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What is critical illness insurance: An honest guide

by Sam Stilson
13 min read

As Canadians, health-wise, we know we have it pretty good. We have a robust life expectancy (83 years), world-class doctors, scientists and health-care facilities and – thanks to Tommy Douglas’s gift of universal healthcare – access to those practitioners and the services they provide. It’s little wonder we rarely consider exactly what is critical illness insurance.

With this enormous safety net beneath us, it’s hard not to feel a teensy bit… invincible. Whether we’ll admit or not, many of us are guilty of assuming that if we were to get seriously sick, we’d be fine, and with the leaps they’ve been making in modern medicine, we might not even get sick at all.

But even a cursory glance at health statistics will show, that sadly, that’s just not true.

Half of all Canadians are expected to develop some form of cancer in their lives and one person will suffer a heart attack or stroke in our country by the time you finish reading this article.

It’s staggering to think but critical illness is actually common in Canada.

Studies suggest that 81 per cent of working Canadians know someone who has a critical illness or have suffered from one themselves.

Luckily though, thanks to our brilliant health-care workers, the incidence of surviving those once terminal illnesses has been steadily rising over the past several decades. The 5-year survival rate for cancer in Canada is now 60 per cent for all cancers combined. 405,000 Canadians are living with the effects of stroke and the death rate for heart attacks has decreased by 23 per cent from 2000 to 2013.

While it’s comforting to know less Canadians are dying, it also means that more of us are now dealing with the harrowing after-effects of the treatments, surgeries, medicines and lifestyle changes that accompany major diseases.

So if developing a serious illness is not only possible but probable for the average Canadian, how can you plan ahead to protect yourself and your family?  Is there a way to safeguard against the predictable unpredictability of getting terminally ill?

Well, you can always consider critical illness insurance.

What is critical illness insurance?

Critical illness insurance is an agreement with an insurer that they will pay you a tax-free lump-sum if you develop a specified illness, health event or undergo treatment while under their coverage. Coverage is defined by a ‘term’ length, agreed upon when purchasing your policy. The payout is not contingent on your death and is paid out once proof of a specified illness or incident is established.

So just to make it super clear, if you have a policy for $250,000 that covers heart attacks, and you have one that satisfies the description in your policy (more on this later), you’ll receive a quarter of a million dollars from your insurer. Full stop.

Just like with life insurance, you’ll be required to pay a regular premium over the course of your term length to maintain that protection and both the amount of the payout and the premiums are decided upon before enacting your policy.

Cancer and heart disease stats

Critical illness insurance is something you buy to protect you and your family from the financial fallout related to getting critically sick. Unlike term life insurance, it’s not intended to provide long-term financial support for your family after you pass away but is available for use to you and family during your lifetime.

Do I need disability insurance if I have critical illness insurance?

Critical illness definitions

Critical illness definitions

What does critical illness insurance cover featured image

What does critical illness insurance cover?

Do you have to spend a critical illness insurance payout on treating your illness?

No. The payment can be used for whatever you want. It’s worth noting though that there is a survival period, usually 30 days, that you must live through after your diagnosis before the money will be released.

What if I get better, do I have to give the money back?

Definitely not.

Critical illness insurance is not defined by recovery, treatment or death. It is a one-time payment that is triggered by the development of specific diseases or conditions.

This is how it differs from term life insurance (which is contingent on death), long-term care insurance (which pays for assistance for those who can no longer take care of themselves) and disability insurance (which is tied to the recipient’s ability to work).

Why would I need critical illness insurance? Isn’t health care free in Canada?

You…wouldn’t want…a quarter of a million dollars?

Joking aside, though many health care services are covered by provincial health care plans, that coverage doesn’t typically extend beyond a hospital setting. There are many other expenses related to critical illness treatment that can’t be taken care of with public health care and critical illness insurance offers that financial protection.

For instance, if you were suffering from a deadly disease you’d probably want to take an extended period of time off of work to fight your condition. The money you receive from your policy could replace that lost income or even give you the option to stop working altogether to focus on your recovery.

If you suffered a stroke or some form of paralysis, you might require structural changes to your home (installing ramps, handrails, mobility devices) to help you with your daily activities. If you had to undergo chemotherapy, you would likely need assistance to get to and from treatment and potentially even require at-home care. Provincial drug plans cover in-hospital administered drugs, but outside of the hospital coverage varies by province, age and income levels. Employee drug benefit plans don’t always cover the full cost of medicine. Alternative therapies sometimes aren’t covered at all.

While you can count on access to doctors and hospitals, it’s these other unexpected costs that critical illness insurance can help you deal with.

Common uses for critical illness insurance

Income

Replacing income

For you or your family to take time off work.

Enhanced care

Enhanced care

Upgraded medical facilities and services

Debt

Debts

Mortgages, business loans and other liabilities.

Medical device

Modifications

Renovations or modifications to your home or car

Care

At-home care

Hiring nurses or other home-care practitioners.

