Guide to Critical Illness Insurance

Science and technology have advanced by leaps and bounds. Medicine moves ahead every day. Researchers are finding answers to some of the most challenging questions in healthcare. Yet, critical illnesses continue to claim the lives of millions around the world. 

If you or any of your family members have had the misfortune to suffer from a heart attack, cancer, stroke, or similar life-threatening diseases or conditions, then you have learned a basic truth. Not all illnesses are the same. Some take their toll slowly but steadily. They don’t leave you in a hurry.

Even if they do, recovering from the financial devastation can take years. 

These are the critical illnesses that can destroy the health, peace of mind, and financial security of families over a long period … unless they have critical illness insurance. That is the much-needed supplemental insurance that can protect a family from financial ruin in the face of a serious illness.

Ordinary health insurance can’t give you adequate protection from these critical illnesses. Even with regular health insurance coverage, families may have to spend tens of thousands of dollars for the treatment of these conditions. Remember, this is also the time when you won’t be able to do much. It will be your family members who have to frantically arrange the finances, at a time when they will be vulnerable and in pain.

Life insurance policies won’t be of much help here. What you need is a specialized policy that is designed to cover illnesses that will require significant financial expense, one that is structured to give you the maximum benefit immediately, rather than in instalments. 

“I am healthy. I have health insurance. I have never been diagnosed with any of these conditions. So, why should I pay extra for this?” That is one way to look at it. 

A more realistic approach could be, “In the unlikely event that I have any of these conditions, I don’t want the future of my family members to be ruined.” The response to the second reaction is critical illness insurance.

What is critical illness insurance?

Critical illness insurance pays the insured individual a lump sum amount in the event of a critical illness. This payment is tax-free and is paid when the individual develops one of the listed illnesses or conditions. When purchasing the policy, one can determine its duration or term length.

This is a supplemental insurance policy that is taken out for the specific purpose of financing care and treatment if a critical illness strikes. The illnesses and incidents covered are cancer, stroke, heart attacks, and so on. These illnesses require extensive and expensive treatment. 

Any one of these serious conditions can debilitate the financial security of the average Canadian family. Unless they have significant savings, with any of these illnesses, families are looking at months and even years of expensive medical care. Ordinary life insurance policies and disability policies will be of no use in such circumstances unless your life insurance comes with a critical illness rider. 

With critical illness insurance, the insurance company will pay a lump sum benefit when the patient—and the patient’s family members—need it the most. Unlike life insurance policies, the payment in critical illness insurance is referred to as a living benefit, because people can receive the payment when they are alive. 

Importantly, critical illness insurance usually covers costs that are unrelated to medical care, such as child care and transportation. Depending on the policy you choose, the coverage could go up to hundreds of thousands of dollars. As in most other policies, the premium you pay depends on your health, age, gender, family disease history, and so on.

It’s also important to note that not all conditions are covered under critical illness insurance. Certain kinds of cancer are usually excluded, along with some chronic illnesses. You should also know that the lump-sum benefit may not be paid if you develop a critical illness twice. 

How critical illness insurance works

You can obtain critical illness insurance through your employer or privately. In certain instances, an employer may choose to pay a portion of the premium. If your employer provides the insurance, you should check whether it is portable and would allow you to hold the policy and pay the premiums even if you leave the organization. Some employers also offer critical illness insurance coverage for spouses or dependents. 

If you obtain critical illness insurance in a group plan through your employer, the benefits may be limited. The lump-sum amount may be smaller, and the duration may be shorter. If you obtain it privately, you will have more freedom to choose the number of illnesses and conditions that are covered and the duration of the policy. 

An advantage of critical illness insurance policies is that they are more affordable than other policies. This is especially true if you take it as a rider. If you already have a life insurance policy, you should check whether the company will provide critical illness insurance as a rider. But keep in mind that, as a rider, the coverage usually will only be around ten percent of your total policy coverage.

In the unfortunate event of your being diagnosed with a critical illness covered by your policy, the insurance company will pay you a lump-sum amount as the benefit. The payment will be made after a survivor period. The amount of payment, the illnesses covered, and the duration will all depend on your policy. 

