A guide to how critical illness insurance works in Canada – Updated 2023
Critical illness insurance is an agreement with a life insurance company where they pay you a tax-free lump sum in the event you contract a life-threatening condition or illness. Unlike life insurance, critical illness insurance is not meant to provide long-term financial support to your family after you pass away but rather grants financial support while you are recovering from a critical illness.
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.
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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?
Consider critical illness insurance for financial protection in these circumstances.
If you have critical illness insurance, the insurance company pays you a tax-free lump sum if you contract a life-threatening, covered condition or illness. Unlike term life insurance, this type of insurance is not meant to provide long-term financial support to your family after you pass away. It grants one-time financial support while you are recovering from a serious illness.
What is critical illness insurance?
Critical illness insurance is an agreement you make with a life insurance company that they will pay you a tax-free lump-sum payment if you…
- develop a life-threatening illness
- have a serious health event
- or undergo treatment while under their coverage
Unlike life insurance, the payout doesn’t happen after you die. It’s a living benefit you receive to help with immediate financial burdens. You get the payout once proof of a specified illness or incident is established (barring any policy waiting period).
How does critical illness insurance work?
Critical illness insurance (also known as CI insurance) works by offering financial support should you or your family member be diagnosed with a serious illness such as cancer, heart attack, or stroke.
Just like with life insurance, you’ll be required to pay monthly premiums over the course of your term length to maintain that protection. Both the amount of the benefit and the monthly payments are decided when you apply for the policy.
Source: Statistics Canada
Do I need critical illness insurance?
Critical illness insurance is protection you buy to protect you and your family from the financial fallout that happens if you get critically sick. If you want the financial freedom to recover from a serious illness on your own terms, then you need this type of insurance.
Do you have to spend a critical illness insurance payout on treating your illness?
No. The payout (or benefit) from the policy can be used for whatever you want.
Common uses for the one-time benefit payment include:
- Paying for child care during recovery
- Retrofitting one’s home for accessibility
- Covering monthly living expenses while you take time off work
- Extended medical care and health-related expenses
- Travel expenses for medical trips or seeing loved ones while recovering
What is the survival period in critical illness insurance?
In order to get your payout, you must pass the 30-day survival period after your diagnosis. This waiting period is consistent across most insurance companies and covers most types of diseases. Some companies now permit a zero-day survival period for certain conditions.
If I get better, do I have to return the benefit?
You do not have to give back your critical illness payout if you recover from the covered medical condition. Critical illness plans are not defined by recovery, treatment, or death. It is a one-time payment that is triggered by the diagnosis of specific diseases or conditions.
Critical illness insurance coverage differs from other types of insurance in that it is a living benefit that pays out a one-time lump sum.
- Term life insurance – pays out after your death
- Long-term care insurance – pays for assistance for those who can no longer take care of themselves
- Disability insurance – pays out monthly if you cannot work due to an illness or disability
- Critical illness insurance – pays out a one-time lump sum when you are diagnosed with a life-threatening illness or disease
Does provincial health insurance cover critical illnesses?
Many health care services are covered by provincial healthcare plans. However, that coverage doesn’t typically extend beyond the hospital.
As seen below, your public health or employer coverage:
|May cover …||Likely won’t cover …|
|Hospital stays and physiotherapy you need to recover from a stroke||Home modifications you need in your home due to the physical effects of the stroke|
|Chemotherapy needed to treat your cancer||Transportation to get to and from your treatment appointments|
|Transplant surgery to replace a failing organ||Time off work needed to prep and recover from major surgery|
There are many other expenses related to critical illness treatment that are not covered by public health care. This is where the critical illness insurance payout comes in.
Common uses for critical illness insurance
For you or your family to take time off work.
Mortgages, business loans and other liabilities.
Hiring nurses or other home-care practitioners.
Out-of-pocket expenses not covered by provincial plans
Upgraded medical facilities and services
Renovations or modifications to your home, car, or other household expenses
Out-of-country or alternative medical expenses
Eliminate the need to use retirement savings
What illnesses are covered by critical illness insurance?
Most insurers offer either a basic package (3-4 covered conditions) or enhanced coverage (25+ conditions).
Cancers and Tumours:
- 3. Aortic Surgery
- 4. Coronary Artery Bypass Surgery
- 5. Heart Attack*
- 6. Heart Valve Replacement or Repair
- 7. Stroke (Cerebrovascular accident)*
- 8. Bacterial Meningitis
- 9. Dementia, including Alzheimer’s Disease
- 10. Motor Neuron Disease
- 11. Multiple Sclerosis
- 12. Parkinson’s Disease and Specified Atypical Parkinsonian Disorders
Accident and Functional Loss:
- 16. Acquired Brain Injury
- 17. Blindness
- 18. Coma
- 19. Deafness
- 20. Loss of Independent Existence
- 21. Loss of Limbs
- 22. Loss of Speech
- 23. Paralysis
- 24. Severe Burns
*Usually included in basic critical illness plans
Learn more about the illnesses covered by critical illness insurance.
More reading about what critical illness covers:
Could I make a 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 plans 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.
A covered condition is defined by the 2013 Critical Illness Benchmark Definitions published by the Canadian Life and Health Insurance Association.
