Your company is on a roll and you’re planning to move into new markets, invest in new technologies… Then, out of the blue, you get some bad news: your long-time partner, a key player in your development plans, needs to undergo a major medical procedure and will be unable to work for an indefinite period. How are you going to cope with this challenge? 

Shared ownership critical illness insurance might be part of the answer. Here’s how it works. 

Strategic protection for the company 

This type of insurance solution provides a quick injection of capital for a company if a shareholder or key employee happens to develop a critical illness. This money could then be used, for example, to offset any losses or opportunity cost associated with the person’s absence, to provide an income for the affected person, or to recruit new staff.   

However, along with the protection component, this approach includes another key element: the return of premiums if the insurance is no longer needed.  

A win-win approach 

As shown in the following diagram, this type of insurance makes it possible to share both the premiums paid and any future benefits.  

On one hand, the company pays the basic insurance premium and is the beneficiary of the protection component. Thus, the company would receive a lump sum payment if the shareholder or key employee were to develop one of the critical illnesses covered by the policy. 

The employee, on the other hand, pays for and benefits from the Return of Premium option. If the employee remains healthy, he or she can recover all of the premiums paid, including those paid by the company. 

In the case of a sole proprietorship, the company would pay for the basic insurance and the owner would personally pay for the Return of Premium option. This would give the owner dual coverage: payment of a benefit in the event of developing a critical illness, and the return of all premiums in full if he or she remained healthy. 

Which illnesses are covered? 

Covered illnesses vary depending on the policy. As a rule, the list consists of a range of serious health conditions, including some cancers and tumours, cardiovascular diseases (stroke, heart attack, etc.), neurological problems (Parkinson’s disease, multiple sclerosis, etc.), accidental and functional injuries (paralysis, deafness, etc.), and major organ failure. 

Once again, this list of covered conditions varies from policy to policy. 

A third component 

In addition to the critical illness benefit for the company and the “health” benefit for the individual, shared ownership critical illness insurance also provides a death benefit payable to the company if the insured person passes away. It’s important to understand, however, that this type of insurance does not pay benefits directly to the insured person or his/her family in the event of critical illness or death. For this reason, it needs to be viewed as a complement, not a substitute, for personal insurance. 

Another point to keep in mind is that if a return-of-premiums claim were filed before the end of the contract, there would be tax consequences for the shareholder or key employee. Finally, since this type of insurance is held jointly by the company and the individual, a legal document specifying each party’s rights and obligations would have to be drawn up. 

In short, this is an attractive solution for both the company and the insured person. If you are in business, it could offer you a better way to manage the health risk that might some day compromise your plans. But it’s also a product with many legal and tax implications, so getting expert advice is recommended in order to set it up in the most advantageous way.