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In Canada, the total premium of in force critical illness insurance (CII) policies was $86 million 15 years ago. This number has skyrocketed to close to $1 billion as of December 2017.
What caused this tremendous growth over the past 15 years? To answer this question, we have to look back to the beginning of critical illness insurance.
You probably think CII – like all other insurance products – was created by an insurance company.
Actually, that couldn’t be further from the truth! In fact, it was a doctor named Marius Barnard who was credited with the invention of CII.
Dr. Barnard was a heart surgeon who was part of the team that performed the first human-to-human heart transplant in South Africa in 1967.
Although he helped many patients make a full recovery from their illnesses, he also saw their financial difficulty in the years to follow.
I was used to operating on people and boasting about my great results of patients surviving five or six years. But all of a sudden I saw the social and financial implications. I knew nothing about insurance but I knew life insurance paid out on the diagnosis of death. But to me, my patients lived for years but in this time they died financially.
In the beginning
In the early 1900s, people had a life expectancy of around 50 years, and the survival rate from diseases such as influenza and pneumonia was very low. Therefore, life insurance was the only type of insurance that people needed, since a death benefit was nearly a certainty to be paid whenever one suffered an illness.
Throughout the 20th century, medical discoveries such as antibiotics and vaccines led to an increase in life expectancy. What was once a fatal illness was now curable.
Heart disease, cancer, and stroke became the leading causes of death, although these were now also treatable. As medicine advanced, more people survived these illnesses, although not always in good health.
Dr. Barnard recognized that his patients, although able to survive a heart disease, were unable to return to work in full capacity. The lingering effects of their illnesses, surgeries, medication, and recovery had an enormous impact on their ability to earn an income. Although they survived, they were overcome with financial hardship. These were breadwinners of the family who had dependents that they were no longer able to support.
While the families would have been supported financially (from the life insurance payout) had the patients died, the families didn’t have this luxury should the patients live.
There appeared to be an increasing need for a type of insurance that would pay a benefit to the owner if he suffered from a heart attack, in addition to the need for life insurance.
To broaden the usage of this new type of insurance, coined critical illness insurance, Dr. Barnard included coverage for the 4 most common critical illnesses – cancer, heart attack, stroke, and coronary bypass surgery.
The spread of a powerful new concept
In 1983, along with the help of a South African insurance company called Crusader Life, Dr. Marius Barnard introduced critical illness insurance to the market. As a medical consultant to Crusader Life, he helped flesh out the definitions of the critical illnesses, which still stand today.
As long as the life insured developed one of the 4 covered critical illnesses and met the definition, a tax-free lump sum benefit would be paid to him/her.
The payment could be used however the life insured saw fit, with the most common options being:
- Pay down the mortgage,
- Pay for drugs and other costs not covered by health insurance,
- Used as income replacement while the life insured was off work for recovery,
- Make modifications to the home to accommodate decreased mobility, and
- Income replacement for the spouse to take time off work to care for the life insured.
Basically, it removed any financial strain that the life insured suffered while keeping the focus on the road to recovery.
People now had the option of transferring the financial risk associated with a critical illness to an insurance company. And many did just that, as witnessed by the rising popularity of the product.
Other insurance companies launched their own CII product, and soon more illnesses were added to the list of covered illnesses.
In 1991, Dr. Barnard brought critical illness insurance to the UK and adapted it to children, which gave them coverage under their parents’ policy. In 2016, claims for children accounted for 2-4% of all claims in the UK.
Critical illness insurance crossed the Atlantic in 1997, landing in the US through the US division of Canada Life. With many years of experience spreading the word of CII under his belt, Dr. Barnard was able to penetrate the largest market in the world, exposing the concept and product to millions of people.
The present
Today, critical illness insurance has evolved to cover 25 illnesses or more. In Canada, you can buy term-10, term-75, term-100 policies or permanent policies paid up in 15 or 20 years.
There are even products that combine critical illness insurance with life insurance such as Manulife’s Synergy and Industrial Alliance’s Child Life and Health Duo. There is now a product for everybody, no matter the budget or the need.
The sale of critical illness insurance continues to grow, as more people recognize the importance of protecting their finances should they survive a critical illness.
As the architect behind critical illness insurance, Dr. Barnard provided a way for people to transfer the financial risk of a critical illness from themselves to an insurance company.
Dr. Barnard passed away on November 14, 2014. The legacy he leaves behind, critical illness insurance, has forever changed the lives of millions of people.
Now you know the history of critical illness insurance, but do you know how exactly it works? Check out this complete guide to critical illness insurance that answers all your questions.
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