Critical Illness Insurance 101

critical illness insurance
Published on: August 5, 2021
Author: Thomas Chan

In a world post pandemic, it has shown that there has been a greater interest in critical illness insurance coverage because you can never predict unexpected health issues. Did you know that while GoFundMe, a for-profit crowdfunding platform, was built to raise money for events of all sorts, the majority of people are now using it for support when it comes to accidents and illnesses?

In this post, we are going to cover the basics of critical illness insurance which is an insurance plan designed specifically for those who develop severe and critical illnesses.

What is critical illness insurance?

A lot of people in Canada are unaware of critical illness (CI) insurance as it is relatively new compared to life insurance and disability insurance. A little background on it is that it was initiated by Dr. Marius Barnard in 1983 in South Africa. Dr. Barnard witnessed first hand while patients‘ survival rate was getting higher, it led to financial difficulties for the patients and family. Life insurance doesn’t help when you survive your illness yet there are costs associated with getting back to your regular life. When the insurance was first introduced, it covered only four major illnesses: cancer, heart attack, stroke and heart bypass surgery. Since then, the insurance has expanded to cover more and most plans will cover up to 25-26 different types such as multiple sclerosis, Parkinsons or Alzheimer’s to name a few.

What makes critical illness insurance different

Many wonder the differences between life, disability and critical illness insurance. The main reason why CI insurance is important is because thanks to modern medicine, more and more people survive critical illnesses.

For example, cancer is the leading cause of death in Canada and is responsible for 30% of all deaths. An estimate of 225,000 new cases of cancer and 32% deaths from cancer will occur in Canada in 2020. On average, 617 Canadians get diagnosed with cancer every day. The trend will be that 1 in 2 Canadians is expected to develop cancer during their lifetime. Luckily, the survival rate now in comparison to 15 years ago, is much higher thanks to advanced medicine.

While our healthcare in Canada is publicly funded so what happens inside the hospital is taken care of, there are costs associated once you leave or outside the hospital like your mortgage, treatments, transportation between hospitals, etc that you are still obligated to. These add up and can be difficult to keep up with while you are recovering which is where CI insurance comes in. The insurance provides a lump sum so you are able to use the money as you see fit. It helps you in the time after – the transition phase of beating the illness and finding your way back into ordinary life again.

What can I use my critical illness payout for?

As mentioned, CI insurance gets paid out in a lump sum so here are some ways people are using their payout: mortgage payments, allowing spouse or family members to take time off to care for you, getting a second opinion when it comes to treatment, starting treatment early without being on a waitlist and more.

What about life insurance or disability insurance?

Below are the ways each insurance type is designed to support:

  • Life insurance covers the cost when someone passes away
  • Disability insurance covers job income replacement that typically expires when you reach 65 when most retire
  • Critical illness insurance covers your journey to battling and beating your illness

What is the cost for critical illness insurance?

The coverage cost will range based on a factor of things age, health status, sex and more but here’s an example: for $100,000 coverage for a healthy 30-year-old, non-smoking Canadian, it will start at $40-50 per month. Critical illness insurance also has different options for flexibility so you can choose intervals of how long you want the coverage for to having full premium refunded at expiry too.

A full premium refund at the expiry means you can get all your money back if no claim is involved. If you’re interested in getting a quote or want more details, book a complimentary time with me.

Another unique feature about CI insurance in Canada, is that the plan is a guaranteed premium. Unlike auto insurance, once the contract is made, the insurance company cannot adjust the premium or make any future changes to your policy.

Can I get by without CI insurance?

You may think that because you lead a healthy lifestyle that chances of you getting sick are low. Unfortunately, health does not work this way. In fact, if you take a group of healthy and fit people and a group of less health-conscious people, both groups have about the same chance of getting sick at some point in their life. But there is one big difference: if you belong to the healthy group, you are much more likely to survive the illness which means critical illness is even more beneficial for you over life insurance.

Others look to save up money and take from their savings or RRSP when the time comes and while this is a viable option, there are tax implications. If your money is in investments, then timing the market to take out the money is not an option so you would need to accept that you may lose money as a result. CI insurance pay out is guaranteed tax-free on the other hand.

Knowing this, you can be the judge for yourself to see if it’s the right fit for you but the less stress, the higher the chance for you to focus on recovery.

Even if you are on a budget, having a small CI insurance plan can make your life easier. Imagine getting $15,000 or $30,000 extra while you are at home recovering. If you have any questions or to learn how much it would cost you to have this coverage, please book a free consultation with me. Or if you want to continue learning more about insurance, retirement and financial growth in Canada, please subscribe to my YouTube channel.

Investing 101 Personal Finance