Written by Thorpe Benefits, August 2004

Most people are familiar with life insurance and disability insurance policies, but a relatively new insurance package aimed at contending with critical illness has been introduced on the Canadian insurance market.

Critical illness insurance attempts to bridge the gap between life and disability insurance. Whereas life insurance policies payout upon death or diagnosis of a terminal illness and disability insurance policies cover lost wages due to an accident or sickness, critical illness policies cover the insured upon diagnosis of an illness such as cancer, heart disease and stroke, to name a few.

Originally developed in South Africa, critical illness insurance arrived in Canada during the 1990s, offering a financial security blanket against the possibility of expensive treatment and care.

Why critical illness insurance?

"Critical illness insurance is one that pays when people are diagnosed with a serious, life- threatening illness," says Joe Justus, Business Development Manager for the Empire Financial Group in Edmonton. Such illnesses are "not only life-threatening, they are also life-altering. The alteration generally suggests a need for cash in large amounts so that people can put their lives back together or work around their problem."

How does critical illness insurance work?

Upon diagnosis, critical illness insurance is designed to payout the policy amount tax-free in a lump sum, usually 30 days after the initial diagnosis. In contrast, it often takes up to three months for long-term disability payments to begin, and even then they arrive in staggered, monthly installments.

Unlike life or disability plans, critical illness insurance provides a living benefit in cash directly to the ill person, without specifying or restricting expenses. The amount paid out can be used for any purpose, from immediate health-related costs to more general financial concerns such as looking after business, assets, or family, freeing the patient to concentrate more closely on the most important matter at hand: getting healthy.

Do you need it?

Many Canadians believe they are already well protected by their employer and government health programs. Or perhaps they feel that they already pay enough in health-related insurance premiums. Either way, many people do not realize the limitations in their health insurance coverage. For instance, most life and disability plans specify a maximum amount of coverage and, for someone who is critically ill and needs immediate and continual treatment, those health insurance dollars might not arrive in time or last long enough.

Also, traditional life insurance does not cover survival expenses. People are living longer and the chances of surviving a disease are on the rise but the rate of contracting or developing a serious disease is also increasing.

Advances in medical sciences have improved your chances of surviving a serious illness such as cancer, stroke, or organ transplant. Thanks largely to an aging population base, statistics also suggest that the rate of getting an illness is on the rise. The Heart and Stroke Foundation reports that the incidence of stroke is expected to rise by 32 percent by the year 2006, with potential for a 68 percent increase within 20 years. Further, 60 percent of those who suffer a stroke will be left with some form of disability.

Even though your chances of survival have increased, surviving such a fate will not be cheap. In fact, the same technology that may save your life could destroy your financial wellbeing in the process. Recovery is often lengthy and expensive, involving losses to your personal wages and costs for care and treatment.

Traditional life insurance does not cover such events. Critical illness insurance attempts to bridge this gap.

Which policy is right for you?

Most Insurance carriers have a group Critical Illness Insurance product. There are options for the amount of coverage and sometimes even the way premiums are paid. Group policies will specify a definition for each medical condition and the provision of such benefits. As such, it is important to pay attention to the fine print in your policy.

To find out more about this product from an independent source, contact Thorpe Benefits.