Critical illness insurance
Encyclopedia
Critical illness insurance or critical illness cover is an insurance product, where the insurer is contracted to typically make a lump sum cash payment if the policyholder is diagnosed with one of the critical illnesses listed in the insurance policy.
The policy may also be structured to pay out regular income and the payout may also be on the policyholder undergoing a surgical procedure, for example, having a heart bypass operation.
The policy may require the policyholder to survive a minimum number of days (the survival period) from when the illness was first diagnosed. The survival period used varies from company to company, however, 28 days and 30 days are the most common survival periods used.
The contract terms contain specific rules that define when a diagnosis
of a critical illness is considered valid. It may state that the diagnosis need be made by a physician who specialises in that illness or condition, or it may name specific tests, e.g. EKG changes of a myocardial infarction, that confirm the diagnosis.
In some markets, however, the definition of a claim for many of the diseases and conditions have become standardised, thus all insurers would use the same claims definition. The standardisation of the claims definitions may serve many purposes including increased clarity of cover for policyholders and greater comparability of policies from different life offices. For example, in the UK the Association of British Insurers
(ABI) has issued a Statement of Best Practise which includes a number of standard definitions for common critical illnesses.
There are alternative forms of critical illness insurance to the lump sum cash payment model. These critical illness insurance policies directly pay health providers for the treatment costs of critical and life-threatening illnesses covered by the policyholder’s insurance policy, including the fee of specialists and procedures at a select group of high-ranking hospitals up to a certain amount per episode of treatment as set out in the policy.
, under the name dread disease insurance.
Since 1983, the cover has been accepted into many insurance markets around the world. Other names of the insurance cover include: trauma insurance, serious illness insurance and living assurance.
Examples of other conditions that might be covered include:
Due to the fact that the incidence of a condition may decrease over time and both the diagnosis and treatment may improve over time, the financial need to cover some illnesses deemed critical a decade ago are no longer deemed necessary today. Likewise, some of the conditions covered today may no longer be needed a decade or so in the future.
The actual conditions covered depend on the market need for the cover, competition amongst insurers, as well as the policyholder's perceived value of the benefits offered. For these reasons conditions such as diabetes and rheumatoid arthritis, among others, may become the norm cover provided in the future.
or term assurance policy at the time of a residential purchase, known as a 'bolt-on' benefit.
The finances received could be used to:
This insurance can provide financial protection to the policyholder or their dependents on the repayment of a mortgage
due to the policyholder contracting a critical illness condition or on the death of the policyholder. In this type of product design, some insurers may choose to structure the product to repay a portion of the outstanding mortgage debt on the contracting of a critical illness, whilst the full outstanding mortgage debt would be repaid on the death of the policyholder. Alternatively, the full sum assured may be paid on diagnosis of the critical illness, but then no further payment is made on death, effectively making the critical illness payment an 'accelerated death payment'.
Some employers may also take out critical illness insurance for their employees. This contract would be in the form of a group contract and has become an essential strategy used by employers around the world to both protect their employees financially as well as attract more employees to consider working for the company.
These critical illness insurance products generally pay hospitals directly to avoid policyholder’s incurring out of pocket expenses and lengthy reimbursement processes. In most instances of this alternative to the lump sump critical illness insurance, policyholders may decide where they will receive treatment among a pre-selected group of hospitals.
Some forms of critical illness insurance also offer policyholders the option to travel to highly specialised hospitals in other countries to receive treatment. These policies usually include travel and accommodation expenses for the policyholder and a companion, as well as other concierge services such as translators or personal nurses.
While being a rather niche market that targets high net worth individuals and company employees of multinationals and other global businesses, coverage that pays for critical illness treatments has been recognised to improve competition among healthcare providers by empowering patients with more choices and improving the likelihood of survival beyond local capacity. While some large insurance companies offer these types of global critical illness coverage, the primary players have been patient service organisations that enable access to world class care for patients and offer decision support and quality control of the medical process with the twin aims of reducing costs by picking fewer but more effective procedures, involving the patient in key, informed decision-making and acting as patient advocates in the often fragmented and complex healthcare system.
