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Critical Illness Insurance: A Must-Have for Everyone

Thursday, April 22, 2021
Warren Olaya
The Case for Critical Illness Insurance and Why Everyone Should Have It
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Critical Illness insurance might very well be the most important type of coverage you’ve never heard of. It isn’t nearly as old a concept as life insurance disability or even medical coverage, but for many, it could well be the most essential coverage you’ll ever have.

By definition, critical illness insurance pays a tax-free lump sum benefit should an insured experience a major life event, such as a heart attack, stroke, or cancer. Over the years, the list of covered ‘events’ has greatly expanded. It now includes conditions like end-stage renal failure, major organ transplant, deafness, blindness, paralysis, and more recently, even conditions such as Advanced Alzheimer’s and Parkinson’s disease, occupational HIV, and (with some carriers) severe cases of COVID-19.

Origins

Contrary to (historical) convention, critical illness coverage was not invented by an insurance company but rather a South African heart surgeon named Marius Barnard, who was part of the team that performed the first human-to-human heart transplant in 1967.

While overseeing and helping his patients in recovery, he also observed firsthand the financial difficulty they experienced in the years that followed.

“I was used to operating on people and boasting about my great results of patients surviving five or six years. But all of a sudden, I saw the social and financial implications,” Dr. Barnard once observed. “I knew nothing about insurance, but I knew life insurance paid out on the diagnosis of death. But to me, my patients lived for years, but in this time, they died financially.”

So by 1983, with the help of a South African-based insurance carrier called Crusader Life, Dr. Barnard helped introduce critical illness coverage to the market. As a consultant to the carrier, he helped build the definition of covered illnesses, most of which remains today.

The Need

Just as Dr. Barnard mused nearly 40 years ago, think of critical illness insurance as the equivalent of a living life insurance policy.

Even if you had a robust medical insurance plan, such as an HMO (which usually pays 100% of all your bills), what would happen if a critical illness rendered you disabled and unable to work, or worse, permanently disabled if the condition was severe? And at that moment, what would it mean to you or your family if you had a check in your hands anywhere from $5K to $30K or possibly much more?

This is where the coverage comes in, and like life insurance, it pays a lump sum you could use for all manner of needs:

  • Mortgage/rent
  • Utilities
  • Car payments
  • Children’s education

Further, especially when offered through your employer, Critical Illness insurance is usually guaranteed issue (no medical questions). It is fully portable should you ever leave, and in many cases, it offers a full return of premium to your beneficiaries should you pass away for reasons beyond the policy’s covered life events.

Facts and Figures

While Critical Illness coverage is vastly popular in the Commonwealth countries (Canada, the U.K., New Zealand, Australia etc., al), it isn’t nearly as much in the U.S. Perhaps that is due to the cost we all incur as individuals or employees for group medical coverage, not to mention that many of us also have disability protection against lost income which could give us the impression that between the two, we’re fully covered.

But remember, disability typically only protects 60% of our pay, and if provided by our employers, it is usually taxed before received.

Here is where Critical Illness insurance can play such a vital role. It pays via lump sum, and if purchased through your employer, is completely portable and with never a change in rate.

With alarming medical statistics in front of us, what better way than Critical Illness to protect oneself? While CI covers cancer and many other severe conditions, heart failure is what stands out the most:

  • Heart disease remains the number one cause of death amongst men and women of all races and ethnicities in the U.S.
  • Over 800,000 Americans experience a heart attack every year, and one in five is silent, where damage is done unbeknownst to the person him/herself.
  • While the average age of a heart attack is 65 for men and age 70 for women, nearly 20% of those who die from a heart attack are under 65. Further, coronary heart disease alone afflicts nearly 18.2 Americans over the age of 20. In contrast, over the last ten years, the proportion of under-40 adults having heart issues has risen 2% per year—not to mention the continuing and emerging research linking heart disease with COVID-19.

Perhaps these stats will start changing the trend lines, as Critical Illness still tends to resonate far more with people over age 50 than it does to those in younger age demographics. Why? Perhaps it remains the case that many employees still don’t see Critical Illness as a serious threat, at least in their younger years. For others, between major medical and disability, many employees, as mentioned above, feel their needs are adequately covered should they experience a critical life event.

That said, know this: nearly 40% of all users of long term care, often spurred by critical illnesses, are UNDER the age of 65. From a personal perspective, a 41-year-old client (and recent stroke victim) just received a $10,000 critical illness benefit, which has meant all the difference in the world to him, his spouse and his family.

The takeaway: Critical Illness is something everyone should consider, not only for its value but just like life insurance and long-term care, to secure coverage while you’re healthy and young.

So, don’t wait! When that unfortunate event and serious illness strikes, you’ll have the coverage in place to help protect your employees and their financials. Contact one of our employee benefit consultants today to get started.

Material posted on this website is for informational purposes only and does not constitute a legal opinion or medical advice. Contact your legal representative or medical professional for information specific to your legal or medical needs.