What is Critical Illness Insurance?

What is Critical Illness Insurance? Discover the benefits and types of plans at Dundas Life. Browse and get your life insurance quote today.

December 18, 2020

You may think that serious (critical) illnesses only strike others. But the reality is quite different.

Research shows one in two Canadians will receive a cancer diagnosis in their lifetime. And tens of thousands of Canadians develop heart disease every year.

While we can’t predict the future, we can take steps to minimize the financial impact of a serious illness. Buying critical illness insurance is a step in that direction.

In this article you will find out if critical illness insurance is worth it for you.

What is critical illness insurance?

Critical illness insurance pays a lump-sum, tax free cash benefit if you get diagnosed with a serious illness. It is also known as critical illness cover.

The policy may require you to survive a minimum number of days — usually 30 days — after the medical diagnosis before you can receive the benefit. This period is called the survival period or the waiting period.

With critical illness insurance, you are free to use the payout as you see fit. It can be used for covering medical bills, paying off monthly expenses, transitioning into a new lifestyle with your illness, or whatever suits your needs.

Some critical illness policies cover only a limited number of illnesses. Others protect against a wide range of medical conditions.

Critical illness insurance is available both as a fully underwritten policy or a guaranteed issue policy. You have to take a medical exam to qualify for a fully underwritten policy. For guaranteed issues, you only need to answer a few health-related questions.  

In some cases, the amount of benefit you receive depends on your illness. The more serious your prognosis, the more likely you are to receive the full benefit. For a less serious condition, you may get a partial benefit. And if the illness is easily treatable, the insurer may not pay you a benefit at all.

History of critical illness insurance

Critical illness insurance is unlike most insurance products. That’s because an insurance company didn’t develop it. Instead, a cardiac surgeon — Dr. Marius Barnard — invented it.

Dr. Marius Barnard was part of the team that performed the world’s first human-to-human heart transplant in the mid-1960s. Bernard saw surviving a critical illness took a financial toll on an individual and their families. So, he decided to do something about it.

He asked the insurance industry to introduce a new insurance product. As a result of his persistent efforts, the first critical illness policy was launched in South Africa in 1983.

What does critical illness insurance cover?

Illnesses covered are typically 4 or 25 (higher price for covering 25 illnesses). The most common covered medical conditions include:

  • Heart conditions
  • Cancer
  • Stroke

However, many critical illness insurance policies also cover a range of less common conditions, such as:

  • Blindness
  • Deafness
  • Alzheimer’s disease
  • Parkinson’s disease
  • Cystic fibrosis
  • Multiple sclerosis
  • Paralysis
  • Major head trauma
  • Severe burns
  • Coma

What doesn’t critical illness insurance cover?

Business meeting in an office.

Critical illness insurance doesn’t cover chronic health conditions, like asthma or diabetes. They also might not provide coverage for pre-existing illnesses. Furthermore, self-inflicted injuries as well as alcohol and drug consumption may nullify your coverage.

Each insurance provider has its own guidelines regarding what conditions are not covered. Therefore, before you sign up, check which illnesses are included in your policy and which are not.

Who is critical illness insurance for?

A serious illness can strike anyone at any time. We all know of someone who has been diagnosed with a severe illness. However, what you may not know is the financial strain caused by the illness.

A health insurance policy may cover some health care costs. However, often the patient faces additional challenges, like having to pay living expenses while being unable to work. That’s where critical illness comes in. It allows you to pay off expenses not covered by your medical insurance without having to raid your savings account.

Before buying a critical illness policy, consider:

  • How likely are you to develop a critical illness in the next 5 or 10 years?
  • Do you have a family history of critical illnesses (for example, heart attack, cancer, or stroke)?
  • What does your medical insurance cover?
  • Can you pay out-of-pocket costs without exhausting your life savings if you were diagnosed with a serious illness?
  • Can you maintain your lifestyle if you are out of work?

A basic critical illness policy is more affordable, but may not provide adequate coverage to take care of your living expenses if you are out of work. A comprehensive policy, while more expensive, will include more conditions and provide a bigger payout.

However, don't just take your financial situation into account. Also, consider your risk of developing a severe illness. You may want to discuss with your doctor:

  • Your age (The risk of developing heart disease and cancer goes up with age)
  • Your family medical history
  • Risk factors, such as drinking or smoking

If you are at higher risk for severe illness, buying a critical illness policy may be a smart decision. It may also be the right choice if you cannot deal with the costs of a serious illness on your own if you were to get diagnosed with one.

How much Critical illness insurance do I need?

A girl cooking at home.

Think of a critical illness insurance policy as an umbrella. Its purpose is to keep you safe and dry in a rainy-day scenario. So, you want enough coverage to offer the kind of protection you might need.

Here are some tips to help you estimate how much of a critical illness umbrella you should buy.

  • Calculate the income you will have to replace

One method is to multiply your annual income by three. That’s because if you become seriously ill, you may not be able to work. Multiplying your annual income by three means you will be able to pay off your living expenses and long-term debts for 3 years.

