Matt Hands, VP, Insurance and MoneySense
Critical illness insurance is a type of life insurance product that covers you financially in the event you're diagnosed with a serious illness. While the list of illnesses you'll be covered for will depend on your policy, common examples include cancer, heart attack, stroke, organ transplant, and major organ failure.
Unlike a conventional life insurance policy (such as term life insurance or whole life insurance), this type of product is designed to protect you during your lifetime. When faced with a significant health challenge, the last thing you want to worry about is your finances – and that's where critical illness insurance steps in.
After selecting the right plan from the right insurer, you'll be paying regular premiums (either monthly or annually) to keep it active. Your insurance rate will depend on several individualized factors, such as your age, health status, and coverage amount.
Oftentimes, there is a waiting period for critical illness insurance. This is a set period of time after your policy becomes active (e.g. 30 days) in which you won't be able to make a claim, even if you're diagnosed with a covered illness. The idea behind this is to prevent policyholders from taking advantage of critical illness coverage for a pre-existing condition – it's designed to protect you from unforeseen circumstances.
Upon diagnosis of a condition that meets your policy's criteria (after the waiting period), you'll be paid out a lump sum of money to assist with your financial implications. This is a predetermined amount that was selected when you first purchased your critical illness plan. The money can then be used for pretty much anything you desire – medical expenses, income replacement, mortgage payments, or even a much-needed vacation.
While the list of protected medical conditions will depend on your policy and your insurer, here are some common critical illness insurance coverages. A basic, more affordable plan may only cover you for cancer while a comprehensive, more expensive plan can cover you for much more – so be sure to research all your options carefully to choose the best one for your needs.
2 in 5 Canadians are expected to be diagnosed with cancer during their lifetime (Canadian Cancer Society).
As the second leading death cause, 2.4 million Canadians have heart disease (Canadian Institute for Health Information).
Over 100,000 strokes occur each year in Canada – about 1 every 5 minutes (Heart & Stroke Foundation of Canada).
Over 50,000 people are being treated for kidney failure in Canada (The Kidney Foundation of Canada).
Canada has one of the highest MS rates globally – over 90,000 Canadians live with the condition (MS Canada).
Over 4,300 people in Canada are currently waiting for an organ transplant (Government of Canada).
What can a critical illness insurance policy be used for?
The insurance payout can be used for anything you wish – medical payments, specialist consultations, alternative treatments, home modifications, outstanding debts, income replacement, child care services, and more.
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Below is a table outlining monthly critical illness insurance rates from Manulife and CAA, based on age, gender, and smoking status. Premiums are representative of $25,000 in coverage for five common conditions. Keep in mind, however, that this should just be used as a baseline – compare critical illness insurance quotes with us today to find the lowest price you could be paying.
The more risk you bring as a policyholder, the more expensive your insurance will be. And choosing a plan with broader coverage terms will also increase your premium, of course. Let's take a look at some notable factors that have an impact on your critical illness insurance quote.
Age & gender
Cost of coverage increases as you age. And men and women are statistically more likely to develop different illnesses in different life stages (which will show in your premium).
Pre-existing conditions can lead to higher premiums or exclusions. And a history of family health issues can also increase your rate.
For obvious reasons, smokers face more expensive critical illness insurance rates than non-smokers.
Insurers may offer you higher rates if you live a lifestyle that increases your chance of developing a critical illness (e.g. you're a firefighter).
If you're able to lock down a rate for a set term (e.g. 5 years), longer terms can lead to higher rates – but this may also save you money in the long run.
The more coverage, the higer the price – this goes for both the dollar amount and the number of conditions you're covered for.
The amount of coverage you should purchase is dependent on your own needs as a policyholder. While there is no one-size-fits-all figure, here are a few questions you can ask yourself to help determine the right amount. For more guidance, be sure to consult a licensed life insurance broker in Canada.
How much money would my loved ones need to be supported if I'm unable to work?
What debts would I need help paying off (e.g. mortgage, credit card) if I'm unable to work?
What medical expenses would I face (that aren't covered by my health insurance)?
Would I face expenses for home modifications, equipment, and transportation?
Do I already have an emergency fund or existing coverage from other policies?
How much risk am I willing to take on? How does this weigh against my current budget?
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Tax-free payout – Like other life insurance products, the lump-sum payout you receive from a critical illness insurance policy is paid out tax-free.
Family protection – Critical illness coverage doesn't just pay for your medical needs. It can help protect your family if you're unable to work for income.
Guaranteed premiums – While premiums can increase as you age, you may be able to lock in a cheaper rate for a set term (e.g. 10 years) while you're young.
Peace of mind – You might not need the payout, but having it in your back pocket can provide you peace of mind, knowing you'll be financially protected.
Cost – While coverage can be cheap while you're young, it gets much more expensive with other factors in the mix (e.g. smoking status, pre-existing conditions).
Medical exclusions – Critical illness policies are specific to only certain medical conditions, so you may face an exclusion even if you fall ill (e.g. benign tumours).
Pre-existing conditions – These policies won't cover you for conditions that are pre-existing. It's only meant to protect you against unforeseen circumstances.
Waiting period – These policies typically come with a waiting period. This is a set time frame from your day you purchase your policy in which you won't be able to make a claim (even if you're diagnosed with a covered condition).
Another life insurance product you may be interested in is disability insurance. This type of coverage protects you financially in the event you become disabled and are unable to work. Let's take a look at a few key differences in the table below.
What is the best critical illness insurance in Canada?
The best insurer will be the one that meets all your coverage needs for the lowest rate possible – be sure to compare critical illness insurance quotes with us to find the right one for you. We'll also connect you with a licensed broker to help guide you through the entire process.
Does health insurance cover critical illness?
While your provincial health insurance plan will pay for certain expenses, such as your medical diagnosis and hospital stay, there are many gaps in coverage it may fall short of – this can include home care and transportation. Health insurance also won't replace your income if you can't work, leaving recurring bills like mortgage, rent, utilities, and car insurance up to you.
Is a critical illness insurance payout taxable in Canada?
No, the benefit from a critical illness insurance policy is generally paid out tax-free, meaning you won't owe income tax on the amount. It's a lump-sum payment that can be used at your own discretion.
What is a waiting period for critical illness insurance?
The waiting period on your critical illness insurance policy is a set amount of time from when the plan starts in which you won't be able to make a claim (even if you're diagnosed with a covered illness during this time). This will vary depending on the policy, but many plans have a 30-day period.
Does critical illness insurance cover pre-existing conditions?
Generally speaking, if a critical illness is related to your pre-existing condition, it will not be covered. If you'd like to add a pre-existing condition amendment, be sure to speak to a licensed life insurance broker about this.
What illnesses are covered by critical illness insurance?
While this will depend on your insurer and the exact terms of your policy, here is a list of commonly recognized critical illnesses in the industry:
- Major cancer
- Heart attack (different severities may or may not result in a payout)
- Stroke with a permanent neurological disorder
- Requiring coronary artery bypass or open-heart surgery
- End-stage kidney failure
- End-stage lung disease
- End-stage liver failure
- Irreversible loss of hearing (deafness)
- Permanent loss of speech
- Major burns
- Major organ or bone marrow transplant
- Multiple sclerosis
- Muscular dystrophy
- Parkinson’s disease
- Alzheimer’s disease
- Severe dementia
- Primary pulmonary hypertension
- HIV due to blood transfusion and occupationally acquired HIV
- Benign brain tumour
- Severe bacterial meningitis
- Terminal illness