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The Money Management Newsletter: Insurance Products
Critical Illness Insurance - A growing need

By Rob Whipp & Martin Kosterman
Money Management Newsletter - October 1996

There is a relatively new product in the Canadian insurance market called "Critical Illness Insurance". This type of insurance is different from the more traditional types of insurance such as life or disability.

Life insurance policies generally only payout if the insured person dies, although in some cases individuals who are terminally ill can receive a partial payout from the policy while they are still living.

Disability insurance is designed to cover a loss of employment income for the period when an individual is disabled, but normally requires continuous medical evidence to support ongoing benefits.

Critical Illness insurance on the other hand is designed to payout the policy amount tax free in a lump sum upon the initial diagnosis of any of the covered illnesses while the insured is still living. Conditions that are covered under most policies include heart attack, stroke, vital organ transplants, kidney failure and blindness to name a few. The definitions of covered illnesses are normally carefully worded in the policies to avoid any confusion, however some insurer's definitions may be a little more liberal than others.

Immediate lump sum payout upon diagnosis is an important feature because certainly there seems to be greater workplace stress that can initiate a critical illness, while medical advances have increased the survival rate after the onset. Recovery may be long or with some illnesses damage is permanent but in both cases large expenses may be incurred such as travel to distant hospitals, accommodation for relatives, special drugs and equipment, as well as replacement of lost income.

There are many industry statistics to support the need for this type of coverage. One of the recent reports I saw showed that for a 55 year old non smoker the odds of incurring a critical illness over the next 20 years is 1 in 3.5 for a male and 1 in 5.3 for a female. As with all insurance you must determine whether the need really exists for coverage and if so how much coverage is required. Policy minimums and maximums vary among companies, with some minimums as low as $25,000.00 and maximums as high as $1,000,000.00.

The cash sums paid out can be used for any purpose and as such there are many different applications for this type of insurance ranging from business key person coverage, asset protection for self employed professionals to medical care and private nursing costs for individuals. Be aware however that with many of the insurers coverage stops at age 75. This may be acceptable for business applications because the coverage ceases well after normal retirement age, however it may not be practical for individual uses where the main purpose is to provide for financial and continuous care needs if a critical illness occurs later in life. In this case select a company that offers permanent coverage. The premiums are more expensive but the coverage will be around when you are more likely to need it.

If the need is there be aware that there are many companies bringing out this type of coverage in the near future so there should be a wide selection of product available with varying features for you to choose from.

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