It is not in my habit of writing about insurance since I am not an insurance representative. However, as a financial planner, I still need to master the basic of all kind of insurance in order to explain them to my clients (and not to determine how much they need, that’s the insurance rep’s job). After reading a reader’s comment on my latest post about critical illness insurance, I decided to explain the difference between the critical illness, long term care and disability insurance.
Insurance representatives; correct me if I’m wrong, but I find that the critical illness is the easiest to understand of the three type of insurances. There is a list of critical illnesses (such as heart attack, cancer, etc.). If you receive a diagnostic of one of them, you get your insurance check. Then, you can do whatever you want.
The critical illness insurance contract offer many options such as premium reimbursement (very useful for setting a split dollar strategy). Even though you don’t have a company, you can still ask for this option and receive all paid premiums upon cancellation if you have not been sick. With this option, the real cost of getting insured is the inflation plus the additional fee charged for this option.
Long Term Care
You have two major options when selecting the long term care insurance. You can either ask for a total amount (let say $200,000) that will be disbursed upon a certain amount of time (depending of your needs) or you can ask for steady monthly income flow coming from your insurance (let say $1,000 per month).
In the end, the long term care insurance is used when you request specific help to keep living. For example, if you need a nurse to take blood pressure and give you medicine or if you need someone to cook and make you eat because you are disable, the long term care insurance will pay for those fees (according to the contract obviously). This is also very helpful if you need to move into special care residence (which astronomic cost!).
This is probably the most trick type of insurance. Disability insurance payment will kick in upon… disability. The problem is that there is a lot of definition of disability (own occupation, all occupation, etc.). You better be careful to know what you are insured for. This insurance is very useful for professionals (doctors, lawyers, dentists) since they are self employed and their income depends on themselves. If you work for a company, you might be covered too. However, you must look at the amount covered (it is either an amount per month or a percentage of your salary), the time you are covered (for example, disability insurance on debts will cover your payment for a certain amount of time (around 24 months)).
If you are being cautious with the definition and terms used in your contract, disability insurance can be a very good protection tools.
I hope that it gives you a better understanding of these type of insurance and if you need more info, don’t be afraid to ask!
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