The Ultimate Guide to Critical Illness Insurance

Canada defines a critical illness as a life-threatening or life-altering illness or condition. Getting diagnosed with a critical illness devastates the patient and their support network. It can wreak havoc on a person’s personal finances. While you might hope to never need it, critical illness insurance is something to consider buying.

Of course, Canada’s average living standards have increased progressively in recent decades. It is wonderful that a greater number of people are becoming aware of the lifestyle and diet choices they make.

Furthermore, with the evolution of technology and other healthcare advances, Canadians are starting to live longer on average. However, critical illness strikes the young, the middle-aged, and the old.

Life insurance policies from traditional providers like banks or online platforms like PolicyMe know this. So does the Canadian government.

Based on data by the Government of Canada, about 1 in 12 adults live with a diagnosed heart disease. The study also predict that 1 in 2 Canadians would have a cancer diagnosis in their lifetime. Today, there are over 1.3 million people in Canada that are living with the aftereffects of heart disease and stroke.

When a critical illness strikes, the patient often has to take longer periods of time off work. This leads to a loss of income. But there are also other costs involved like medication, day-to-day housekeeping costs, travel costs, childcare, etc. With this dual impact of lower income and higher costs, a household’s savings can erode pretty quickly. Buying critical illness insurance can reduce a lot of the financial pressures that arise with a critical illness.

What is critical illness insurance?

Critical illness insurance (CII for short) is a lump sum payment provided on a tax-free basis by an insurer to the patient if they get diagnosed by a medical professional with a specific ‘covered illness.’ A covered illness refers to a condition that the insurer would pay out claims for if the policy buyer is diagnosed with such a condition.

Each CII policy differs in terms of the illnesses that are covered under it. The goal of having critical illness insurance is to offset the financial anxiety and pressures, such as lower income or rising costs. In this way, you can focus on your path to recovery rather than have to stress about finances.

The lump sum payment provided to you can be used at your discretion. While there are no limits on what you can use the insurance money for, some uses include:

  • Paying for special medical treatments that are not covered by the Canadian public health system can often be expensive
  • Replacing lost income as a result of quitting your job after getting critically ill
  • Paying for various costs such as groceries and childcare costs 
  • Hiring medical help such as an at-home nurse
  • Purchasing home accessibility modifications such as ramps, stairlifts, etc
  • Paying for transportation and accommodation costs if you are seeking treatment outside of your city or town of residence

How does critical illness insurance work?

Just like a regular insurance policy, critical illness insurance requires the buyer to pay premiums. The premiums are usually paid on a monthly basis.

Insurers calculate these premiums based on several factors related to your unique medical history and risks. As a result, many providers ask for a complete medical test before you receive a price quote.

Once you provide the required information, the insurers offer you a list of covered illnesses to choose from. This list may exclude diseases or conditions that you had. For example, if you had a stroke or heart attack, you may not be eligible to cover that condition in your policy.

Once you choose your policy and the coverage that you feel fits best with your health profile, you start paying premiums. As long as you continue paying your premiums on time, you are eligible to receive the lump sum critical illness insurance benefit if you contract one of the critical illnesses under coverage.

Here is something to remember: your illness has to match the definition of the illness stated in the contract.

The survival period

Most critical illness insurance policies come with a concept called the ‘survival period.’ This survival period refers to the minimum time that a person must survive after diagnosis with a critical illness before paying out the claim.

In most cases, the survival period is 30 days. However, varies by illness and your provider.

There is a logic for a survival period. If the patient survives past the survival period, their need for the insurance payout is greater. They have to pay for treatments or other medical needs as part of their recovery.

If the patient passes away during the survival period, then the life insurance payout replaces the critical illness insurance payout. It makes sense.

There are instances of paying out the lump sum even if the patient passes away before the survival period elapses. In those cases, a beneficiary receives the lump sum benefit through an optional add-on to the insurance policy. This is a Return of Premium Upon Death (ROPD).

How are critical illness insurance premiums calculated?

The annual or monthly premiums depend on a few factors. The most notable ones are your age, health profile and the characteristics of the insurance policy.

Age

As with life and disability insurance, there are benefits to buying a critical illness insurance at a younger age. This is when you are not as much at risk of getting a critical illness that is life-threatening or life-altering. 

Health

Your general health is a major driver of your premium. Regardless of whether the insurer makes you complete a health exam or self-identify your medical history. A healthy, fit person with no prior history of major illnesses or conditions will obtain a cheaper rate of premiums. Similarly, a non-smoker will likely receive lower premiums than a smoker, all other things being equal.

Term length

Longer terms reduce the monthly or annual premiums, and vice versa.

Coverage

The more comprehensive your coverage, the more you have to pay in premiums. Most insurers offer a basic package with coverage over prevalent illnesses or conditions (such as cancer, stroke or heart disease). However, the insurance policy buyer can opt for additional coverages based on their preferences and lifestyle.

Riders

If you have additional coverages or clauses (such as the Return of Premium Upon Death or ROPD) to your policy as a means of downside protection, these ‘riders’ may come at an extra cost and reflects a higher premiums.

