What’s critical illness insurance?
Critical illness insurance can help you cope financially if you’re diagnosed with a serious illness or condition by giving you a lump-sum payment. The payment is tax free and can be used however you choose. You can focus on getting better, knowing that you have your benefit payment to help with expenses.
What does critical illness insurance cover?
Before you get a critical illness insurance policy, it’s important to review which illnesses and conditions are covered. What’s covered differs from policy to policy. The most common covered conditions include:
- Heart attack
- Multiple sclerosis
- Organ transplants
- Kidney failure
Different policies also have different rules about the severity of the illness required to receive a payment. Also, be aware that critical illness insurance policies usually don’t cover chronic conditions, like fibromyalgia or asthma. They also don’t cover pre-existing conditions or conditions related to alcohol or drug use. Some policies require you to get a medical exam as part of your application for coverage.
How does critical illness insurance work?
- Choose the policy and a dollar amount of coverage you want.
- Apply for the policy and be approved for coverage.
- Pay your premium.
- File a claim if you’re diagnosed with an eligible critical illness.
- If your claim is approved, you will receive your payment. You may have to wait a set period of time depending on your condition.
What’s a survival period?
Unlike life insurance, critical illness insurance doesn’t usually provide a death benefit (a payment your beneficiaries get when you die). Instead, it gives you a living benefit, which is a payment while you’re still alive. You can use it to help cope financially if you become ill and concentrate on what matters most – your recovery, or to help you as you live with your condition.
Because of this, critical illness policies require that you survive a certain amount of time after your diagnosis before you receive your payment. This is known as a survival period. The duration of the survival period changes depending on the policy and the illness, but usually ranges from 0 to 90 days.
What are the benefits of critical illness insurance?
As medicine improves and better treatments are available, more Canadians are living longer while sick or recovering. While this is a good thing, it has created a need for coverage that goes beyond life insurance.
This is where critical illness insurance comes in. It can provide financial support once you’ve been diagnosed with a critical illness so you can focus on recovering. The lump-sum payment you receive can be used however you choose.
It can be spent on things like:
- Covering your regular living expenses (rent, mortgage, car payment, etc.)
- Retrofitting your home and/or vehicle for your accessibility
- Alternative treatments and therapies that your government health plan doesn’t cover
- Family support services (childcare, home care)
How much does critical illness insurance cost?
You’ll pay a monthly amount for critical insurance coverage. This amount is known as a premium. The premium amount will be based on several factors, including:
Your age and gender
Type and amount of coverage you’re buying
Your health history and your family’s health history – chronic diseases and some lifestyle choices (like smoking) can increase the cost
How much critical illness insurance do I need?
Critical illness insurance provides financial relief while dealing with an illness. But different illnesses have different treatments and outcomes, making it hard to predict exactly how much coverage you’ll need.
As a starting point, here are things to consider when deciding how much critical illness coverage you’ll need. A rule of thumb is to base your calculations on 1 year’s worth of expenses.
- How much income would you lose if you’re too sick to work?
- How much of your income will be covered by other sources, like disability insurance, short-term and long-term disability benefits through your employer or through government sources like the Canada Pension Plan, Quebec Pension Plan or Employment Insurance?
- Do you have other emergency savings to rely on?
Which expenses will you need to continue to pay while sick?
- Mortgage or rent
- Transportation costs
- Internet and other utilities
- Loans and other debts
- Will you need extra money for health care costs?
- Hospital expenses
- Treatment outside of Canada
- Will you need more childcare?
- Will you need domestic help, such as someone to maintain your property, prepare meals or clean your home?
- Will you require accessibility retrofits, like installing a wheelchair ramp?
These are just some examples of expenses you’ll want to consider. It’s only a first step. A financial advisor can help you figure out how much you need.
Where can I get critical illness insurance?
When it comes to buying a critical illness insurance policy, you’ve got a few options. Like with other types of insurance solutions, you can speak with an advisor if you need advice. If you’re comfortable selecting what you need yourself, you can also buy it online.
If you’re part of a group benefits or savings plan through your employer, you may also be able to buy it at lower rates. For example, Canada Life offers portable critical illness insurance to some plan members.
Is critical illness insurance the same as disability insurance?
No, disability insurance isn’t the same as critical illness insurance. While both insurance types provide living benefits (meaning you receive your payment while you’re still alive), critical illness insurance pays you a lump sum while disability insurance more commonly provides you with a monthly payment instead.
Another important difference is eligibility. You must be employed to qualify for disability insurance and your benefit is often based on your monthly or annual income. In other cases, disability insurance may be a fixed amount. With critical illness insurance, your eligibility is not dependent on your employment status, although if you are buying group insurance you will likely need to be employed to be an eligible member of the group. This is an important distinction because it means children and people who don’t get a paycheque can still get critical illness coverage.
One of the biggest differences, however, is that disability insurance is designed to help replace a portion of your wages if a disability prevents you from working. Critical illness, however, is not paid out according to your ability to work or not. Rather, it’s tied to a diagnosis of an eligible critical illness, and pays out a lump sum that you are free to spend on whatever you choose.