When calculating your coverage amount, consider how long children will rely on your salary. And if sending them to college is part of the plan, factor in the tuition fee as well.

  • Calculate your expenses

Add up all your monthly expenses, like groceries, medication, and mortgage payments. And then subtract expected income from any other source, like your spouse. Now multiply the monthly expenses by 12, and the resulting figure by the number of years you expect to be away from work because of a severe illness.

  • Take into account the expected medical costs

To the amounts computed above, also add the medical expenses that may come your way if you get diagnosed with a critical illness. This includes home care expenses and the cost of home medical equipment you may need for recovery.  

How much does critical illness insurance cost in Canada?

Premiums for critical illness insurance are specific to the person applying for coverage. As a result, even two persons of the same age may have to pay widely different rates.

Your cost of critical illness coverage depends on many factors, such as:

Age

Younger people pay considerably lower premiums than older people. Statistically speaking, a 25-year-old woman is less likely to develop a critical illness than, say, a 50-year-old woman. Therefore, it’s best to take a policy as early as possible.

For instance, a 30-year-old in good health may have to pay about $25 a month for $100,000 of coverage for 20 years. For a 40-year-old, the same coverage may cost roughly $47 a month. And at age 50, the monthly premium amount may be over $105.

Health

You are likely to receive favourable rates if you are in good health. On the other hand, medical conditions like high blood pressure and diabetes can bump up your insurance cost.

Family history

Do you have a family history of critical illness? If so, expect to pay more for critical illness coverage.

Smoking

Tobacco use puts a person at a higher risk for cancer, heart attack, and other severe illnesses. It comes as no surprise that smokers pay significantly higher premiums than non-smokers.

Number of covered conditions

The more illnesses covered in your plan, the higher your premium rates. For example, a 45-year-old woman with a cancer-only plan may have to pay closer to $40 a month for $25,000 critical illness insurance. However, she may have to cough up twice as much if organ transplants and other health conditions are also included in the plan.  

Amount of coverage

The greater the payout amount, the more you’ll have to pay. A critical illness policy with a $500,000 payout will cost more than one with a $100,000 benefit.

Critical illness insurance also pays a lump sum whilst the customer is still alive (tax free).

Term Length

The longer the policy’s term, the higher the monthly premiums will be. That’s because a longer term makes it more likely that the insurer will have to pay the benefit.

elderly lady comparing charts

Return of premium rider

Riders are additional benefits that allow you to customize your insurance policy to suit your specific needs.

When you opt for the return of a premium rider, you get a refund of a portion or all of the premiums paid into the policy under certain circumstances. This includes your death, at the end of the term, and the cancellation of the contract.

Return of premium riders are not that expensive depending on the ROP rider (Return of Premium). ROPD (Return Of Premium on Death) is cheap, however, ROPX (Return Of Premium on Expiry) can be more expensive. Plus, you get your premium dollars back only after a certain period, like 15 or 20 years.

What are the best critical illness insurance companies in Canada?

Critical illness insurance can get complicated. But buying the right kind of coverage from the right life insurance company in Canada doesn’t have to be. Work with a third-party broker, like Dundas Life, to find the best possible coverage at the best price.

Critical illness insurance needs are not one-size-fits-all. No one life insurance company can offer a one size fits all solution for everyone. But usually, an insurer exists that can fit your needs — and Dundas Life can help you find it.

Dundas Life partners with leading insurance companies in Canada. We can help you buy a critical illness life insurance policy from Canada Life, BMO, RBC Insurance, Manulife, and more.

Critical illness products offered in Canada

There are different types of critical illness products available in Canada. Some plans cover only a handful of conditions, while some others cover as many as 25 illnesses. You can buy a policy that pays out as little as $20K or as much as $2 million. You can opt for temporary coverage or a permanent one.

Life insurance providers in Canada offer critical illness policies in the following increments:

  • Critical Illness 10 Year Term
  • Critical Illness 20 Year Term
  • Term to Age 65
  • Term to Age 5
  • Critical Illness Term to Age 100 (permanent)
elderly couple running together in the waterfront area

Benefits of critical illness insurance

A critical illness can threaten much more than your health. It can drain your life savings or, worse, push you into bankruptcy.

Unexpected medical expenses can put a lot of strain on your finances. Even with a health insurance policy, the out-of-pocket costs and other expenses can make a dent in your life savings. That’s when a critical illness insurance policy can come into play. It helps you whether a crisis without exhausting your emergency fund and other savings.

If you get diagnosed with any of the covered conditions, the insurer pays you a lump-sum amount, to use however you want.  

Alternatives to critical illness insurance

Critical illness insurance is a form of supplemental insurance. It can be a good choice for people with specific needs, but may not be suitable for everyone. Some smart alternatives to critical illness worth consideration are:

  • No supplemental insurance

Young, healthy individuals with a robust personal health plan can forgo supplemental insurance completely.

