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.
First critical illness product
Critical illness insurance was founded by Dr Marius Barnard, with the first critical illness product being launched on the 6th of 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
- blindness
- deafness
- kidney failure
- A major organ transplant (e.g. heart, lung, liver, pancreas)
- multiple sclerosis
- HIV/AIDS contracted by blood transfusion or during an operation
- Parkinson's disease
- paralysis of limb
- terminal illness
- Heart attack
- Cancer
- Stroke
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.
Need for critical illness cover
Critical illness cover was originally sold with the intention of providing financial protection to individuals following the diagnosis or treatment of an illness deemed critical. Critical illness may be purchased by individuals in conjunction with a life insurance or term assurance policy at the time of a residential purchase, known as a 'bolt-on' benefit.
The finances received could be used to:
- pay for the costs of the care and treatment;
- pay for recuperation aids;
- replace any lost income due to a decreasing ability to earn; or even
- fund for a change in lifestyle.
World markets
In South Africa, the UK, Ireland, Australia and New Zealand, critical illness insurance has become a well established form of insurance.
Critical illness insurance continues to grow in popularity and has recently been accepted into other territories including the far east and the United States.
In markets where the product is newer, many insurers choose to use the expertise of reinsurers with worldwide exposure as well as overseas insurers who have sold the product for a number of years. The expertise may come in the form of data provided as well as assistance with the product design features of the product.
See also
- Life insurance
- Total permanent disability insurance
- Health insurance
- Health insurance in the United States
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