Critical Illness Insurance – Financial Protection for Your Client

Critical illness insurance (CI) is still one of the most compelling protection products on the market today. In addition to providing lump-sum payments in the event of 20+ major illnesses, it also gives your client flexible options to return their premiums (in full!) should they live a long and healthy life.

The fact is that 1 in 3 women and 2 in 5 men have a chance of developing a critical illness in their lifetime – an illness that could derail your client’s financial security, retirement planning or even their way of life altogether (1). The risk is real and all of us have witnessed how an illness can affect a family and its finances.

Yet, unlike life insurance, your client will be able to actually see the benefit of this product, beyond providing for a beneficiary, during their lifetime. CI allows your client to protect themselves financially, allowing them to focus on treatments, a speedy recovery, as well as the purchase of additional medical care if needed.

A major selling point of CI coverage is the return of premium option. A number of plans provide a return of premium after a specific number of years (often an increasing amount), at an additional premium. If your client chooses to cancel the policy, they receive 100% of their premiums back. This creates a relative win-win scenario for your client. If they become ill, your client will receive the lump-sum face-amount and are protected financially; if they don’t become ill, they can opt to receive all their money back at a later time to facilitate a more secure retirement or pay for other expenses.

Let’s have a look at Tom Client, a 40-year-old, non-smoker who has recently purchased a critical illness policy with a $100,000 face amount; Tom has also opted for a return of premium 15-year rider. With the insurance carrier’s policy fee, Tom pays $190.26 in monthly premiums. The table below demonstrates Tom’s return of premium over time:

Year Cumulative Premium Coverage Amount Return of Premium*
1 $2,283 $100,000 $0
5 $11,415 $100,000 $1,712
10 $18,264 $100,000 $11,415
15 $34,246 $100,000 $34,246
20 $45,662 $100,000 $45,662
25 $57,078 $100,000 $57,078

(Based on iA Transition Critical Illness Insurance, T75 coverage with Flexible Return of Premiums 15 years, illustration as of February 10, 2021)
*Upon cancellation of policy

If, in this example, Tom becomes ill in year 15 (age 55), he will receive the full $100,000 face amount, representing a rate of return on his cumulative premiums of 192%. Conversely, if Tom decides to surrender his policy, he will receive $34,246 or 100% of the premiums that he has already paid. If you take the extra premium for the return of premium rider of $80.73 monthly, or $968.76 annually, the $34,246 refund would equal a return on that extra rider cost of 136%.

Looking further, at age 65, Tom can choose to surrender the policy, giving him $57,078 to help fund his retirement or buy a boat… a boat sounds very nice.

It’s pretty clear, a critical illness policy provides your client with two very attractive options – to protect their finances and lifestyle in the event of a critical illness or receive all of their premiums back IN FULL should they live a long and healthy life – we’re aspiring for the latter!

  1. Critical Illness – FAQs | BMO Bank of Montreal, 2021.

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