  • Cancer-only insurance

Cancer is the leading cause of death in Canada, accounting for roughly 218 deaths per 10,000 population. If you are worried about the possible costs associated with cancer treatment, cancer-only insurance may be ideal for you. With that said, remember that it is not designed to replace a traditional health insurance plan. Instead, it fills in those gaps that the latter may not cover.

  • Combined policies

Some insurers let you package critical illness with another insurance product, like life insurance. This may be a good option for those who would rather pay one premium instead of paying separately for different policies.

How to get critical illness insurance

Business people shaking hands in office

Critical illness underwriting includes the following steps:

Step 1 – Fill in the application

When you apply for critical illness insurance, you must provide information about your medical history. You also need to specify the coverage amount and the policy term (in the case of temporary coverage).

You can fill and submit the insurance form online (if that’s an option). Else, you will need to mail the form back to the insurer after completing it.

Step 2 – Telephone Interview

Someone from the insurance company will call you to review your health and work history.

Step 3 – Basic Medical Checkup

A paramedical examiner will schedule a basic health checkup at your convenience. She will measure your height, weight, and blood pressure and take your urine and blood samples.

Step 4 – Attending Physician’s Statement

If you have certain medical conditions, the insurer may ask your doctor to complete an attending physician’s statement. It lists the conditions you’re being treated for, the medication you’re taking, and your prognosis.

Step 5 – Pay the first premium

Typically, it takes about four to six weeks for the insurer to process the submitted information and send the policy papers to you. Once you pay your first premium, the policy goes into effect.

Is critical illness insurance a good option for you?

Critical illness plans typically cover serious illnesses, including cancer, stroke, and heart attack. Many policies may also extend the coverage to kidney failures, paralysis, or organ transplants.

According to the Canadian Cancer Society, cancer accounts for 30% of all deaths in Canada. Cardiovascular disease, on the other hand, is responsible for nearly 27% of deaths.

When you look at these statistics, the answer to the above question is oftentimes yes. Critical illness insurance can help you cover expenses associated with the treatment of a severe illness.

Speak to an insurance expert at Dundas Life to find out if you should make critical illness insurance a part of your long-term protection plan.

Common FAQs

Which illnesses are included in a critical illness insurance plan?

The coverage criteria can vary from critical illness policy to another. While the basic plans cover as few as four serious illnesses, the more comprehensive plans protect you from as many as 25 health conditions.

Does critical illness insurance offer a return of premium?

Some critical illness insurance plans allow you to purchase a return of premium rider. It allows you to get your premium dollars back, minus administrative fees.

Does normal health insurance cover critical illness?

Yes, they do, but the coverage is hardly as extensive as a critical illness plan. Your health plan will cover hospitalization costs and reimburse medical expenses. In contrast, a critical illness insurance policy will pay you a lump-sum amount if you get diagnosed with any of the covered conditions. You can use the payout however you want, to cover out-of-pocket medical expenses, child-care costs, or daily living expenses.

What is the survival period in critical illness insurance?

You need to survive a minimum number of days after a diagnosis of a critical illness to receive the payout. This period is known as the survival period. For most critical illness insurance plans, the survival period is 30 days. However, the length of this period can vary from one life assurance company to the next.

Could I make a critical illness insurance claim after I get diagnosed with one of the covered conditions and survive the survival period?

Well, things are not really that simple. Critical illness plans are complex and subject to many stipulations. They cover the listed conditions only under the specific circumstances. For instance, a cancer diagnosis may not automatically qualify you for the payout. To receive the benefit, the cancer may need to be life-threatening or spread beyond a certain point. Similarly, to file a claim after a stroke, you may have to show that the neurological damage has persisted for over 30 days.

Before you pay the first premium, make sure you fully understand the terms and conditions of your critical illness policy. Our expert policy advisors can help you with that.

An Elderly Woman with Multigeneration Family Celebrating Birthday

If I get diagnosed with multiple conditions covered in my policy, will I receive a payout for each one?

In short, the answer is, it depends. The insurer will pay you the insurance benefit in its entirety only once. So that could be through one illness or through partial coverage of multiple illnesses.

What is the partial payout in critical illness plans?

Some critical illness insurance policies also cover less severe illnesses. But they pay a partial benefit amount if you get diagnosed with such a condition. Your insurance plan will name the health conditions that are eligible for a partial-benefit payout. The partial payments range between 10% and 25% of your insurance benefit and are usually subject to limits. For example, the maximum payout for each illness may be capped at $50,000.

Is critical illness expensive?

Critical illness insurance, on average, costs more than term life but less than whole life insurance. Just like life insurance, the earlier you take a critical illness policy, the lower your premium rates. Several other factors also impact the cost of critical illness insurance. These include your health, your family history, the coverage amount, and the policy term.

How can I get critical illness insurance quotes?

Dundas Life partners with leading insurance companies in Canada. These include, among others, Canada Life, BMO Insurance, RBC Insurance, and Sun Life Financial. We’ll provide you with quotes from various insurers so you can pick the one that offers you the best deal. All you have to do is speak to one of our insurance advisors and share your insurance needs.

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How can we help you? Our team is happy to help answer any questions you have.

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