Treatment

Additional treatment

Out-of-country or alternative treatments

Medicine

Prescription medicine

Out-of-pocket expenses not covered by provincial plans

Protection

Savings protection

Eliminate the need to use retirement savings

What illnesses are covered by critical illness insurance?

Most insurers offer a choice of packages covering anything from just cancer (and its many forms) to up to 26+ illnesses as defined by the 2013 Critical Illness Benchmark Definitions published by the Canadian Life and Health Insurance Association. For a more detailed answer, read this article.

Could I make a successful critical illness insurance claim if I was diagnosed with any of these conditions?

Well, it’s not that simple. The language in critical illness insurance policies is very specific. For example, what the average Joe or Jane would call a ‘heart attack’ or ‘heart disease’, might not meet the specified level of damage to the organ that is written in the language of your contract. Each condition has its own definition and insurers are real sticklers about qualifying claims. For instance, in order to claim on ‘deafness’ as defined by the CLHIA, you’d need to be diagnosed with ‘total and irreversible hearing loss in both ears, with an auditory threshold of 90 decibels or greater within the speech threshold of 500 to 3,000 hertz’. Bonus points to anyone can completely understand that sentence without googling.

In other words, while critical illness insurance can cover a large number of common ailments, it’s extremely important to clarify the wording of your policy (our advisors can help with that), so you’re not surprised when you can’t make a claim after attending Bonnaroo this year.

Hmm, so does critical illness insurance ever payout then?

Yes, quite often in fact.

80 per cent of claims are approved, and that percentage has been rising steadily

If I get multiple conditions, will I receive a critical illness insurance payout for each one?

Yes and no. The coverage only pays out once in its entirety, either through one condition you claim and receive approval for, or through partial coverage of multiple conditions.

Is critical illness insurance expensive?

On average, it’s more expensive than term life insurance but not so expensive that you can’t afford it. Just like life insurance, the younger and healthier you are, the less expensive your quote.

Typically coverage amounts for critical illness insurance are smaller than what you’d see for life insurance, so that also helps keep premiums low. Canadians typical elect for an average coverage of $77,000 according to the Canadian Society of Actuaries.

Other factors that can affect the cost of premiums include your term length, the number of conditions covered by your policy and any riders or clauses you opt for.

How long are critical illness insurance term lengths?

Coverage is typically sold in ten-year renewable increments, but it’s very common to see policies that cover applicants to a specific age like 65, 75 or even 100.

You mentioned clauses, what other options do I have?

Well, each insurance company offers their own unique packages but some common clauses include:

  • Renewability
    Allows you to renew your coverage when your term expires without medically requalifying but usually comes with an increase in premiums. Typically you can only renew to a specific age.
  • Return of premiums
    Some insurers will return all of the premiums you’ve paid if you haven’t made a successful claim at the end of your term, hit certain age milestones, or if you surrender your policy. Yes, this means what you think it means: you can potentially get all of your premiums back one day. This is an optional clause and it will increase the cost of premiums while the policy is in effect, but it can provide an incentive to get coverage. There’s also a return of premiums upon death clause, which means your premiums will be paid back to your chosen beneficiary should you pass away unexpectedly, without receiving a full benefit payment under your policy.
  • Partial payout
    Some conditions and illnesses while not considered terminal or critical, can still produce a partial payout of your policy. Often non-life-threatening cancers fall into this category. If your policy contains this feature, the specified illnesses will be made clear to you before your coverage begins. This clause allows you to receive some money (typically between 10-25 per cent of your coverage amount and is subject to dollar value limits) during your recovery, without voiding your policy. With this clause you can maintain your protection should you contract a terminal condition down the road.

How much critical illness insurance coverage should I get?

How much critical illness insurance coverage you should get varies based on your fininancial situation . Because it pays a living benefit, it’s intended to cover a shorter period of time, specifically while you are treating and recovering from an illness. Hopefully, your recovery will be swift, and you wouldn’t be reliant on the money paid out by your policy for the remainder of your life, but only for a few years.

If you’re unsure how much coverage you want, our critical illness insurance calculator can expertly suggest a coverage amount based on your estimated needs.

Is it hard to qualify for critical illness insurance? Can I be denied coverage?

Critical illness insurance is potentially harder to qualify for than life insurance, but the average person should have their application accepted depending on their history.

You can be denied coverage. You and your family’s medical history will factor heavily into the underwriting process and if you have already been diagnosed with a critical illness, or have pre-existing conditions your likelihood of being insured or availability of coverage options may be reduced. This is why it’s important to apply at an early age, while you’ve got a clean bill of health. And lastly …

Should I get critical illness insurance?

Because critical illness insurance pays a living benefit, getting coverage is even more of a personal decision than life insurance. Its intent is to help you financially during what will likely be the most difficult period of your life. If you’re concerned about your finances while healthy, you probably will be even more so while sick. Buying critical illness insurance can give you the peace of mind to know, if you’re facing a critical diagnosis, you’ll be able to focus completely on recovery.

Still have questions? Schedule a chat with one of our dedicated insurance advisors;  they’re happy to go over anything you’re curious about.

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