 following activities of daily living or if continual supervision is required because of deteriorated mental condition, a person is understood to have the need for long term care.
Bathing
Dressing
Feeding
Toileting
Transferring
Continence
Goal/Benefits
An assured source of funding, when people enter a long term care facility or receive special medical care in home. Chances of a need for a long term care is real for most people at some point of time in life.
How it works
There are two kinds.
1. One reimburses you for eligible expenses you receive on a given day, up to a pre-set maximum.
2. The other type of long term care insurance is the income-style plan, which is more flexible. It offers the income when you require the care, without having to prove you had expenses.
Drawbacks
Many of the drawbacks like waiting period, amount of benefit, duration of benefits etc., mentioned under disability insurance are applicable here as well.
Recommendation
Need for Long term care may become real at some point of time in life for most people. It is better to be prepared for such an eventuality. As already mentioned, some companies cover this to a limited extent under critical illness. It is worth considering, depending upon your need, earning capacity and net-worth, an appropriate long term insurance coverage.
Final Clarification:
Long Term Care (LTC) is NOT intended to replace Disability insurance
LTC can be looked on as a potential source of additional revenue in the event of a truly major disability.
If you think, you have the ability to work to age 65 or more and will have more than enough assets to personally fund long term care, probably you can avoid LTC insurance.
Psychologically it may be easier to spend the insurance company’s money rather than your own. If you consider yourself as wealthy, then you may also evaluate the alternate earning value for your own money, instead of investing it in LTC or Disability insurance.
Perrii Muthuraman is a licensed insurance professional. If you have any questions or need free advice contact him at 416 473 6100.
Very informative article