Not all contracts
for critical illness insurance are the same — especially now that insurers are increasing premiums while tweaking the coverage and adding features to make their products more competitive.

The key to providing clients with the right CI coverage is knowing the product, says Ami Maishlish, vice president of insurance and financial software at CompuOffice Software Inc. in Richmond Hill, Ont. That goes for any insurance product, he says, but it is particularly important for CI insurance.
Subtleties in contracts can result in clients not receiving benefits for conditions for which they believed they were covered.

> Terms. One of the first things that a client should consider, says Kim Stanley, president of The Canadian Living Benefits Centre Ltd. in Brampton, Ont., is whether to choose a permanent or a renewable term contract.

Most CI insurance products in Canada have
a level guaranteed premium that the client pays until he or she reaches age 75 or, in some cases, age 100. Renewable contracts are less common here, and they may have five-year, 10-year or 20-year terms. Under these contracts, the rates remain constant throughout the term, but are likely to increase when the contract is renewed.

“Permanent contracts are more expensive initially,” Stanley says, “but not necessarily in the long term, because renewals will soon outpace a T-75.”

To illustrate the point, Stanley describes the case of one client, a woman in her late 40s, who had to choose between a CI policy with a 20-year term and one with a contract that is guaranteed until age 75. The 20-year term had lower premiums, but would expire when the client was still in her late 60s,
precipitating a sharp spike in premiums.
The term-75 would provide eight extra years
of coverage for a negligible amount.

> Definitions. A major area of divergence among CI insurance products lies in the definitions of illnesses and conditions covered by the contracts. Some CI contracts cover only core illnesses — cancer, heart attack and stroke — whereas others cover a long list of conditions, against which it may or may not be worth insuring.

Alphonso Franco, president of Trenton Financial Services Inc. in Victoria and founder of the World Critical Illness Insurance Conference, which is being held in Toronto on April 7 to 9, believes inconsistencies in definitions in CI contracts from company to company is a major problem in the industry.

“It has become necessary for all companies to take some core conditions and agree on a way of arriving at standard definitions,” he says. “The time has come and gone when this should have happened — but it’s better late than never.”

Definitions posed a major problem in Britain a few years ago. Many British insurers faced lawsuits from policyholders whose claims were refused because of restrictive definitions in their contracts. The industry in Britain took steps to solve that problem by standardizing the definitions of illnesses most commonly covered in CI contracts, a move Franco would like to see the industry in Canada copy.

In some Asian countries, insurers offer CI contracts that appear to cover hundreds of conditions when, in fact, there are multiple definitions for each of a few illnesses, Franco says. Canada hasn’t gone that far yet, but standardization would prevent the industry from moving in that direction.

No one disputes that standardized
definitions are necessary and that they must be specific. But they should also reflect the reason the product category was created.
“The purpose of a CI policy is to cover the impact of an unexpected financial loss as a result of a critical illness,” Maishlish says.
That can include medication and treatment that is not covered by provincial health plans and other expenses, such as loss of income when a client requires hospitalization or extensive treatment. The core illnesses — cancer, heart attack and stroke, with the possible inclusion of multiple sclerosis, of which Canada has a high per-capita incidence — should form the basis of a CI contract.

Specific definitions are necessary because “cancer,” for example, is a broad term that can cover a multitude of conditions and every level of severity. CI doesn’t typically cover superficial skin cancers, which can often be removed in a doctor’s office under a
local anesthetic.

Newer policies are specific about heart attack definitions, using terms such as “cardiac enzyme” and “cardiac marker” — not because companies want to limit claims on major events but to remain consistent with the latest medical definitions, Stanley says.