Family history

The health of your birth parents and siblings is another major consideration. The insurance company would take this into account when quoting your premiums.

Definition of Major Critical Illnesses

In 2018, the Canadian Life and Health Insurance Association (CLHIA) published the Critical Illness Benchmark Definitions. Many major Canadian insurers have now adopted these definitions within their own policy frameworks as well. The CLHIA defines 25 illnesses as follows. Please note that all of these definitions are directly from the CLHIA website: 

Aortic surgery

Undergoing surgery for a disease of the aorta requires excision and surgical replacement of any part of the diseased aorta with a graft. Aorta means the thoracic and abdominal aorta, but not its branches.

Aplastic Anemia

Definite diagnosis of a chronic persistent bone marrow failure, confirmed by biopsy, which results in anemia, neutropenia and thrombocytopenia requiring blood product transfusion, and treatment with at least one of the following: marrow stimulating agents; immunosuppressive agents; or bone marrow transplantation. 

Bacterial Meningitis

Definite diagnosis of Meningitis, confirmed by cerebrospinal fluid showing the presence of pathogenic bacteria. The presence of pathogenic bacteria confirmed by culture or other generally medically accepted microbiological testing. Bacterial Meningitis must result in neurological deficits persisting for at least 90 days from the Date of Diagnosis.

Benign brain tumour

Definite diagnosis of a non-malignant tumour located in the cranial vault and limited to the brain, meninges, cranial nerves or pituitary gland. The tumour must require surgical or radiation treatment or cause irreversible objective neurological deficit(s). 

Blindness 

Blindness means a definite diagnosis of the total and irreversible loss of vision in both eyes, evidenced by: the corrected visual acuity is 20/200 or less in both eyes or the field of vision being less than 20 degrees in both eyes.

Cancer

Definite diagnosis of a malignant tumour, characterized by the uncontrolled growth and spread of malignant cells and the invasion of tissue. Types of cancer include carcinoma, melanoma, leukemia, lymphoma, and sarcoma.

Coma

Definite diagnosis of a state of unconsciousness with no reaction to external stimuli or response to internal needs for a continuous period of at least 96 hours, and for which period the Glasgow coma score must be four or less.

Coronary artery bypass surgery

Undergoing heart surgery to correct narrowing or blockage of one or more coronary arteries with bypass graft(s).

Deafness

Definite diagnosis of the total and irreversible loss of hearing in both ears, with an auditory threshold of 90 decibels or greater within the speech threshold of 500 to 3,000 hertz.

Dementia, including Alzheimer’s disease

A definite diagnosis of dementia characterized by a progressive deterioration of memory and at least one of the following areas of cognitive function:

  • Aphasia (a disorder of speech);
  • Apraxia (difficulty performing familiar tasks);
  • Agnosia (difficulty recognizing objects);
  • A disturbance in executive functioning which is affecting daily life, including inability to think abstractly and to plan, initiate, sequence, monitor, and stop complex behaviour.

Heart attack

Definite diagnosis of the death of heart muscle due to obstruction of blood flow that results in a rise and fall of biochemical cardiac markers to levels considered diagnostic of acute myocardial infarction, with at least one of the following: heart attack symptoms; new electrocardiogram (ECG) changes consistent with a heart attack; or development of new Q waves during or immediately following an intra-arterial cardiac procedure including, but not limited to, coronary angiography and coronary angioplasty.

Heart valve replacement or repair

Undergoing surgery to replace any heart valve with either a natural or mechanical valve or to repair heart valve defects or abnormalities.

Kidney failure

Definite diagnosis of chronic irreversible failure of both kidneys to function, initiating regular hemodialysis, peritoneal dialysis or renal transplantation.

Loss of independent existence

Definite diagnosis of the total inability, due to disease or injury, to perform independently, with or without the aid of assistive devices, at least 3 of 6 Activities of Daily Living listed below for a continuous period of at least 90 days with no reasonable chance of recovery. Activities of Daily Living are as follows:

  • Bathing: washing oneself in a bathtub, shower or sponge bath;
  • Dressing: Putting on and removing necessary clothing, braces, artificial limbs or other surgical appliances;
  • Toileting: Getting on and off the toilet and maintaining personal hygiene;
  • Bladder and bowel continence: Managing one’s bladder and bowel function with or without protective undergarments or surgical appliances to maintain hygiene;
  • Transferring: Moving in and out of a bed, chair or wheelchair;
  • Feeding: Consuming food or drink that already have been prepared and made available.

Loss of limbs

Definite diagnosis of the complete severance of two or more limbs at or above the wrist or ankle joint as the result of an accident or medically required amputation.

Loss of speech

Definite diagnosis of the total and irreversible loss of the ability to speak as a result of physical injury or disease for a period of at least 180 days.

Major organ failure on waiting list

Definite diagnosis of the irreversible failure of the heart, both lungs, liver, both kidneys or bone marrow and transplantation must be medically necessary.

Major organ transplant

Definite diagnosis of the irreversible failure of the heart, both lungs, liver, both kidneys or bone marrow and transplantation must be medically necessary.

