Why Critical Illness Insurance is Essential: Protecting Against Life’s Major Health Events

By: Paul V. Shaheen, RHU, REBC / Vice President

For years, we’ve talked to clients about the need for life insurance, with the theme usually being, “What if an unexpected death came knocking at your door?”

A worthy conversation, to be sure, but the last 40 years (what with the medical advancements that have come with it), has spawned another question:

“What if I have a major life event and survive?”

Disability insurance has certainly played a major role in answering that question, but by 1983, there was a new kid in town: Critical Illness coverage.

Somewhat eponymously named, Critical Illness (CI) coverage provides a tax-free benefit should someone experience a major illness such as a heart attack, stroke, cancer, end-stage renal failure, deafness, blindness or paralysis, and, per recent expansion, conditions such as MS, dementia and (severe) COVID-19 as well.

Offered in both the individual and employee (voluntary) market, CI can typically be purchased in 10K increments, with a guaranteed issue maximum of anywhere from $20,000 to $40,000.

Its inventor and inspiration? One Dr. Marius Barnard, a South African surgeon whose team performed the first-ever human heart transplant in 1967.

In the years that followed, Barnard and his team extended the lives of thousands, and in so doing, witnessed first-hand the ravages of critical illnesses and the financial difficulties that came with them.

“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 was once quoted as saying. “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, in 1983, Dr. Barnard collaborated with a South African insurer called Crusader Life, and the first critical illness policies were born. In time, they became more and more popular, particularly in the Commonwealth countries such as Australia, New Zealand, England and Canada, all of which, like most outside of the US, provide federally funded health care.

Eventually, CI made it here to the States, where today, an estimated 600,000+ Americans have critical illness protection.

This means that the American market is listening, as it should be.

Two years ago, the Centers for Disease Control (CDC) estimated six in ten Americans had a chronic disease. Meanwhile, in 2021, Statista suggested nearly 15% of Americans had two or more chronic diseases. Further, the number one cause of personal bankruptcies is the inability to pay medical bills from a critical illness.

These staggering stats are why CI’s greatest strength is its ability to pay a benefit when people need it most. And, whereas disability coverage usually pays up to 60% of someone’s lost income over the course of weeks or months (short/ long-term disability respectively), critical illness pays in lump sum, which is powerful, given the magnitude of the conditions it covers.

Here’s one of several stories:

Two years ago, a 40-year-old employee, married with children, had an unexpected stroke during surgery. He had employer-paid disability coverage, but because he understood the value of CI at open enrollment, he had taken out a $20,000 policy on a voluntary (payroll deduction) basis.

A wise choice that proved prescient.

Upon his stroke, and with an immediate payment of $20,000 in hand, he was able to pay his mortgage over multiple months, not to mention so many other day-to-day bills, until he was capable of coming back to work.

As employers look to expand their employee benefits and wellness offerings, critical illness has proven to play a pivotal role.

And we can thank Dr. Barnard for that.