For example, Harvard Business School Professor and Monitor co-founder, Michael E. Porter, and Professor Elizabeth Olmsted Teisberg argue in their book, “Redefining Health Care: Creating Value-Based Competition on Results” that the right kind of competition in the healthcare system can achieve substantial gains in both quality and efficiency. They cite the example of Preferred Global Health (PGH), a global patient organisation operating in Europe, the Middle East and Asia that offers a best outcome policy, Preferred Care, which orchestrates and directly pays for its members to receive treatment at the top 1% of hospitals in the USA. PGH, the authors write, helps its subscribers choose among world-class providers and treatments. In order to find the highest-quality providers, PGH follows independent third-party rankings and identifies those with the most experience in advanced treatments, including the volume of procedures undertaken by specialists and by the hospital, documents their effectiveness and asks them to participate in quality-improvement processes. By providing patients with meaningful choice and quality controlling the delivery of health care, information is disseminated and best value and medical outcomes can be maximised.
The underwriting process for critical illness is similar to life insurance underwriting in that it takes into account factors such as age, gender, smoking status, past medical history, family history, alcohol consumption, and body mass index. In the case of critical illness however, there is an increased emphasis on family history, smoking and bodymass index are risk factors that can demonstrate a marked increase risk with respect to critical illness cover.
Having underwritten an applicant in full, an underwriter can decide to accept the risk at the standard rate, or they may decide than an extra charge is warranted, or they may decide to apply exclusions of particular illnesses. If there is any amendemnt by an underwriter to the terms of acceptance, this has to be agreed by the applicant before the policy can proceed to issue.
, the UK, Ireland
, Australia
and New Zealand
, critical illness insurance has become a well established form of insurance.
Critical illness insurance continues to grow in popularity and has recently been accepted into other territories including the far east
and the United States
.
In markets, where the product is newer, many insurers choose to use the expertise of reinsurers with worldwide exposure as well as overseas insurers whom have sold the product for a number of years. The expertise may come in the form of data provided as well as assistance with the product design features of the product.
http://en.wikipedia.org/wiki/WP:SOAP and http://en.wikipedia.org/wiki/WP:EL -->
The policy may also be structured to pay out regular income and the payout may also be on the policyholder undergoing a surgical procedure, for example, having a heart bypass operation.
The policy may require the policyholder to survive a minimum number of days (the survival period) from when the illness was first diagnosed. The survival period used varies from company to company, however, 28 days and 30 days are the most common survival periods used.
The contract terms contain specific rules that define when a diagnosis
Diagnosis
Diagnosis is the identification of the nature and cause of anything. Diagnosis is used in many different disciplines with variations in the use of logics, analytics, and experience to determine the cause and effect relationships...
of a critical illness is considered valid. It may state that the diagnosis need be made by a physician who specialises in that illness or condition, or it may name specific tests, e.g. EKG changes of a myocardial infarction, that confirm the diagnosis.
In some markets, however, the definition of a claim for many of the diseases and conditions have become standardised, thus all insurers would use the same claims definition. The standardisation of the claims definitions may serve many purposes including increased clarity of cover for policyholders and greater comparability of policies from different life offices. For example, in the UK the Association of British Insurers
Association of British Insurers
The Association of British Insurers or ABI is a trade association made up of insurance companies in the United Kingdom.-History:The ABI began in 1985 after several specialised insurance industry trade associations, including the British Insurance Association, the Life Offices’ Association, the Fire...
(ABI) has issued a Statement of Best Practise which includes a number of standard definitions for common critical illnesses.
There are alternative forms of critical illness insurance to the lump sum cash payment model. These critical illness insurance policies directly pay health providers for the treatment costs of critical and life-threatening illnesses covered by the policyholder’s insurance policy, including the fee of specialists and procedures at a select group of high-ranking hospitals up to a certain amount per episode of treatment as set out in the policy.
The First Critical Illness product
Critical illness insurance was founded by Dr Marius Barnard, with the first critical illness product being launched on the 6th of October 1983 in South AfricaSouth Africa
The Republic of South Africa is a country in southern Africa. Located at the southern tip of Africa, it is divided into nine provinces, with of coastline on the Atlantic and Indian oceans...
, under the name dread disease insurance.
Since 1983, the cover has been accepted into many insurance markets around the world. Other names of the insurance cover include: trauma insurance, serious illness insurance and living assurance.
