Corp-owned Critical Illness Insurance (“CII”)

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Corp-owned Critical Illness Insurance (“CII”)

As part of their overall financial strategy, Royal Rock works with many clients helping them assess the need for critical illness insurance.

Although many people believe that they’re fully protected with a standard health insurance plan, in many critical illness cases, the costs of treating such illnesses often end up being far greater than the amounts a traditional medical plan will cover.

What is CII?

CII is an insurance product in which the insurer contracts to make a lump sum if the insured becomes ill with a critical or severe illness that may involve extended hospitalization and extensive treatment. It is possible to purchase standalone critical illness cover without having life insurance, but most people link them together.

These policies work based on providing additional coverage for critical medical events or occurrences such as:

  • Aortic surgery
  • Aplasic anemia
  • Bacterial meningitis
  • Benign brain tumour
  • Blindness
  • Cancers
  • Coma
  • Coronary artery bypass surgery
  • Deafness
  • Dementia, including
  • Alzheimer’s disease
  • Heart attack
  • Heart valve replacement or repair
  • Kidney failure
  • Loss of independent existence (LOIE)
  • Loss of limbs
  • Loss of speech
  • Major organ transplant
  • Major organ failure on waiting list
  • Motor neuron disease
  • Multiple sclerosis
  • Occupational HIV infection
  • Paralysis
  • Parkinson’s disease and specified atypical parkinsonian disorders
  • Severe burns
  • Stroke
  • Acquired brain injury 

Typically, such emergencies or illnesses mean that affected clients incur higher than average medical costs, which may have a significant impact on the insured’s finances. The inability to attend to the daily business may be highly disruptive to one’s business interests. Therefore, CII policies pay out cash to help cover any additional expenses that traditional health insurance policies may not cover or only provide reimbursement up to a certain amount. For many, CII policies can act as an income replacement.

How are critical insurance policies paid out?

If a person is diagnosed with a predefined critical illness during the policy term and provided premiums have been maintained, CII will pay out a lump sum.

Such monies may be used for:

  • life expenses, so one can focus on recovering, instead of having to worry about how to pay their bills; some may choose to pay off the mortgages to reduce future burden for the families.
  • medical expenses, such as surgery operation, cancer treatment (not covered by MSP) which may otherwise not be an available option due to lack of finance;
  • final wishes- such as a dream trip, visit certain relatives and friends, charities,
  • For business owners, this fund can cover business operations, such as hiring extra staff, rent for offices, bridge fund, penalties for contract breaches, etc 

How does CII policy pricing work?

The premiums paid depend upon several factors, including the amount and extent of coverage required, the gender, age and health of the insured, and family or the insured’s medical history.

Additional Strategies - Return of Premiums

The Return of Premium (“ROP”) option involves adding a rider to critical illness and disability insurance policies allowing the policyholder to recover all or a part of the premiums which have been paid provided certain conditions are met.

The three main types are below:

  • Return of Premium on Death (“ROPD”): If the policyholder passes away during the Term of the policy, and no claims have been made, all paid premiums are returned and paid to the designated beneficiary appointed by the insured during his/her lifetime.
  • Return of Premium on Cancellation/Surrender (“ROPC”): If the insured decides to cancel or surrender the policy during the Term, most insurance companies will agree to a full or partial return of premiums paid for the policy at pre-determined times or age of the insured, usually depending on how long the policy has been effective.
  • Return of Premium on Expiry (“ROPE”): If the term of the policy expires and no claim has been made, the insurance provider will refund all premiums paid to the insured life or his/her designated beneficiary.

Additional Strategies - Split Dollar Critical Insurances

Insurance solutions are regularly evolving and new types of insurance such as Shared Ownership (“SO”) or Split Dollar Critical Illness (“SDCI”) are becoming more common. Shared Ownership is mostly seen in insurance policies where the corporation is the beneficiary of an insurance benefit and an employee owns the policy cash value.

However, even though the SDCI policy does not offer a residual cash value, a Return of Premium (“ROP”) option is available in the following instances:

  • On death – the premiums paid are refunded if the insured passes away without having submitted any claims in respect of a critical illness;
  • On surrender – in the event the policy is surrendered without a claim being made, then all premiums paid will be refunded;
  • On expiration – premiums paid are refunded if the policy reaches its expiration without any claims being made.

To effect CI, a Shared Ownership Agreement, could be structured in the following way:

  • confirmation that the corporation will be the insured, pay for and be the beneficiary of the CI coverage on the key shareholder or employee; and
  • the shareholder will own and pay for the Return of Premium option upon the surrender of the policy

Know Your Numbers: Critical Illness Statistics

More and more Canadians are being affected by critical diseases. Accordingly, critical illness insurance coverage is becoming an essential for many, offering a financial security blanket for many to help deal with skyrocketing hospital bills and medication costs.

You only have to look at some statistics to understand why CI policies are a preferred insurance solution:

  • approximately 30% of all deaths in Canada are caused by cancer;
  • around another 35,000 annual deaths are caused by cardiac arrest (heart attacks);
  • on an annual basis some 62,000 of Canadians have strokes;
  • typically, only 3-4 illnesses are covered critical illness insurance policies;
  • 90% of all critical illness claims are from cancer or cardiac arrest patients;
  • males aged 54 produce around 54% of all critical illness claims;
  • in the next 3 years or by 2025, the value of the critical illness insurance market globally is likely to reach US$79.4 billion. 

Call or email one of our insurance professionals now to discuss the policy overage you need!

Let’s See How We Can Help You

Your path to a more secure financial future is only a phone call away. To get started, fill in the contact form or call at 778-288-1587. we can get to know each other through an in-person or virtual consultation.