Critical Illness Insurance vs Critical Illness Rider - PolicyAdvisor
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Critical Illness Insurance versus Critical Illness Riders

SUMMARY

Critical illness insurance provides you with a tax-free one-time benefit to financially protect you in the event that you are diagnosed with a critical illness. A critical illness rider is an add-on to a life insurance policy that provides financial protection by releasing a portion of the policy’s death benefit early, or through a separate lump sum payout. Understanding the pros and cons of each is the best way to determine which product works best for you. 

By Carly Griffin
Insurance Advisor, LLQP
5 min read
IN THIS ARTICLE

You may have prepared for the worst with a good life insurance policy with ample coverage, but what happens if you need money in the event of a critical illness? This is where living benefits come into play. With critical illness insurance and critical illness riders, you will be financially protected in the event of a serious health problem.

What is critical illness insurance?

Critical illness insurance is a type of insurance coverage that provides financial support in the case of a critical illness diagnosis. Typically, if an insured individual is diagnosed with a covered condition or disease—such as cancer, stroke, or multiple sclerosis—the insurance will issue an immediate tax-free one-time benefit, which can be used at the patient’s discretion to pay for medical costs, preserving quality of life, travel, or whatever the policyholder requires.

What is a critical illness rider?

Unlike critical illness insurance, which is a standalone policy, a critical illness rider is essentially an add-on to a life insurance plan. Adding a critical illness rider to a life insurance policy provides financial protection by releasing a portion of the policy’s death benefit early, or a separate lump sum payout, if the policy owner is diagnosed with a critical or terminal illness.

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Critical Illness Insurance, Pros and Cons

Pros

  • Broad illness coverage: critical illness insurance tends to cover a wide number of life-threatening conditions and diseases. Today, up to 26 illnesses, including cancer, strokes, heart attacks, and Parkinson’s disease, are included in most policies.
  • Greater benefits scale: critical illness insurance providers offer a broad range of benefits, ranging anywhere from $10,000 to several millions of dollars. Policyholders can therefore pick what is best for them.
  • More coverage options: purchasing critical illness insurance as a standalone policy gives you more freedom to set the limits of the policy. The length of your critical illness insurance term is not tied to that of your life insurance policy, which means you can opt for a shorter or longer coverage period.
  • Return of premiums: some critical illness insurance providers offer their clients a return of premiums if they do not make a claim within their coverage period. This typically amounts to a high percentage of premiums paid.

Cons

  • Higher premiums: critical illness insurance does tend to have higher premium rates than other types of insurance, such as disability insurance. Like life insurance, rates are variable depending on your age, gender, lifestyle, and health.
  • More stringent underwriting: because critical illness insurance is a separate policy to your life insurance coverage, it requires its own underwriting process, adding an extra step to getting covered.
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Critical Illness Riders, Pros and Cons

Pros

  • Lower cost: one of the key advantages of critical illness riders is the cost. In fact, some life insurance providers include it as an add-on without any additional fee.
  • No additional underwriting: because the critical illness rider is acquired at the same time as a life insurance policy, it does not require any additional underwriting. That is, the same medical evaluation used for the life insurance policy will apply. 
  • Option to drop: while critical illness riders cannot be added onto an existing life insurance policy, they can be dropped. This is a handy option if you decide you no longer need the coverage (i.e. if you have sufficient savings or health insurance coverage) or want to save on premiums.

Cons

  • Fewer options: because critical illness riders are an add-on offered by life insurance providers, there are often fewer options for the type of coverage you can get, both in terms of benefit size and term length.
  • Application constraints: typically, life insurance providers will only allow their clients to include a critical illness rider when they apply for their life insurance policy: it can’t be added on once your policy has started.
  • No return of premium: riders do not offer the option of return of premiums if no claims are made during the policy term. This is simply because the premiums are tied to the life insurance policy, which will release the full benefit in the event of death.

What to choose?

When it comes down to it, there is no objective better option for critical illness coverage: both critical illness insurance and riders have their pros and cons. On the one hand, critical illness insurance provides more coverage options, which is beneficial to those seeking a specific term length or a larger living benefit. 

On the other hand, a critical illness rider has much lower premiums as it is subsumed within a life insurance policy, saving you money over time. Both types offer financial support in the case of an approved critical illness, but since the scale and terms vary, it’s really just about finding the right option for you. For a more in-depth look at the top critical illness insurance providers in Canada click here.

The information provided herein is for general informational purposes only. It is not intended and should not be construed to constitute legal or financial advice.

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KEY TAKEAWAYS

  • Critical illness insurance is a seperate insurance policy
  • A critical illness rider is an add on to a life insurance policy
  • Critical illness insurance offers broader illness coverage but has higher insurance premiums
  • Critical illness riders come at a lower cost with no additional underwriting, but offer fewer coverage options, application constraints, and no return of premium

By Carly Griffin
Insurance Advisor, LLQP
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