Critical Illness Insurance

Critical illness insurance is a good solution for those worried about paying their debts or medical bills incase they are unable to work due to a debilitating illness.

WRITTEN BY
Priya Correia
Updated September 30, 2020

A typical life insurance policy can provide your dependants with some financial support to continue paying all the household bills in the event that you pass away. This is especially important if you are the breadwinner and you have children depending on your income.

But what happens if you are unable to work as a result of a debilitating illness? What if you are ever diagnosed with a disease that prevents you from working, whether temporarily or permanently?

That’s where critical illness insurance comes in. This type of policy can provide you and your family with the financial assistance needed to continue paying your bills while you are unable to work.

Let’s dig into this unique type of insurance policy to help you decide if it’s something worth taking out.

What Is Critical Illness Insurance?

Critical illness insurance provides coverage to you and your family in the event that you become seriously ill and are no longer able to work. You will be paid out a specific lump sum when you file a claim after you fall ill. Your policy will detail the exact medical conditions that apply.

Coverage under critical illness insurance can also be based on the severity of your illness. For instance, if the condition is temporary or does not entirely prevent you from working, you might not qualify to make a claim. However, if the condition is very serious, is permanent, and requires 100% downtime, then coverage is highly likely. 

It should be noted that you will not be given any coverage for a pre-existing condition.

How Does Critical Illness Insurance Work?

When you take out a critical illness policy, you’ll have the chance to choose the exact type of coverage that you want and need, which will impact the premiums you end up paying. 

Once you’ve chosen which type of coverage fits you best, you’ll fill out and submit an application to the insurance provider, which will then need to be reviewed. You may be asked for certain pieces of information or undergo a basic medical exam to verify your health status. 

After your coverage is approved, it will take effect immediately after all documents are signed and returned to the insurer. You will be provided with a copy of the signed policy for your personal records. 

You will be required to pay your premiums as they come due, whether it’s every month or every year. As long as you keep up with your premiums, you will be covered for the term selected. 

If you are ever diagnosed with a critical illness or experience a serious acute health crisis, you can file a claim to receive your benefit, which will be paid out to you in a lump sum. Depending on your specific condition, you may have to wait for a certain amount of time to receive payment. 

What Types of Medical Conditions Are Covered?

Every insurance company will have its own list of ailments that they will provide coverage for, so it’s important to find out what these are before you choose a particular policy. That said, there are certain ailments that most policies tend to cover, including the following:

  • Heart attack
  • Stroke
  • Cancer
  • Paralysis
  • Blindness
  • Alzheimer’s disease
  • Multiple sclerosis
  • Kidney failure
  • Organ transplant

Other ailments may be included in a specific policy, which you will have to inquire about when you first apply.

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Disability Insurance vs. Critical Illness Insurance

What’s the difference between disability insurance and critical illness insurance? 

Disability Insurance

This type of insurance provides coverage if you’re unable to work as a result of a serious injury. After filing a claim, you’ll receive a monthly payment that replaces part of your income – usually about 60% to 70% of your income to help you keep up with as many of your bills as possible until you can go back to work. Disability insurance can be used up until the age of 65.

Critical Illness Insurance

This type of insurance provides coverage in the event of a debilitating illness that you may be diagnosed with that hampers your ability to work. You’ll be provided with coverage for life and will be paid out a one-time, lump-sum payment that can be used in any way you wish, including covering the cost of recovery or assistive devices.

Pros and Cons of Critical Illness Insurance

Pros 

  • Lump-sum payment. You’ll be paid out in one large sum of money that you can use to pay down your debt or cover the cost of treatment and medical devices to help you manage your condition. 
  • Tax-free payout. The money paid out is not taxed. 
  • Rest easy knowing your bills are covered. With a critical illness insurance policy, you’ll have the peace of mind knowing that your bills will be paid if you ever fall ill and can’t work.
  • Range of illnesses covered. There is a wide array of ailments that critical illness insurance covers, including stroke, heart attack, and cancer. 
  • Flexibility. Choose the level of coverage and range of conditions that you want to be covered under your policy.

Cons 

  • Can be expensive. Critical illness insurance may not be the most affordable option for those on a budget.
  • May have to qualify. In order to get coverage, you may have to meet eligibility criteria. 
  • May not cover certain ailments. Not all illnesses or conditions may be covered under a critical illness insurance policy.
  • Age restrictions. If you are over a certain age – such as past retirement – you may no longer be able to qualify for this type of policy.

Critical Illness Providers 

Coverage AmountAge RangeProvinces AvailableMedical Exam Needed
Policy Advisor$25,000 – $5 million18 – 72OntarioNo

Cost of Critical Illness Insurance

The premiums you pay for your critical illness policy will depend on a number of factors, such as the following: 

Payout size. The amount of payout that you request will play a key role in the amount you pay for your premiums. The bigger the payout, the higher the premiums. 

Covered medical conditions. You will have some flexibility when it comes to which medical conditions are covered by your policy. This will allow you to customize your policy as you see fit. A typical plan will generally cover over 20 different conditions, but you may opt to get less coverage to reduce your premiums. 

Term length. You’ll have some flexibility when it comes to how long you want the term to last. The longer the term, the more it will cost.

Type of premium. You’ll typically have the choice between guaranteed and reviewable premiums. Renewable premiums can go up or down in cost and usually start off cheaper but get more expensive as time goes on. Guaranteed premiums, on the other hand, do not fluctuate because they are locked in and are usually cheaper over the long run. 

Not sure if critical illness insurance is right for you? Check out if universal life insurance is a better option. 

When Should You Get Critical Illness Insurance?

Considering the fact that critical illness insurance is completely optional, you may be wondering if it’s worth the extra expense. You may already have life insurance in place, but should you take out a critical illness plan too? Here are some situations where a critical illness insurance policy may be a good idea:

You don’t have an emergency fund in place. If you don’t have a big financial cushion to fall back on in case of a rainy day, then a critical illness policy may be able to provide you with the funds you might need to cover the cost of treatments and lost wages. 

You can afford it. Another insurance premium means more money out of your pocket every month. Only consider this type of policy if it can fit comfortably within your budget.

You have a family history of health issues. While a family history of medical conditions might increase your premium, it can also increase your chances of becoming ill at some point in the future. In case you were to ever be diagnosed with a serious medical condition, a critical illness insurance policy can come in handy.

How to Make a Critical Illness Insurance Claim

To make a claim, you will need to contact your insurance provider and obtain the appropriate claim form for your situation. You should complete and submit the form as soon as possible, after which a claims specialist will review it in detail right away to determine whether or not you are eligible for the benefits according to your specific plan. 

You may be required to provide medical information from your doctor to clarify your condition and make sure it falls under your policy. In order for the benefit of your policy to become payable, you must survive the waiting period according to your contract.

Considering all the information that needs to be verified, it could take a few weeks for the claim to be processed and your benefit to be paid out. 

Should You Take Out a Critical Illness Insurance Policy?

Critical illness insurance is best suited for those who would like to be provided with a large sum of money that can be used for a variety of things, such as paying for medical expenses, covering your mortgage, and paying other bills. 

If you’re currently healthy and don’t already have a pre-existing medical condition, you may be eligible for this type of insurance, which can provide you with some peace of mind knowing that your bills will be paid in case you can’t work as a result of an unforeseen diagnosis.