What is Critical Illness Insurance

August 16th, 2011 | Author: Mitch Reynolds

What is Critical Illness Insurance and How Does It Work

This article, what is critical illness insurance is the fifth in a series of articles explaining the fundamentals of how different insurance products work. To get a full list of all articles in this series, please go to What is Insurance for the series overview.

Definition of What is Critical Illness Insurance

What is critical illness insurance? Critical illness insurance or critical illness is a health insurance product where the insurer (the insurance company) is contracted to make a lump sum, tax free payment in the insured (person who’s life is protected against a critical illness) is diagnosed with one of a list of insured illnesses.

In Canada a critical illness policy is usually structured to pay out 30 days after diagnosis of a critical illness. The payment is made lump sum and tax free. That means the total amount of insurance the policy is for (like $100,000 or $250,000) is paid out to the policyholder as a single cheque. The benefit or claim of a critical illness insurance policy is considered a health benefit by the Canada Revenue Agency (CRA) and is therefore a tax free payment.

Most common insured illnesses under a critical illness policy

The following list is the most common list of all critical illness covered by insurance companies. Some companies may have a few more or less illness covered in their list of covered conditions.

Alzheimer’s Disease
Aortic Surgery
Aplastic Anaemia
Bacterial Meningitis
Benign Brain Tumour
Blindness
Coma
Coronary Artery Bypass Surgery
Deafness
Heart Attack
Heart Valve Replacement
Kidney Failure
Life-Threatening Cancer
Loss of Limbs
Loss of Speech
Major Organ Transplant on Waiting List
Major Organ Transplant
Motor Neuron Disease
Multiple Sclerosis
Occupational HIV Infection
Paralysis
Parkinson’s Disease
Severe Burns
Stroke

Even though this list might not cover every possible condition you might suffer, it covers the most common conditions. 89% of all critical illness insurance claims come from the four highlighted illnesses; bypass surgery, heart attack, life-threatening cancer, and stroke.

Minor covered illnesses and partial payouts

There are a few non-life threatening types of cancer or heart conditions that will not pay out the full critical illness benefit. These conditions usually have a partial payout from the insurer. A partial payout is usually 10% of the total critical illness benefit. Some insurance companies will reduce your total critical illness benefit when claiming a partial payout, and others will keep you benefit whole.

Here is a list of the most common partial payout covered conditions:

Early Prostate Cancer: Stage T1a and T1b prostate cancer
Ductal Breast Cancer: defined as “the presence of ductal carcinoma in situ of the breast as confirmed by a biopsy”
Superficial Malignant Melanoma: a malignant melanoma on the skin that has not penetrated the fist layer of skin.
Coronary Angioplasty: undergoing the intervention procedure to unblock or widen a coronary artery that supplies blood to the heart.

Standardized definitions of illnesses in Canada

Canadian insurance companies had to define “what is critical illness insurance” and what constitutes a diagnosis for a critical illness that warrants a payout. In 2005, at the World Critical Illness Conference, all Canadian insurers adopted the internationally agreed upon standardized definitions for a covered critical illness. This means that the insurance companies and critical illness insurance policies in Canada represent the standard Canadian and international medical associations’ standard definitions of what constitutes an illness. This also includes standard and recognized testing procedures for illnesses to confirm a diagnosis.

Usually a diagnosis of an illness must be conducted by a specialist in the field, like a cardiologist or oncologist. Once a diagnosis of a critical illness is made by a Canadian doctor, that diagnosis will be easily recognised by the insurance company, which is using the standard definitions of critical illnesses as the medical profession.

The need for critical illness insurance

Many people are concerned with protecting themselves and their loved ones in case of a serious illness or injury that could seriously impact their financial plan and savings. Here are some basic statistics of the risk each Canadian has of getting a critical illness:

One in three will develop life threatening cancer in their lifetime
Half of all heart attack victims is under age 65
31% of all deaths in Canada are cardiac related
80% of people will survive their first heart attack
There are 50,000 new stroke victims in Canada each year, and 75% of them will be left with a disability

We can not deny statistically that the risks are real. The real question is do you think it could possibly happen to you, and if so, would you want financial protection? Here are some ways you could use the benefits of a critical illness insurance policy:

Pay for the cost of out of Canada health care
Pay off debts, like a mortgage and line of credit
Pay for additional health care services and recovery assistance, like in home care
Replace lost income from time off work
Fund a lifestyle change (like renovations to accommodate a disability)

What is Critical Illness Insurance – find out more from Life Guard Insurance

If you are interested in protecting your finances and lifestyle from a critical illness then critical illness insurance might be right for you. Feel free to contact Life Guard Insurance to answer the question what is critical illness insurance for your unique financial situation.

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