Motor neuron disease

Definite diagnosis of one of the following: amyotrophic lateral sclerosis (ALS or Lou Gehrig’s disease), primary lateral sclerosis, progressive spinal muscular atrophy, progressive bulbar palsy, or pseudo bulbar palsy, and limited to these conditions.

Multiple Sclerosis: Definite diagnosis of one of the following: (i) two or more separate clinical attacks, confirmed by a magnetic resonance imaging (MRI) of the nervous system, showing multiple lesions of demyelination; (ii) a single attack, with objective neurological deficits lasting more than six months, confirmed by MRI of the nervous system, showing multiple lesions of demyelination; or, (iii) a single attack, confirmed by repeated MRI of the nervous system, which shows multiple lesions of demyelination which have developed at intervals at least one month apart.

Occupational HIV infection

Definite diagnosis of infection with Human Immunodeficiency Virus (HIV) resulting from accidental injury during the course of the insured’s normal occupation, which exposed the person to HIV-contaminated body fluids.

Paralysis

Definite diagnosis of the total loss of muscle function of two or more limbs as a result of injury or disease to the nerve supply of those limbs for a period of at least 90 days following the precipitating event.

Parkinson’s disease and specified Atypical Parkinsonian disorders

Definite diagnosis of primary Parkinson’s disease. A permanent neurologic condition characterized by bradykinesia (slowness of movement) and at least one muscular rigidity or rest tremor. Specified Atypical Parkinsonian Disorders are a definite diagnosis of progressive supranuclear palsy, corticobasal degeneration, or multiple system atrophy.

Severe burns

Definite diagnosis of third-degree burns over at least 20% of the body surface.

Stroke

Definite diagnosis of an acute cerebrovascular event caused by intra-cranial thrombosis, hemorrhage, or embolism with acute onset of new neurological symptoms and new objective neurological deficits on clinical examination.

How to choose your critical illness insurance plan

Your critical illness insurance plan is unique and specific to you. As such, it isn’t advisable to copy someone else’s plan.

They may have a different set of circumstances to you which makes their plan futile for your needs. To determine the coverage you need, you should assess your own budget, financial commitments, lifestyle and medical history. 

What is your budget?

Make sure that you do not commit yourself each month by paying an excessive amount of insurance premiums. Create a personal finance budget that has all your inflows and outflows each month. Then you can determine what you can afford to pay in premiums.

What are your other financial commitments?

Think about what commitments you have in terms of childcare payments, mortgage, rent, etc. If you become incapable of working due to a critical illness, what impact would the loss of income have? Select an insurance plan to ensure that you can continue to meet your and your family’s financial commitments.

What is your lifestyle?

Depending on the lifestyle you live, you can pre-emptively select a certain type of critical illness insurance plan. For example, if you are a smoker or live a sedentary lifestyle, you may want to add coverage for diseases that can result from that. It is helpful to be as honest with yourself as possible. This way you can opt for the best type of coverage for you and your family.

What is your medical history? 

If you or someone in your family has a history of a critical illness, it may be helpful to seek insurance for that illness. Some diseases are more hereditary than others, so it is worth checking whether your family have faced any critical illnesses.

Do you already have critical illness insurance? 

You should keep in mind that many employers already offer collective insurance packages as part of employee benefits plans. Check with your employer’s benefits provider to see if you already have coverage for critical illnesses.

If you do, you can forgo the purchase of a new policy. You can also buy the coverage you need that is not already covered by the employer’s benefits plan.

While most benefit plans include life insurance, not all plans include critical illness insurance. Remember that there is a difference between critical illness insurance and life insurance. You receive critical illness insurance while you are still alive. In comparison, your beneficiaries receive life insurance upon your death. You can use the Hardbacon life insurance comparison tool to view offers and select what suits you best.

Should I buy critical illness insurance?

The choice of buying critical illness insurance is a personal one that can vary from family to family. One of the main considerations to make is what would happen if you suddenly got a critical illness wherein you could not work anymore. Consider this:

  • Does your spouse or partner make enough to keep your house or aparment paid?
  • Would there be negative consequences to your household?
  • Is your family dependent on your salary?

If you feel that your family is dependent on your salary, then getting critical illness insurance is a good choice to make. Particularly if you work in a dangerous job or have a medical history of a particular critical illness.

Ultimately, buying critical illness insurance comes down as much to emotion as it does to finances. If you have seen someone suffer a critical illness before and face financial problems, you are much more likely to purchase critical illness insurance to ensure that your family remains protected.

If you are an entrepreneur, then there is certainly a good reason for buying critical illness insurance. Most employers offer benefits plans to their employees, which offer several types of coverage over primary health needs. As a self-employed professional, you may not have access to the same benefits. This makes critical illness insurance valuable in shoring up your lost income if you were to encounter a critical illness suddenly.

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Emma Martin writes about the curiosities of finance. Her obsession with cryptocurrency keeps her writing most days about the best exchanges and wallets, and the wild world of NFTs. Her favourite exchange right now is Bitbuy. Emma also invests in the stock market using Wealthsimple Trade.