Canada Life insurance

William Chang recently received a call from a client who asked vague questions about his critical illness (CI) insurance policy. Chang, founding partner with CRW Financial Group in Montreal, suspected the client had been diagnosed with an illness, so he asked for more details.

It was lung cancer.

“Any time a client or any individual hears the ‘C word,’ it is a scary moment,” Chang said. “But when they do have someone they can call, it does give them reassurance.”

Clients are emotionally vulnerable when they learn of their diagnosis. Your role is to guide clients through the claims process and suggest ways to use the lump-sum payment effectively to reduce their financial burden. Financial advisors emphasize the importance of completing paperwork on time. They also recommend clients keep an emergency fund to tide them over during the waiting period and for you to provide time to discuss how the payout will be used.

Chang immediately advised this client to locate his CI policy, as it would provide all the details of his coverage.

The claim was approved and paid out soon after the client’s doctor submitted a report to the insurer.

Canada Life Assurance Co. aims to process CI claims within 20 days of receiving documentation, said Karen Rondeau, advanced planning strategist of living benefits. If delays occur, they are often caused by doctors, who can’t always prioritize completing insurance forms.

You can help by contacting the client’s doctor to explain the importance of the form, said Pierre Ghorbanian, vice-president of advanced markets with BMO Insurance in Toronto. Ghorbanian had to make a CI claim himself when he had a heart attack in 2016. Although his insurer paid out the benefit within a week, it took a month for his doctor to fill out the form. “Doctors are super busy,” he said.

At the time, Ghorbanian’s wife didn’t know she could make a CI claim on his behalf. He was able to explain everything to her despite his illness. But there may be cases in which the client is incapacitated, so check in with clients and their spouse regularly to make sure both partners know how to make a claim. When a claim is approved, monitor the process to ensure a smooth payout.

“Once you actually go through a claims process, this is where the promise the advisor and the insurance company made to the client is being fulfilled,” Ghorbanian said.

While claims for illnesses such as cancer are usually paid out immediately, some policies may include a survival period — a set interval between the diagnosis and the payout — for other conditions. The longest wait for a payout Chang has seen was up to six months for a client with multiple sclerosis. That is why he recommends clients have three to six months of savings in case a claim takes longer than expected.

If a survival period is longer than a client has saved for, they can either draw on a line of credit or liquidate some investments to make ends meet, said Sara McCullough, financial planner and owner of WD Development in Kitchener, Ont. She usually recommends using a line of credit, as redeeming investments would affect future growth. The decision, however, depends on the client’s comfort with debt.

If a client is averse to taking on debt, McCullough advises withdrawing from non-registered accounts and TFSAs rather than making RRSP withdrawals.

When an insurer pays a claim, help your clients assess their priorities in deciding how to use the money. A client who has suffered from a critical illness could take up to a year to find out what their long-term needs are, McCullough said.

Not all of the payout should necessarily be invested. While money in a chequing account doesn’t provide returns, it does provide liquidity, McCullough said.

“The role of the insurance is to be a safety net when something that we didn’t want to happen happens,” McCullough said. “Its role, by definition, is to be available.”

You should help clients plan for short-term expenses and map out long-term costs, Ghorbanian said. For example, home modifications are a one-time, upfront cost, but a medication co-pay could last years.

Once the long-term costs become clear, the funds can be invested to provide interest and dividend income, or the client could buy an annuity.

After a client receives a CI policy payout, insuring that person again may be difficult. However, some insurance companies may cover a second, unrelated critical illness. For example, Toronto-based Canada Protection Plan Inc. offers a cardiac and cancer CI policy that provides up to two $50,000 benefits for each type of illness, and provides CI coverage for cancer survivors. It also provides cancer patients with cardiac coverage, and those diagnosed with heart disease or diabetes with cancer coverage.

“Someone who had cancer can still qualify for our cardiac product, and someone who had a cardiac event can still qualify for our cancer product,” Michael Aziz, chief distribution officer with Canada Protection Plan, told Investment Executive when the CI products launched in 2020.

Canada Life offers a second-event rider that will cover a second critical illness from the same policy. If a client had a cardiac event and received the full benefit, they will be issued a paid-up 10-year term CI policy that covers cancer at no additional cost and will pay 50% of the original face value up to $100,000, Rondeau said.

This article appears in the May issue of Investment Executive. Subscribe to the print edition, read the digital edition or read the articles online.