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Critical illness insurance


Critical illness insurance, otherwise known as critical illness cover or a dread disease policy, is an insurance product in which the insurer is contracted to typically make a lump sum cash payment if the policyholder is diagnosed with one of the specific illnesses on a predetermined list as part of an insurance policy.

The policy may also be structured to pay out regular income and the payout may also be on the policyholder undergoing a surgical procedure, for example, having a heart bypass operation.

The policy may require the policyholder to survive a minimum number of days (the survival period) from when the illness was first diagnosed. The survival period used varies from company to company, however, 14 days is the most typical survival period used. In the Australian market, survival periods are set between 8 – 14 days.

The contract terms contain specific rules that define when a diagnosis of a critical illness is considered valid. It may state that the diagnosis need be made by a physician who specialises in that illness or condition, or it may name specific tests, e.g. EKG changes of a myocardial infarction, that confirm the diagnosis.

In some markets, however, the definition of a claim for many of the diseases and conditions have become standardised, thus all insurers would use the same claims definition. The standardisation of the claims definitions may serve many purposes including increased clarity of cover for policyholders and greater comparability of policies from different life offices. For example, in the UK the Association of British Insurers (ABI) has issued a Statement of Best Practise which includes a number of standard definitions for common critical illnesses.

There are alternative forms of critical illness insurance to the lump sum cash payment model. These critical illness insurance policies directly pay health providers for the treatment costs of critical and life-threatening illnesses covered by the policyholder’s insurance policy, including the fee of specialists and procedures at a select group of high-ranking hospitals up to a certain amount per episode of treatment as set out in the policy.

Critical-Injury-Insurance

First critical illness product
Critical illness insurance was founded by Dr Marius Barnard, with the first critical illness product being launched on 6 October 1983 in South Africa, under the name dread disease insurance.

Since 1983, the cover has been accepted into many insurance markets around the world. Other names of the insurance cover include: trauma insurance, serious illness insurance and living assurance.

Conditions covered
The schedule of insured illnesses varies between insurance companies. In 1983, four conditions were covered by the policy, i.e. heart attack, cancer, stroke and coronary artery by-pass surgery.

Examples of other conditions that might be covered include:

Alzheimer’s disease
Aortic surgery
Aplastic anaemia
Bacterial meningitis
Benign brain tumour
Blindness
Cancer (life-threatening)
Coma
Coronary artery- bypass surgery
Deafness
Heart attack
Heart valve replacement
Kidney failure
Loss of independent existence
Loss of limbs
Loss of speech
Major organ transplant
Major organ failure on waiting list
Motor neuron disease
Multiple sclerosis
Occupational HIV infection
Paralysis
Parkinson’s disease
Severe burns
Stroke (Cerebrovascular accident)
Ref: Canada Life Critical Illness Insurance Policy

Due to the fact that the incidence of a condition may decrease over time and both the diagnosis and treatment may improve over time, the financial need to cover some illnesses deemed critical a decade ago are no longer deemed necessary today. Likewise, some of the conditions covered today may no longer be needed a decade or so in the future.

The actual conditions covered depend on the market need for the cover, competition amongst insurers, as well as the policyholder’s perceived value of the benefits offered. For these reasons conditions such as diabetes and rheumatoid arthritis, among others, may become the norm cover provided in the future.


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