Conditions covered
The schedule of insured illnesses varies between insurance companies. In 1983, four conditions were covered by the policy, i.e. heart attack, cancer, stroke and coronary artery by-pass surgery. Since then various conditions were added and now the most comprehensive coverage is offered by PruProtect with 161 illnesses covered, although their plan pays between 10% and 100% of the insured sum dependent on the severity of the condition. The next nearest is Bupa who offer 43 while Aviva offer the least with 26 illness covered.Examples of other conditions that might be covered include:
- Alzheimer's diseaseAlzheimer's diseaseAlzheimer's disease also known in medical literature as Alzheimer disease is the most common form of dementia. There is no cure for the disease, which worsens as it progresses, and eventually leads to death...
- blindnessBlindnessBlindness is the condition of lacking visual perception due to physiological or neurological factors.Various scales have been developed to describe the extent of vision loss and define blindness...
- deafness
- kidney failure
- A major organ transplantOrgan transplantOrgan transplantation is the moving of an organ from one body to another or from a donor site on the patient's own body, for the purpose of replacing the recipient's damaged or absent organ. The emerging field of regenerative medicine is allowing scientists and engineers to create organs to be...
- multiple sclerosisMultiple sclerosisMultiple sclerosis is an inflammatory disease in which the fatty myelin sheaths around the axons of the brain and spinal cord are damaged, leading to demyelination and scarring as well as a broad spectrum of signs and symptoms...
- HIV/AIDS contracted by blood transfusion or during an operation
- Parkinson's diseaseParkinson's diseaseParkinson's disease is a degenerative disorder of the central nervous system...
- paralysisParalysisParalysis is loss of muscle function for one or more muscles. Paralysis can be accompanied by a loss of feeling in the affected area if there is sensory damage as well as motor. A study conducted by the Christopher & Dana Reeve Foundation, suggests that about 1 in 50 people have been diagnosed...
of limb - terminal illnessTerminal illnessTerminal illness is a medical term popularized in the 20th century to describe a disease that cannot be cured or adequately treated and that is reasonably expected to result in the death of the patient within a short period of time. This term is more commonly used for progressive diseases such as...
Due to the fact that the incidence of a condition may decrease over time and both the diagnosis and treatment may improve over time, the financial need to cover some illnesses deemed critical a decade ago are no longer deemed necessary today. Likewise, some of the conditions covered today may no longer be needed a decade or so in the future.
The actual conditions covered depend on the market need for the cover, competition amongst insurers, as well as the policyholder's perceived value of the benefits offered. For these reasons conditions such as diabetes and rheumatoid arthritis, among others, may become the norm cover provided in the future.
Need for Critical Illness cover
Critical illness cover was originally sold with the intention of providing financial protection to individuals following the diagnosis or treatment of an illness deemed critical. Critical illness may be purchased by individuals in conjunction with a life insuranceLife insurance
Life insurance is a contract between an insurance policy holder and an insurer, where the insurer promises to pay a designated beneficiary a sum of money upon the death of the insured person. Depending on the contract, other events such as terminal illness or critical illness may also trigger...
or term assurance policy at the time of a residential purchase, known as a 'bolt-on' benefit.
The finances received could be used to:
- pay for the costs of the care and treatment;
- pay for recuperation aids;
- replace any lost income due to a decreasing ability to earn; or even
- fund for a change in lifestyle.
This insurance can provide financial protection to the policyholder or their dependents on the repayment of a mortgage
Mortgage loan
A mortgage loan is a loan secured by real property through the use of a mortgage note which evidences the existence of the loan and the encumbrance of that realty through the granting of a mortgage which secures the loan...
due to the policyholder contracting a critical illness condition or on the death of the policyholder. In this type of product design, some insurers may choose to structure the product to repay a portion of the outstanding mortgage debt on the contracting of a critical illness, whilst the full outstanding mortgage debt would be repaid on the death of the policyholder. Alternatively, the full sum assured may be paid on diagnosis of the critical illness, but then no further payment is made on death, effectively making the critical illness payment an 'accelerated death payment'.
Some employers may also take out critical illness insurance for their employees. This contract would be in the form of a group contract and has become an essential strategy used by employers around the world to both protect their employees financially as well as attract more employees to consider working for the company.
Alternative Forms of Critical Illness Insurance
Typical critical illness insurance products refer to policies where the insurer pays the policyholder a pre-determined lump sum cash payment if the policyholder is diagnosed with a critical illness listed in the policy. However, alternative forms of critical illness cover provide direct payment to health providers to cover the high medical costs in treating critical illnesses such as cancer, cardiovascular procedures and organ transplants. The maximum amount is set out in the insurance policy and defined per episode of treatment.These critical illness insurance products generally pay hospitals directly to avoid policyholder’s incurring out of pocket expenses and lengthy reimbursement processes. In most instances of this alternative to the lump sump critical illness insurance, policyholders may decide where they will receive treatment among a pre-selected group of hospitals.
