What is critical illness insurance and why was it invented?

In the early 1980’s, Dr. Marius Barnard, a world renowned heart surgeon from South Africa, reached out to insurance companies and asked them to create a safety net for people who may be facing a critical illness in their lives. This prompted the insurance companies of the time to introduce a new product called Critical Illness insurance. 

Dr. Barnard knew that there was a need for this kind of insurance because of his direct personal experience with the recovery needs of his patients who had gone through successful heart surgeries. He would see a familiar pattern when they would come to meet him for follow up appointments- a pattern of them sinking deeper in depression as they were under a lot of stress. This was because, even though the heart surgery that they had gone through was going to prolong their life, the recovery often took months during which they were unable to work to comfortably sustain themselves and their families. The stress that this caused would become an obstacle to their recovery.

Good news and bad news. The good news is that because of earlier diagnosis and better treatment options the chances of us surviving a serious illness have increased. The bad news is that just because we are living longer doesn’t mean that we have the money to be able to take time off of work and focus on our recovery.

Critical Illness insurance provides a lump sum (Tax Free) benefit that can be used to jump the queue, take a holiday, pay down your mortgage, take time off of work, pay for other medical expenses not covered by government health care, or do anything else they like with the money.

Although over 50{a03822e28c5c906589e58caafc71b922ff7b2692d58bfeefe8f12d55f85871c7} of Critical Illness insurance claims are from heart attack, stroke, and cancer over 18 other conditions including loss of limb, paralyzation, parkinsons, alzheimers, MS, and many more are also covered.  

A recent study showed that 48{a03822e28c5c906589e58caafc71b922ff7b2692d58bfeefe8f12d55f85871c7} of Canadian mortgage foreclosures were caused by a disability or critical illness. Combine that with the fact that the probability of surviving a critical illness before the age of 65 is twice as likely as dying before the age of 65 means that this is an integral part of one’s financial plan.

Which of these insurable events would have the greatest impact on your life: car stolen, house broken into, house fire, loss of jewelry, or contracting a serious illness. 

Which one of these events do you have protection against?

How much Critical Illness Insurance do you need?

For most of our clients we use a simple rule of thumb when trying to determine the amount of critical illness one may need. We assume that getting critically ill would mean that one would want to focus on their health without having to worry about day to day living expenses and being pressured to go back to work before the healing process is complete.  

Ideally, a living benefit equal to one or two times your annual income would become available for you if you were to be diagnosed with a critical illness.

For example:

Tony is 40 years old and make’s $75,000 a year after taxes. A suitable amount of Critical Illness coverage for him would be between $75,000 to $150,000.  This would mean that he can focus on getting healthy while he is recovering from his Critical Illness instead of worrying about how to make ends meet. 

How much coverage would you need?

Which type is best for you?

There are two types of Critical Illness policies: Term (temporary) and permanent (level premium)


With Term coverage you are covered for a certain period of time during which the premiums will not increase.  After the set period of time, the premiums increase and coverage ceases at the age of 75. This option is temporary but it is more affordable. Plus it is a much better alternative to not having any coverage at all.


The permanent option is a favorite of the majority of our clients. With this, the premiums never increase, and if you add the ROP (Return of Premium Option) or on expiry (selected from several options during application), our clients can get all of the money back that they had paid into the policy. Of course this is provided if they did not get a critical illness in that time (in which case they would be paid out through the policy anyway). In the event that they pass away, or the policy expires, premiums are returned.

Think about this for a second, there are only three things that can happen to you once you get the permanent CI policy:

  1. You get a critical illness: In this case owning a CI policy was a great investment because you will be receiving a lump sum benefit that is probably a multiple of your income.
  2. You pass away before you get a critical illness:  If this happens all of the premiums that you paid into the policy will be paid to your estate, your family essentially gets all the money back.
  3. The policy expires and you never get a CI:  Congratulations! you were never diagnosed with a Critical Illness. What about all of the premiums you paid in? Well you will receive all of the premiums back that you paid into the policy.

So ask yourself this:  What are the risk for me if I get a Critical Illness insurance policy? Or more importantly, what are the risks for me if I DON’T get a Critical Illness insurance policy?

Get started with a free consultation with one of our licensed advisors who can help you get a no-obligation quote.