Critical Illness Insurance
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Critical Illness Insurance in Canada: What You Need to Know
Critical illness insurance can help you cope with the financial burden of an unexpected critical illness, such as cancer, heart attacks and similar conditions. It works by paying out a lump sum to insured individuals after being diagnosed with a life-altering illness. Regular medical insurance, such as provincial health insurance or workplace benefits, may only cover part of the costs of a critical illness, leaving you to cover the rest. This can become costly over time, making critical illness insurance a much-needed safety net for when (if) things go wrong.
This guide outlines everything you need to know about critical illness insurance, how it compares to health insurance, eligibility requirements, and how to choose the right cover. Read on to find out about this potentially life-saving insurance and its benefits.
What Is Critical Illness Insurance?
Critical Illness Insurance (CII) provides financial support via a lump-sum payment after the policyholder is diagnosed with a predefined illness. You can use this sum at your discretion, whether you need to pay for medical treatments, rent, groceries, or even debt. CII is distinct from other forms of health and life insurance in that it pays out upon diagnosis of specific conditions rather than on death or long-term disability.
Here are the basic features of most Critical Illness Insurance policies in Canada:
- Tax-free payout: The sum paid out from CII is completely tax-free, much like a life insurance payout.
- Underwriting process: Whether you’re taking precautions early or have already been diagnosed with an illness, your insurer will need copies of your health history as part of their medical underwriting process. Waiting until after diagnoses to apply is likely to disqualify you from CII coverage.
- Conditions covered: Policies in Canada have several options regarding which conditions are covered. Generally, you can get cover for 6 to 36 conditions at a time. To learn about specific covered conditions, see below.
- Exclusions: Certain pre-existing conditions and illnesses diagnosed within initial policy periods may not be covered. If you apply with false information, your claims can be denied later.
- Fund use: You don’t need to use the funds solely for medical treatment. Instead, the funds from CII are to alleviate financial strain. Giving you room to recover without extra stress.
- Coverage: CII coverage ranges from $50,000 to $3,000,000, depending on the plan.
Even if you have other forms of medical coverage, critical illness insurance can help with other things. Getting a serious illness can affect other parts of your life, such as your job. Having extra funds available to replace lost income can quite literally be a lifesaver.
Which Illnesses Are Covered With Critical Illness Insurance?
There are more or less 36 illnesses that are considered to be “critical”. An insurance policy will usually specify which ones they cover, and often, there are several tiers of coverage, ranging from relatively common conditions to rarer and more serious ones.
For example, Manulife offers two coverage options: Essential and Enhanced. “Essential” covers six conditions, including cancer, heart attack, stroke, Coronary artery bypass surgery, kidney failure and major organ transplants. “Enhanced” covers a total of 18 conditions, including the Essential cover conditions.
If you’re worried about a specific condition, you can compare insurers and see which conditions they cover in their predetermined packages. Here’s a list of the most common critical illnesses listed in insurance policies.
Critical Illness Insurance vs Other Insurance Types
Critical Illness Insurance may be confused with other forms of insurance, such as disability insurance, health insurance, life insurance or long-term care insurance. However, each serves distinct purposes and operates on different principles. Since disability insurance is most often confused with critical illness insurance, we’ve outlined their differences in the table below:
Features | Critical Illness Insurance | Disability Insurance |
Purpose | Offers a lump sum upon being diagnosed with a specific illness. The focus is on coping with expenses arising from illness. | Replaces income if you are unable to work due to a disability. The focus is on the inability to work. |
Benefit Trigger | Diagnosis with a specified illness. | Becoming disabled (requires proof of disability). |
Payment Structure | Pays a lump sum immediately after diagnosis. | Pays a percentage of your regular income every month. |
Tax rules | The lump sum is tax-free. | Monthly payments may be subject to taxation. |
Duration | Once-off payment. | Continues until disability ceases, retirement, or when the policy ends. |
Critical Illness Insurance vs Other Insurance Types
The differences between CII and other insurance types are briefly outlined below:
- Health Insurance: Health insurance can cover some treatment costs but won’t pay any of the funds directly to you. Critical illness insurance essentially complements health insurance by providing cash to cover additional costs your health insurance won’t cover.
- Life insurance: Life insurance pays out to your beneficiaries after your death, while critical illness insurance gives you funds while alive. However, some life insurance policies have critical illness insurance riders (policy add-ons).
- Long-term care insurance: This covers the costs of long-term care services at home or in a facility. Critical illness insurance does not offer this sort of long-term coverage.
While other insurance types can lessen the impact of a critical illness on your life and finances, none of them are as specifically tailored as critical illness insurance.
How To Choose the Right Critical Illness Insurance Policy
If critical illness insurance is something you’re seriously considering, selecting the right one can make a big difference in your quality of life if the worst happens. When choosing between the insurance options, consider the following:
- Family history: Many individuals seek out critical illness insurance if they have a specific disease that runs in the family. If you’re more likely to develop cancer or heart issues, finding a policy that specializes in these conditions is vital.
- Coverage needs: CII helps make up for lost income, family expenses and anything you might need during a serious illness. It helps to calculate how much you would need to cover 6-12 months of income.
- Age and health: The younger you are, the lower your premiums, making this a good investment to start early. However, if you’re already above the age of 40, seeking out insurers that specialize in your age category can be helpful.
- Consider extra benefits: If you can add more flexibility to your premium, such as a disability waiver (waives premiums if you become disabled), see if this is something you’d prefer.
- Do the premiums increase with time?: Check to see whether premiums would remain fixed or go up with time. Make sure you pick a plan that aligns with your financial planning.
- Do they offer other services?: Some insurers provide value-added services, such as second medical opinions, wellness programs and support services.
How To Read Policy Details
Some policies will include jargon or refer to specific conditions. For clarity, we’ve included the most common CII policy terms below:
- Survival Period: This refers to a minimum period you will have to “survive” or wait after your diagnosis before your benefit is paid out.
- Exclusion causes: Some conditions or health issues are excluded from policy coverage. Read your policy carefully to make sure you know the exact exclusions.
Seeking Professional Advice
If you’re still uncertain about the details of your Critical Illness Insurance policy, you can consult an expert or join an employer’s group benefit for lower rates and more information/features. There are also several comparative websites and online tools to help you narrow down the right CII policy.
Conclusion
Critical illnesses can happen to anyone when they least expect it. Critical Illness Insurance protects against this by providing a guaranteed source of funds in the wake of life-altering diagnoses. Taking the time to consider your options, family history, income requirements, and health risks can help you choose a policy that puts your well-being first. In the end, it’s better to be well-prepared than having to face financial challenges later on. Investing in critical illness insurance protects not just your health but your peace of mind.
FAQs
What should I understand about critical illness insurance? Critical illness insurance is designed to provide financial support if you are diagnosed with a major illness later on. It acts as a supplement to your existing health insurance to cover expenses associated with critical health emergencies.
Is it beneficial to have critical illness insurance in Canada? Critical illness insurance is beneficial if you are concerned about the impact a serious illness could have on your life, how it might affect your family’s financial stability, or if working during an illness could hinder your recovery.
What are the potential drawbacks of critical illness insurance? Some disadvantages of critical illness insurance include coverage limits that may be insufficient for some (often around $50,000), exclusion of pre-existing conditions, and rising premium costs as you age.
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