Critical Illness (C.I.) Insurance pays a lump sum, tax-free benefit upon the diagnosis of a covered condition.
Benefits are paid upon diagnosis of any one of a number of specific conditions regardless of severity, degree of disability or ability to work. Benefits are only paid once.
2005 Ipsos-Reid survey found that 26% of Canadians surveyed believed
they owned LTC (Long Term Care) Insurance and 22% believed they owned
C.I. Insurance; yet, industry records show less than 2% owned either. The survey also found that 9 in 10 Canadians (89%) had a friend or relative who had suffered a critical illness.
Type of Coverage:
C.I. Insurance is usually offered as a Basic or Comprehensive plan.
A Basic plan typically provides 3 covered conditions: Cancer; Heart Attack; and Stroke.
A Comprehensive plan usually provides 23 or more covered conditions,
including the 3 offered in a Basic plan. Some of the typical coverages
found in a comprehensive plan are: Alzheimer’s Disease; Aorta Surgery;
Benign Brain Tumor; Blindness; Coma; Coronary Bypass Surgery; Deafness;
Dismemberment; Major Organ Transplants; Heart Valve Replacement; Loss
of Speech; Multiple Sclerosis; Motor Neuron Disease; Occupational HIV
Infection; Parkinson’s Disease; Paralysis; and Severe Burns.
There are three main categories of C.I. Insurance policies: Renewable; Level; and Permanent.
Renewable plans are temporary plans that have an initial premium for 10 or 20 years. After the initial period the plan renews for another period, usually the same as the original one, at an increased premium. Renewable plans usually renew until age 70 or 75, when they expire.
Level plans are temporary plans that provide coverage until age 70 or 75, with constant premiums throughout.
Permanent plans generally have level premiums that continue to age 100, at which time a refund is paid or the plan becomes paid-up and no more premiums are required.
A convertibility feature or provision is normally found in a Renewable or Level plan.
A Renewable plan can usually convert to a Level plan without any medical evidence up until a specific age, as outlined in the policy. The conversion is to a Level plan with identical coverages and the new premium is based on current rates in effect for the insured’s attained age.
Renewable plans are permitted to convert to Permanent plans, if available, without any medical evidence. The new plan will have identical coverages and the new premium will be based on current rates in effect for the insured’s attained age.
Level plans are usually permitted to convert to Permanent plans by a certain age, without medical evidence. The Permanent plan will have identical coverages and the new premium will be based on current rates in effect for the insured’s attained age.
Guaranteed or Adjustable:
Plans can be either guaranteed or adjustable. Guaranteed plans cannot be altered in any way once issued. Adjustable plans can change premiums and, in some cases, the definitions being covered or the diagnosis requirements to determine if a covered condition has occurred.
plans are generally initially cheaper; however, based on the
established records of various adjustable Life Insurance plans, it is extremely likely that the consumer will end up paying more in the long run.
Premiums are prices to be paid annually in advance.
Paying an annual premium is the cheapest method; however, many
consumers can’t or don’t wan to pay annually so several alternative modes such as Semi-Annual and Monthly PAD (Pre-Authorized Debit) are offered.
The modal loading factor for Semi-Annual is A.P. (Annual Premium) x .54 and for Monthly PAD is A.P. x 0.09.
Optional or Automatic Riders:
A number of plans include built in riders;
while others offer a completely stripped down plan to which you can
select any or all riders offered. The rider most commonly included is Return of Premium (ROP) at Death.
Return of Premium at Death:
A Return of Premium (ROP) at Death rider pays a refund of all premiums paid, if the insured dies without having received a critical illness benefit claim.
The ROP at Death refund is usually limited to a maximum of all premiums paid or the face amount of the policy, whichever is the lesser.
Some policies will only refund the ROP at Death payment in a tax free lump sum to the insured’s estate; whereas, others will pay the refund to a named beneficiary.
Return of Premiums at Expiry:
The Return of Premium (ROP) at Expiry is a rider which refunds, in most cases, all premiums paid to the policy owner at age 70 or 75, whenever the plan expires. The ROP at Expiry refund payment is made in a lump sum and is considered tax-free under current legislation.
Return of Premiums at Surrender:
Several permanent C.I. plans have a surrender value which is available
if the plan is cancelled after a certain number of years. Normally,
surrender values are not available unless a policy has been in force at least 10 years. Once available, surrender values
typically increase yearly until they represent a complete refund of all premiums paid, which usually occurs after 20 years.
Early Paid-Up Feature:
A few temporary plans provide an option whereby you can have the policy paid-up by a certain age and the coverage extends until the plan’s regular expiry age. This feature is usually only available on a Level plan to age 75 and the feature lets you stop paying premiums at age 65, while maintaining full coverage to age 75.