Crtitical Illness-A Product Whose Time Has Come

A relatively new product to the United States, critical illness coverage was first introduced in 1983 in South Africa and quickly spread to 25 other countries, including Canada and the U.K. where it is frequently sold along with mortgage insurance to secure home mortgages. In fact, many banks require the purchase of critical illness insurance much as they do with credit life insurance. The policy is designed to pay lump-sum benefits, usually ranging from $5,000 to $100,000 upon diagnosis.

The most commonly covered illnesses are heart attack, stroke and cancer, though new policies may also provide full or partial benefits for multiple sclerosis, Alzheimer’s and SARS, among other critical illness.

This coverage does not compare to the controversial cancer insurance of the 1970s and 1980s which paid only for hospital treatment, since it provides a lump sum that can be used for non-medical expenses such as mortgage payments, travel or home modification.

Critical illness insurance can also be a valuable planning tool for the small business in a key man and/or buy sell scenario. Lengthy waiting periods before long term disability kicks in is another need that can be filled with critical illness coverage. The acceptance rate as a voluntary, payroll deduction program can range from 20% to 70%. One of our clients is actually maintaining an 80% participation rate! Critical illness insurance is a product that has yet to reach its full potential.