Some forms of critical illness insurance also offer policyholders the option to travel to highly specialised hospitals in other countries to receive treatment. These policies usually include travel and accommodation expenses for the policyholder and a companion, as well as other concierge services such as translators or personal nurses.
While being a rather niche market that targets high net worth individuals and company employees of multinationals and other global businesses, coverage that pays for critical illness treatments has been recognised to improve competition among healthcare providers by empowering patients with more choices and improving the likelihood of survival beyond local capacity. While some large insurance companies offer these types of global critical illness coverage, the primary players have been patient service organisations that enable access to world class care for patients and offer decision support and quality control of the medical process with the twin aims of reducing costs by picking fewer but more effective procedures, involving the patient in key, informed decision-making and acting as patient advocates in the often fragmented and complex healthcare system.
For example, Harvard Business School Professor and Monitor co-founder, Michael E. Porter, and Professor Elizabeth Olmsted Teisberg argue in their book, “Redefining Health Care: Creating Value-Based Competition on Results” that the right kind of competition in the healthcare system can achieve substantial gains in both quality and efficiency. They cite the example of Preferred Global Health (PGH), a global patient organisation operating in Europe, the Middle East and Asia that offers a best outcome policy, Preferred Care, which orchestrates and directly pays for its members to receive treatment at the top 1% of hospitals in the USA. PGH, the authors write, helps its subscribers choose among world-class providers and treatments. In order to find the highest-quality providers, PGH follows independent third-party rankings and identifies those with the most experience in advanced treatments, including the volume of procedures undertaken by specialists and by the hospital, documents their effectiveness and asks them to participate in quality-improvement processes. By providing patients with meaningful choice and quality controlling the delivery of health care, information is disseminated and best value and medical outcomes can be maximised.
Assessing Risk
Applicants are assessed for risk by a process of underwriting. Underwriting may take place in an automated underwriting computer filtering system. However the most detailed and holistic underwriting is still performed by experienced life insurance underwriters.The underwriting process for critical illness is similar to life insurance underwriting in that it takes into account factors such as age, gender, smoking status, past medical history, family history, alcohol consumption, and body mass index. In the case of critical illness however, there is an increased emphasis on family history, smoking and bodymass index are risk factors that can demonstrate a marked increase risk with respect to critical illness cover.
Having underwritten an applicant in full, an underwriter can decide to accept the risk at the standard rate, or they may decide than an extra charge is warranted, or they may decide to apply exclusions of particular illnesses. If there is any amendemnt by an underwriter to the terms of acceptance, this has to be agreed by the applicant before the policy can proceed to issue.
World Markets
In South AfricaSouth Africa
The Republic of South Africa is a country in southern Africa. Located at the southern tip of Africa, it is divided into nine provinces, with of coastline on the Atlantic and Indian oceans...
, the UK, Ireland
Ireland
Ireland is an island to the northwest of continental Europe. It is the third-largest island in Europe and the twentieth-largest island on Earth...
, Australia
Australia
Australia , officially the Commonwealth of Australia, is a country in the Southern Hemisphere comprising the mainland of the Australian continent, the island of Tasmania, and numerous smaller islands in the Indian and Pacific Oceans. It is the world's sixth-largest country by total area...
and New Zealand
New Zealand
New Zealand is an island country in the south-western Pacific Ocean comprising two main landmasses and numerous smaller islands. The country is situated some east of Australia across the Tasman Sea, and roughly south of the Pacific island nations of New Caledonia, Fiji, and Tonga...
, critical illness insurance has become a well established form of insurance.
Critical illness insurance continues to grow in popularity and has recently been accepted into other territories including the far east
Far East
The Far East is an English term mostly describing East Asia and Southeast Asia, with South Asia sometimes also included for economic and cultural reasons.The term came into use in European geopolitical discourse in the 19th century,...
and the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
.
In markets, where the product is newer, many insurers choose to use the expertise of reinsurers with worldwide exposure as well as overseas insurers whom have sold the product for a number of years. The expertise may come in the form of data provided as well as assistance with the product design features of the product.
External links
Critical Illness Latest News For Consumershttp://en.wikipedia.org/wiki/WP:SOAP and http://en.wikipedia.org/wiki/WP:EL -->