The lump-sum payment you receive can also be used to cover expenses unrelated to medical treatment. As noted above, you can use your benefit for child care, transportation, living expenses, and so on. These are usually outside the coverage of regular insurance policies. The support for non-medical expenses gives patients peace of mind so they can focus on getting better instead of worrying about expenses and making the necessary financial arrangements.

In some cases, the condition may not be terminal. For example, in the case of a stroke or heart attack, the insurance company may provide part of the payment. Some policies also give you the freedom to claim several smaller payments that may affect the total payment, depending on the structure of the policy.

What does critical illness insurance cover?

Critical illness insurance is usually for three types of illnesses, including heart conditions, cancer, and organ damage. If you develop another illness or one your policy excludes, you won’t be eligible for the benefit. You should also know, that even if you have one of these conditions, you will only receive partial payment if it has been found not to be life-threatening.

• Heart conditions: If the insured individual were to have a stroke or heart attack, the company would usually pay the full amount. Companies may have different stipulations even for these conditions. In the case of stroke, for example, some insurers have a survivor period of 30 days. In the event a covered individual develops coronary artery disease, the company would provide only a partial benefit.
• Cancer: One of the most common illnesses for which the critical illness insurance benefit is given is cancer. But again, the situation has to be life-threatening for you to receive the complete benefit. In the case of cancer that is malignant but not life-threatening, there will only be a partial payment. If the cancer is diagnosed at an early stage and has been found to cause no danger, the insurance company may not make any payments.
• Organ damage: The company will make payments if an organ transplant is needed. Policies do not include any bone marrow treatment but do include cases of kidney failure. Typically, the insured will get the full benefit under the policy. 
• Others: Some insurance providers will offer an “Others” category in place of organ damage. The policy may include payments for conditions or illnesses including lupus, paralysis, cystic fibrosis, blindness, ALS, coma, and deafness.

Who needs critical illness insurance?

How many Canadians are diagnosed with cancer every year? Over 200,000. Strokes? About 50,000. For those without critical illness insurance coverage, the treatment and path to recovery can be excruciatingly painful. Not only will they have to battle a disease but doing so may end up depleting their savings. 

The situation is worse for family members, as they are the ones who have to run around and arrange the necessary financial help, even though nobody is sure how long the treatment may take. Critical illness insurance coverage is a safety net against such a harrowing ordeal.

Medical expenses don’t come in easy instalments. If you were to develop a critical illness, you may need to make substantial payments immediately, on top of the loss of income from your regular job. A critical illness insurance policy will make it easy for you and your loved ones by giving you a lump-sum payment. 

All insurance, at the end of the day, is an assessment of risk. It does not mean you are vulnerable to a life-threatening condition or you are completely healthy. Taking out critical care insurance means you understand that there is a chance, however remote, that you could be vulnerable to any of these conditions. 

It also means that if you have a family history of critical illnesses, you should certainly consider getting a policy. But if you are nearing 70 or have substantial savings, then you may not need a critical illness insurance policy.  

Frequently Asked Questions About Critical Illness Insurance 

What is classified as a critical illness?

Any condition that falls into certain categories, including heart conditions, cancer, and organ damage, is considered a critical illness, but it also depends on when it is diagnosed and your specific prognosis. 

If the condition is diagnosed early, for example, before a certain type of cancer can spread, it is not classified as a critical illness. In other words, an encouraging prognosis means the insurance company will be unlikely to make the payment. 

How much coverage do I need? 

That depends on several factors, including your age, gender, family disease history , smoking, and so on. The coverage should be what you would need to cover the exorbitant costs associated with treatment, along with other living expenses. 

While you may not need a $2 million policy, it is good to be on the safe side by opting for at least $50,000 in coverage.

Can critical illness insurance be used for out-of-pocket costs?

Yes. One of the major advantages of critical illness insurance is that it also covers non-medical expenses. You can use the benefit for child care, transportation, living expenses, and therapy, among other expenses. 

Are benefits paid directly to me or to my healthcare provider? 

This is another advantage of critical illness insurance. The benefit will be paid to the policyholder. It won’t be paid to the healthcare provider.