Critical Illness Insurance – Do We Position Its True Value or Baulk at the Cost?

Critical illness insurance (CI) seems to be something most clients know a little bit about. Sure, it’s a great complement to life insurance and disability income protection (replacing neither), but when it comes to purchase, CI is perhaps the first item of the client recommendation to be eliminated, once the client suggests it seems “too expensive”. Now you have a decision to make with your clients… do you show the true value of critical illness insurance to your client as an added layer of protection and the peace of mind knowing it helps keep them and their family secure or do you baulk at the high cost of CI?

The Origins of Critical Illness Insurance

Critical illness insurance was “invented” in South Africa in the 1980’s by Dr Marius Barnard (part of the team that performed the first human-to-human heart transplant). Barnard recognized that with modern medical advancements, more and more people could actually survive critical conditions… but then didn’t have the funds to pay for elements of this survival including:

  1. Additional/alternate medical costs not paid for by government or private plans.
  2. Alterations to a survivor’s home to accommodate their new physical condition.
  3. Covering day-to-day expenses from a longer period of time off work; something their employer won’t cover.
  4. Not being able to work as many hours or work in the same profession, causing an income shortfall.
  5. An extended holiday with loved ones to celebrate recovery.

Critical illness insurance only came to Canada in the 1990’s – a little late in the game and at a time when parents would not have instilled into their children the need to have this type of coverage. In comparison, life insurance is said to have origins as early as 700 BC, so it’s no wonder the importance of life insurance has been stressed throughout the decades. But should we be stressing the same level of importance for CI?

The Benefits of Critical Illness Insurance

As mentioned, CI helps offer your client another layer of income protection and the peace of mind knowing their finances have some protection at an already difficult time in their lives. Some of the benefits of CI include:

  • Paid as a lump sum amount based on the insured suffering a covered “critical” condition, CI covers the major illness such as cancer, heart attack, stroke and kidney failure; some policies can even cover up to 26 different conditions.
  • Unlike life insurance, the CI policy holder can receive their payment for themselves, to spend as they like and when they see fit. The power is in the hands of your client!
  • Unlike life insurance that centres around leaving money to your client’s beneficiaries, CI focuses on financial protection, allowing them to focus on treatment, recovery, as well as any additional medical care, if needed.
  • A number of CI policies offer your client (at an additional cost) flexible options for the return of their premiums, should they live a healthy, illness-free life – money that your client can put towards their retirement or other expenses.
  • If your client is a business owner, they can help protect their business against the instability of a key employee becoming sick.
  • CI coverage helps to protect your client from liquidating assets or impacting their retirement savings plan in the event of a serious illness.

Risk to Investment Planning

Your client has worked hard to accumulate some investments – that’s fantastic! But what would happen to all their hard-earned investments if they didn’t have critical illness coverage? Here’s an example to share with your client… a 45-year-old has long-term savings in place, but no CI policy. They are diagnosed with cancer and, after successful treatment, need to access $50,000 as part of their recovery, but they only have their RRSP to take this from. How will this impact their investment planning?

  • Withdrawal cannot be recontributed, so contribution room has been lost/wasted.
  • Assets being sold may have dropped in value.
  • Assuming a marginal tax rate of just 35%, the gross amount required to be withdrawn would be circa $77,000 to achieve the net amount of $50,000.
  • There is lost compound growth opportunity on the withdrawn funds. Had the $77,000 not been withdrawn, assuming a pre-tax annual growth rate of 5%, it would have added another $204,303.92 to the RRSP’s value by age 65!
  • Retirement may need to be delayed and/or a lower income taken.

It Won’t Happen To Me… Will It?

If your client is still on the fence about the importance of purchasing critical illness insurance, here are a few stats for them to consider:

  • For a 35-year-old in good health, 31% of men and 23% of women will suffer a critical illness before age 65. (1)
  • 2 in 5 Canadians are expected to be diagnosed with cancer in their lifetime. (2)
  • In 2021 in Canada, 77% of critical illness claims (in this case, with Sun Life Financial) were paid to those under the age of 61, with just 23% being to those aged 61 and above. (3)
  • Over 1.5 million Canadians are living with and beyond cancer up to 25 years after a cancer diagnosis. (4)

Factoring these stats, just 8% of Canadians have critical illness insurance (5) – this at a time when a healthy 35-year-old non-smoker could attain coverage to age 65 for a $50,000 tax-free lump sum payout for just over $40 per month. (6) With earlier detection of certain illnesses and better treatment options, shouldn’t we be emphasizing the importance of critical illness insurance?

The Differentiator In Your Practice

You know how competitive the marketplace has become. So, the real question remains, do you choose to baulk at the cost of critical illness insurance OR do you want to be the Advisor who wins a new client because you can clearly and meaningfully position the true value of CI (and potentially be paid on multiple solutions)?

For similar content about critical illness insurance to share with your clients, check out CIDI: Enhancing Your Client’s Benefit Package, Protecting Your Clients’ Retirement with Critical Illness Insurance and Critical Illness Insurance – Financial Protection for Your Client and the Strengthening Your Client’s Safety Net with Critical Illness Insurance tool help your client discover the likelihood of some commonly known risks actually occurring.

And if you have any questions about the benefits of CI or need a little more information, please contact your local PPI Collaboration Centre.

  1. iA Financial Group. Corporate Critical Illness Insurance To Protect Assets. 2023.
  2. Canadian Cancer Society. Cancer Statistics At A Glance. N.D.
  3. Sun Life. Understanding Critical Illness Insurance Claims. N.D.
  4. Canadian Cancer Society. New Canadian Cancer Statistics Report Reveals Over 1.5 Million People In Canada Are Living With Or Beyond Cancer. N.D.
  5. iA Financial Group. Corporate Critical Illness Insurance To Protect Assets. 2023.
  6. 2023.

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