2.2.4 Critical Illness Insurance
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Also known as 'Dread Disease' cover. -
Due to advances in medical care, many people who suffer major life threatening illnesses such as a heart attack or stroke actually survive. However, many such individuals may not be able to continue working and costly ongoing specialist treatment may be required.
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Critical illness cover provides a useful protection, as payment is made in the event of the diagnosis of an insured illness. Payment is usually in the form of a lump sum. Consequently, such cover would be useful in providing cash for medical help and other expenses relating to what could be a debilitating and even terminal illness.
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Setting up procedures are similar to life assurance. A proposal form will be necessary giving full medical details and family history. Underwriters will assess the risk and accept, rate or decline as appropriate. Cases which are not acceptable for critical illness cover may still be accepted for life assurance. For example, a proposal may be declined or rated because of a family history of heart disease but if the client is currently fully fit he may be perfectly acceptable for life assurance.
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Unlike life assurance, however, critical illness cover may be suitable for single people with no dependants. A need for such cover can also be seen in the context of business protection for shareholders and key persons.
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A growing area for this cover is in relation to the mortgage market where, if the client is unable to work following a major illness, the sum assured would provide the necessary funds to repay the mortgage.
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A unit linked whole of life policy may be written so that payment of the sum insured is 'accelerated', becoming payable on diagnosis of a dread disease specified in the policy. A total and permanent disability benefit may also be payable. Policies are usually written on an own life basis.
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There are a number of life offices who now offer these products on a 'stand alone' basis using a term assurance contract. The feature is sometimes available as an 'add on' benefit to policies designed for mortgage repayment purposes.
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The range of diseases covered normally includes heart attacks, strokes, kidney failure and cancer. Cover has been extended by some offices to encompass a range of impairments including paralysis, by-pass surgery, transplantation and total permanent disability.
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A major problem that has arisen in practice has been that although the diseases covered are in the main well known, each company has tended to have its own particular definition of particular conditions. For example, some companies with regard to coronary artery by-pass surgery require two or more arteries to have been operated upon, whereas other offices would meet a claim on the by-pass of a single artery.
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If money is paid out on diagnosis of a listed disease, it is not repayable should the condition clear.