No requirement on how the benefit is spent
By Mauricio Dreher
Critical Illness (CI) insurance pays a lump sum benefit upon diagnosis of one of the covered conditions listed in the insurance policy and the benefit may be considered tax free. The funds from a CI insurance claim can be used by the insured as you wish. There may be a need to modify the home for wheel chair access due to stroke or to pay for accumulating expenses for cancer treatments not covered by the health care system. On the other side, if someone, for example, have a heart attack and returns to work after only 4 weeks, he/she may choose to invest the benefit amount for the future or pay down the mortgage. There is no requirement on how the benefit is spent.
Critical Illness History
Critical Illness Insurance was first developed in South Africa in 1983. Dr. Marius Barnard was the driving force behind the development of the product. He is the brother of Dr. Christian Barnard, the doctor who performed the first successful open-heart transplant surgery.
Dr. Barnard saw a need for insurance that pays a living benefit to offset lost income and to pay for additional expenses incurred by those who survive a major illness. He found that while savings and investments were usually the first funds to erode in order to keep patients’ families afloat, in many cases homes or businesses had to be sold to pay off loans that could no longer be serviced.
While insurers will pay a reduced sum of a life insurance policy upon diagnosis of a terminal illness, this still leaves a void in the insurance portfolio to care for loved ones or protect an estate upon death. Thus, a new type of separate insurance coverage was born, Critical Illness Insurance.
Why do you need Critical Illness Insurance?
While healthy lifestyle choices can be your best defense against some health risks, a critical illness such as cancer, stroke or heart disease can strike anyone at any time. Consider the following:
Lifetime probability of developing Cancer, Canada, 2010
- Males = 49%
- Females = 45%
Expenses such as private nursing or modifications to your home or vehicle to improve your mobility won’t be covered under your provincial health insurance plan and may not be covered under typical employer-sponsored health plans. Then there are the other challenges that critical illnesses bring—such as finding the best medical care, meeting day-to-day needs, and managing the stress and anxiety.
Talk to your CFP – Certified Financial Planner, and request to insert the Critical Illness Insurance discussions in your financial plan.