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Is critical illness insurance worth it?

If you get sick – like, really sick – how will you take care of yourself financially? If you aren’t able to work and need money to pay for medical expenses, care, and travel, where will it come from?

To prepare for such an event, many Canadians choose to purchase critical illness insurance. But is this type of coverage worth the investment?

What is critical illness insurance

Illness is a fact of life. Like many of the unexpected things we insure ourselves for – like a fire in our home or a car crash – illness can happen unexpectedly and be financially devastating. Heart attack, cancer and stroke are the most prominent examples of illnesses that can occur at any time and leave you unable to work or meet other obligations for an indefinite length of time.

Like auto insurance, which pays the cost of putting everything back together after a collision, critical illness insurance aims to cover the financial costs of falling severely ill.

Like life insurance, most critical illness coverage in Canada pays out a lump sum of money in the event you’re diagnosed with a covered illness and survive a waiting period (typically one month).

Is it worth having critical illness insurance in Canada?

Critical illness insurance may be worth it, depending on your lifestyle and situation.

Canadians who will most benefit from having critical illness insurance are people who are relatively young, have big responsibilities like a family and a mortgage, and who would not be able to maintain their obligations if they became critically ill.

Canadians who will benefit least from having critical illness insurance are people who are older (whose premiums are likely to be much higher), who don’t have dependents, and who have savings or a source of fixed income to fall back on.

The cost of critical illness insurance depends on several risk factors:

  • Your age and sex – The most significant risk factor for becoming critically ill is your age. Therefore, it’s arguably the most significant factor in determining your critical illness insurance premium. There are also differences in risk for biological men and women, with the risk of most illnesses peaking earlier for men than women.
  • Your lifestyle –Smoking (including cannabis) is a critical lifestyle indicator of whether you’ll become critically ill.
  • Your coverage – Your premium will be directly related to the amount of coverage you choose. Plans are available that cover different numbers of critical illnesses, have different payout levels, and include optional benefits like the ability to convert your plan to another type of insurance.
  • The type of policy you choose –Term critical illness insurance, like term life insurance, covers you for a specific period. The most common term length is 10 years. When your term is up, you can choose to buy new coverage or let your insurance lapse. You can also purchase lifetime critical illness insurance, covering you until a certain age (typically 65 or 75) or death.

Since there’s such a wide range of providers and risk factors, it’s almost impossible to give an estimate of how much critical illness insurance might cost you. To get an accurate price and help you decide, you can get a critical illness insurance quote online.

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Is it better to have critical illness coverage or disability insurance?

Neither better nor worse, disability insurance is a different type of coverage. Whereas critical illness insurance pays a lump sum for sudden and significant illnesses like heart attacks, disability insurance replaces a portion of your income if you become disabled and cannot work.

Disability insurance covers a much more comprehensive range of reasons for the inability to work, including disability caused by mental health issues and chronic pain. This coverage allows you to continue living a similar lifestyle even if you’re unable to work.

Critical illness insurance covers a small number of severe illnesses such as cancer and heart attack. It’s intended to help you pay for major expenses over the short term while you focus on getting well and getting back to work.

Suppose you’re considering buying insurance because you’re concerned about Covid-19 or other common infectious diseases. In that case, disability insurance is the better choice as critical illness insurance only covers a small number of illnesses, which will be named in your policy.

How much critical illness should I have?

Critical illness insurance is there so that if you get seriously ill, you don’t have to worry about money and focus all of your energy on your treatment and recovery.

To determine the amount of insurance you should carry, think about what your expenses might be if you became seriously ill. Major expenses to consider are housing, debt payments, obligations to family, and the costs associated with treatment that aren’t covered by other types of insurance like travel and lodging.

You may have to cover these expenses for several months if you become seriously ill. A rule of thumb is to carry coverage at least equal to one year’s salary, but the amount of insurance you purchase will ultimately be based on a balance of your perceived risk and the premium cost.

Note that you may already have critical illness insurance coverage through your employer’s benefits plan. You may be able to purchase additional coverage if you so choose, or you can buy a policy for yourself for extra coverage.

Could I not just rely on an emergency fund?

Yes, you could. If you have an excellent emergency fund saved, you may choose that it’s sufficient as an alternative to purchasing critical illness insurance. However, there are some limitations to how well you can self-insure:

  • You could need to use your emergency fund for something else If you use up your savings after losing your job, you might find yourself unprepared for a critical illness. Insurance makes sure you’re covered as long as you pay your premiums.
  • You could need more than you’ve saved.The recommended emergency fund is three months’ salary. Most Canadians haven’t saved that much – and even those who have will likely need more than that to cover a critical illness.
  • Insurance is cheaper. We buy insurance to pay for major, unexpected expenses that we would otherwise be unable to pay. Just as you could rely on your emergency fund to repair your car after getting rear-ended, it’s far more affordable to carry collision coverage and let insurance pay for those things. The same is true of critical illness insurance.
  • Insurance is immediate. While saving an emergency fund is very much recommended, it takes time. When you buy critical illness insurance, your coverage begins right away (there may be a short waiting period of around 90 days before parts of your coverage kick in). Whether you fall ill in the first year of your policy or a decade from now, your insurance will be there for you.

The bottom line

Critical illness insurance is a great way to protect yourself from the financial implications of becoming suddenly and severely ill. If you’re young and healthy and wouldn’t be able to maintain your home and family if you were to fall ill, critical illness insurance could be precious to you.

Conversely, if you’re at higher risk and your financial situation is more stable, you may not need this kind of coverage.

Ultimately, the choice is up to you. To learn more about what kind of critical illness coverage you can get and what it would cost, start by getting a critical illness insurance quote online.


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