For example: to claim ‘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,
- and within the speech threshold of 500 to 3,000 hertz’.
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.
Does critical illness insurance ever payout?
Yes, 80 percent of claims are approved, and that percentage has been rising steadily.
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 critical illness insurance premium is.
Coverage amounts are smaller than what you’d see for a life insurance death benefit, so that also helps keep premiums low. Canadians typically elect for an average critical illness 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
- any riders or clauses you opt for
- smoking status
Can I receive multiple critical illness insurance payouts if I am diagnosed with multiple conditions?
Yes and no. The coverage only pays out once in its entirety. It will pay out either
- through one condition you claim and receive approval for
- through partial coverage of multiple conditions
What is partial payout in critical illness insurance policies?
Some conditions and illnesses while not considered terminal or critical, can still produce a partial payout of your policy.
Partial payment details:
- The specified illnesses will be made clear to you before your coverage begins.
- Often non-life-threatening cancers fall into this category.
- This clause allows you to receive some money (typically between 10-25 percent of your coverage amount and is subject to dollar value limits) during your recovery.
- You can maintain your protection should you contract a terminal condition down the road.
Can i get life insurance and critical illness insurance together?
Many Canadian insurance companies offer life insurance and critical illness coverage together. You can add critical illness coverage as a rider to your life insurance policy. This can help you apply for both life insurance and critical illness coverage at the same time without having to go through underwriting again.
Learn more about critical illness insurance versus critical illness riders.
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.
Most policies will let you renew your coverage when your term expires without redoing a medical exam, but renewal usually comes with an increase in premiums. Typically you can only renew to a specific age.
Will I get my money back if I do not claim on my critical illness policy?
Yes, some critical illness policies allow for a return of premium. 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.
This is an optional clause and it will increase the cost of premiums.
There’s also a return of premium on 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 critical illness policy.
Learn more about return of premium.
When should I get critical illness insurance?
You should get critical illness insurance ASAP.
Like any other type of insurance, this coverage gets more expensive as you age. It’s best to apply for coverage before a pre-existing condition can affect your eligibility.
Learn more about when is the right time to get critical illness coverage.
How much critical illness insurance coverage do I need?
Because the coverage 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.
If you’re unsure how much coverage you want, an insurance calculator can suggest a coverage amount based on your estimated needs and give you an estimate of the monthly expenses associated with the policy.
Learn your coverage needs with our critical illness insurance calculator.
Can I be refused critical illness coverage?
The average Canadian resident should have their application accepted depending on their history.
However, you can be refused or denied coverage by the insurance carrier you applied to. You and your family’s medical history will factor heavily into the underwriting process. If you have already been diagnosed with an illness, or have pre-existing conditions your likelihood of being insured or availability of coverage options may be reduced.
Learn more about pre-existing conditions.
Is critical illness insurance worth it?
Because critical illness insurance pays a living benefit, getting coverage is even more of a personal decision than life insurance. Life insurance is really about your family’s needs. Critical illness insurance is about your financial needs while you recover.
Look at the stats:
- 1/2 of Canadians will be diagnosed with cancer in their lifetime.
- The average out-of-pocket expenses for cancer in Canada is around $400 a month. This excludes treatment covered by public or private health care and can be more depending on the type of cancer.
- When you’re diagnosed with cancer, you’ll likely have to take time off work to recover.
So, can you afford to take time off work, cover your usual bills, plus at least $400 a month to pay for your treatment/recovery? If you can’t, critical insurance is worth it.
Buying this insurance can give you the peace of mind to know, that if you’re facing a critical diagnosis, you’ll be able to focus completely on recovery.
Learn more about whether critical illness insurance is worth it.
Which are the best critical illness insurance companies in Canada?
We reviewed the top companies offering such policies so you can make an informed decision on your critical illness insurance provider. Companies like Canada Protection Plan (which allows credit card payments), Sun Life, Canada Life, BMO Insurance, and more offer critical illness benefits in Canada.
Read more about the best critical illness insurance companies in Canada.
How can I get my critical illness insurance quotes?
Still have questions? Schedule a chat with a licensed insurance agent from PolicyAdvisor. They’re happy to go over anything you’re curious about and provide you with many quotes from the best insurance companies in Canada. Save time and money when you speak to our brokers, form your life insurance plan, and compare quotes online.
The information above is intended for informational purposes only and is based on PolicyAdvisor’s own views, which are subject to change without notice. This content is not intended and should not be construed to constitute financial or legal advice. PolicyAdvisor accepts no responsibility for the outcome of people choosing to act on the information contained on this website. PolicyAdvisor makes every effort to include updated, accurate information. The above content may not include all terms, conditions, limitations, exclusions, termination, and other provisions of the policies described, some of which may be material to the policy selection. Please refer to the actual policy documents for complete details. In case of any discrepancy, the language in the actual policy documents will prevail. All rights reserved.
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- If you have critical illness insurance and are diagnosed with critical illness, you will be given a one-time lump sum of cash
- The tax-free one time payment can be used on whatever you’d like
- Critical illness insurance is beneficial if you need financial support beyond hospital treatment, for example: a long-term recovery or specialized treatment outside of Canada