Critical Illness Insurance
Core concepts
Critical illness (CI) insurance pays a lump sum on first diagnosis of a covered condition, subject to a survival period (often 30 days). Covered conditions typically include cancer, heart attack, and stroke, plus others. Candidates must understand the waiting/survival period, pre-existing condition exclusions, return of premium options, and benefit reduction for early diagnosis.
CI differs from disability: CI pays on diagnosis regardless of ability to work; disability pays for inability to work. CI is indemnity/valued - the lump sum is paid regardless of actual expenses.
Traps in questions
- Confusing CI with disability income (diagnosis vs. inability to work).
- Forgetting the survival period - no benefit if the insured dies within it.
- Missing that some policies pay a reduced benefit for less severe conditions.
- Assuming all cancers are covered - many exclude early-stage or certain skin cancers.
Rule of thumb
CI = diagnosis trigger + lump sum. If the question mentions "cannot work," it is disability; if it mentions "diagnosed with," it is CI.
Worked example
An insured is diagnosed with a covered cancer and survives 45 days. The policy pays the full lump sum after the 30-day survival period. If death had occurred within 30 days, no benefit would be payable.