Critical Illness Insurance
Critical Illness Insurance (CI) is a type of insurance designed to provide protection in case of critical, that is serious, illness such as the ones listed below:
- Heart Attack
- Multiple Sclerosis
- Heart Bypass Surgery
- Kidney Failure
- Loss of Limbs
- Major Organ Transplant & Major Organ Failure
- Severe Burns
- Loss of Speech
- Occupational HIV
- Alzheimer’s Disease
- Motor Neuron Disease (ALS)
- Parkinson’s Disease
- Benign Brain Tumor
- Aortic Surgery
- Heart Valve Replacement
- Loss of Independent Existence
This type of insurance was introduced in 1992 and, thus, is relatively new. CI was originally developed in South Africa by Dr. Marius Bernard, brother of a well-known heart surgeon Christian Bernard, and later gained popularity in the Great Britain, continental Europe, and, since 1996, became available in North America. This type of insurance is very popular, because it protects directly the insured person.
In the UK, where CI has been popular for a long time, as many as 33 illnesses are covered by the policy. In Canada, the list of eligible illnesses presently includes 22 items; but this list is constantly expanded with new illnesses being included in the existing policies with no extra charges or conditions.
Using the words of Dr. Bernard himself, “you need insurance not only because you are going to die but also because you are going to live.”
As shown in the table below, despite the growing life expectancy, illnesses are still the leading cause of death.
|Principal Causes of Death|
|6||Heart Attack||3||Chronic Pulmonary|
The chart shows that life span has increased. Causes of death have changed significantly, though.
- 30% of men and 27% of women, who did not have any health problem in their youth, develop a critical illness by the age of 65.
- 1 out of 4 Canadians has some form of heart disease.
- 1 out of 3 Canadians develop cancer during his/her lifetime.
- More than 50,000 Canadians suffer a stroke every year.
- On average, people are diagnosed with a critical illness at the age of 41.
(Source: Munich Reinsurance Co. 1999)
CI is often referred to as Living Benefit, since it’s designed to protect the person who becomes ill, which is especially important given the growing rate of survival of critical illness patients, as supported by the following data:
- survival rate for cancer patients doubled since 1970;
- mortality rate for patients with cardiovascular diseases has dropped during the last 10 years;
- 91% of patients with infarction qualified for Critical Illness; 9% died within 30 days;
- 75% of people survive their first stroke, but 60% become disabled.
Thus, as the examples above suggest, traditional insurance may not always provide protection. For example, John is earning 40,000 and has employer-provided benefits which include Long Term Illness Insurance. He also has Life Insurance with 400,000 coverage to protect his wife and children. Unfortunately, John suffers a heart attack: stressful job and financial instability take their toll, but he survives (in one of Toronto’s leading cardio hospitals, as many as 91% of patients live more 30 days after the attack). Usually in the period following a heart attack, family income falls, since the patient is not capable of working (and so is the spouse, who may have to stay at home to provide care), but expenses accumulate (medications, visits of a nurse, an operation in the US, where it can be performed immediately as opposed to waiting for a free operation in Canada). Three months later, the situation is more or less stable. John’s wife could return to work, and John himself is feeling much better. He, however, is no longer able to handle his former job and would like to find something less demanding. Acquiring new skills and getting experience in a new field requires time, and John will need means subsistence during his transition. Unfortunately, neither his life insurance nor the employer’s disability insurance will provide any assistance, since John survived the attack (so life insurance cannot be claimed) and is able to work but is simply seeking a different position (and, thus, can no longer be considered disabled).
CI, on the other hand, would provide protection in this situation: John would receive the entire amount of his coverage, tax-free, on the 31st day after the attack, with no restrictions on how this money could be spent. He could pay off his medical expenses, go to a warmer climate for faster recovery, or simply enjoy piece of mind knowing he does not have to search for a job immediately.
The money might be needed to go to the USA for an urgent surgery instead of waiting for your turn to do it free of charge in Canada. To see prices for medical services in the USA, click here.
Thus, Critical Illness Insurance can be thought of as true Life Insurance, since it’s the insured who gets the benefits of the program, whereas Life Insurance is more properly called Death Insurance: the benefits are paid only in case of death to the relatives of the insured.
Critical Illness benefits are paid in full on the 31st day after the onset of the illness. If the insured does not survive the illness and dies prior to this day, all payments made are reimbursed to the family (or designated heirs).
Similar to Life Insurance, there exist two types of CI contracts: TERM and PERMANENT. Term contracts provides coverage up to the age of 75, with growing monthly payments every 10 years. Permanent contracts provide fixed payments up to a certain age, e.g. 100 (T-100), 75 (T-75), or 65 (T-65). After insured person reaches specified age (100, or 75, 65) this contract expires.
You can have a Contract saying that:
- if a person falls seek, the insurance company will pay back the amount of insurance coverage 30 days after making a serious diagnosis;
- if a person unfortunately dies, the insurance company will pay back everything the person has paid for the entire time of the Contract to the family;
- and if nothing serious happens, then around the retirement age the person oneself will get the money s/he paid to the insurance company.
Therefore, this type of insurance can be viewed as an endowment retirement plan with elements of insurance. It offers both guaranteed repayment of all contributions around retirement age and critical illness insurance. The insurance company can pay back all the money any time 15 years after signing the contract. If a person signs a contract at the age of 45, s/he has a choice at 60.
- If a person is working and doesn’t need the money, s/he just keeps paying for the contract. Any time in the future s/he can start receiving the money.
- If a person wants, s/he can close the contract and take back all the money paid to the company.
- If s/he wants to both have a contract and start receiving the money, s/he can get, for instance, 50% of all the money and leave half of the insurance coverage. Naturally, s/he will have to pay less for the insurance left. Any time in the future s/he can close the contract completely and take back the rest of the money.
There are contracts, where you need to pay only for 15 years and after that the contract becomes redeemed. I.e. you don’t need to pay for it any longer; the insurance will be valid until the age of 100 and any time after 15 years you have the right to get all the money back. If for some reason a person dies, all the accumulated money (payments for the insurance contract) will be paid back to the heirs.
You can make an approximate estimate of your Critical Illness (T-10) Insurance right now. The only issue that may occur is while counting the age. Today, almost all companies take your age for the closest birthday as a basis rather than your present age (the age is rounded up or down depending on your closest birthday). For instance, someone has decided to check the cost of insurance on March 1, 2013. That person’s date of birth is May 1, 1972, which means that s/he is 40 as of March 1, but the insurance company takes the closest age (May 1, 2013), which are 41. And so it will be until November 1, 2013, but from then on that person’s age will be 42 as since then it will be closer to the next birthday on May 1, 2014.
Today, we have the opportunity to insure the people who already have some kind of critical illness. This is simply an exception to an existing illness (only the first 2 years), but all the other diseases will be covered.
Called such insurance Guaranteed Issue Critical Illness Insurance. Payments for this program permanent. In 70 years, the insurance contract (Guaranteed Issue Critical Illness Insurance) ends.
Logically, different terms presume different payments. If you would like to discuss your options in selecting a CI program, please do not hesitate to contact me.