What Is Critical Illness Insurance? What Does It Cover (And Not Cover)?

Posted on December 13, 2018

Most Canadians must pay for dental, vision and other healthcare services that are not deemed "essential" under the Canada Health Act. Physiotherapy and chiropractic care, for example, are not covered. 

Canadians pay out-of-pocket for 30% of health costs with only approximately 70% covered by the publicly funded health system. And that's just regular health care needs. 

But what about when the unexpected happens and you receive a serious diagnosis? One way to protect yourself is to have critical illness insurance.

But what is critical illness insurance? Read on to find out everything you need to know. 

What Is Critical Illness Insurance?

Critical illness insurance pays a tax-free lump amount if you're diagnosed with one of their pre-defined critical illness during the policy term.

As long as you pay the premiums, you are covered for the entire length of the policy. At the end of the term, you are no longer eligible for any funds.

It is up to you how long a policy you want. Some people choose to take out a policy that will last until you can pay off the mortgage or until children reach adulthood.

Often, critical illness insurance can go on your life insurance policy.

How Is Critical Illness Insurance Different Than Life Insurance or Disability Insurance? 

Your beneficiaries get your life insurance payout when you die. Though you are the one insured, the money does not go to you but those you name as beneficiaries.

On the other hand, critical illness insurance is a living benefit. You do not have to be terminal or die in order to get the funds. Unlike life insurance, the money from critical illness insurance goes directly to you (not your beneficiaries).

Disability insurance replaces your income for a set period of time if you are not able to work due to a disability. Those funds may not be enough to cover all the expenses of a critical illness.

Also, disability insurance is only available while you are off work. Critical illness insurance will pay you your lump sum regardless of whether or not you are able to work. 

How Much Coverage Do I Need?

The great thing about critical illness insurance is that most plans they pay out the full amount of your policy regardless of how serious your illness is. 

Yet, some insurance companies base the payout on the severity of the critical illness. Make sure to research each policy and provider to understand the terms.

When choosing a critical insurance plan, think about what you may need if you became seriously ill. Would you need a housekeeper? How about a nanny or daycare provider?

Will you need the policy payout to cover your mortgage or utility payments? What if you require various hospital or out-patient appointments? Will you need transportation? 

Also, think about how long you would need that financial assistance for. Presumably, a critical illness will last a while and you will need to make that money see you through it.

What Can I Use the Critical Illness Insurance Payout For?

Unlike retirement and education saving plans, you can use a critical illness insurance payout for anything you want.

The insurance company gives you the money and you choose what you want to do with it. There aren't any restrictions on what you can and can't do with those funds.

You may choose to buy specialized equipment or make your home wheelchair accessible. You could hire a personal support worker or nurse. You may want to use that money to pay down your mortgage. 

It is completely up to you.

What Counts as a Critical Illness?

This is the tricky part. All insurance companies have specific conditions that they cover as part of their critical illness policy.

In order to make a claim and have it approved, you would have to have one of the illnesses on that list. Which illnesses are covered can vary from one insurance company to another. Always check the coverage of a policy before you buy it. 

Most policies cover these 3 basic illnesses: cancer, stroke, and heart attack. Yet, there may be exclusions on which types of cancers are covered.

Other insurance policies may cover things like organ transplant, kidney failure, and paralysis. Some policies allow you to add on certain conditions to your policy.  For example, Parkinson's disease, deafness, bacterial meningitis, and traumatic head injury. 

Remember, a critical illness and terminal illness are different. A standard life insurance policy will usually cover any illness that is expected to be terminal within 12 months of diagnosis. 

How Do I Make a Claim?

The first thing you need to do is to notify your insurance advisor. He or she will send you or direct you to the correct form you need to fill out. 

The critical illness claim form usually has 2 parts. You will fill out the proof of claim portion. Provide as much detail as you can.

The second part is the confidential physician's report. Your primary care provider will fill out this form and sign it. It will include documentation such as consultation reports, x-rays, test results and so on.

You are responsible to ensure that your doctor fills out this form.

Once you have the forms ready, you return them to your advisor or the insurance company directly. You wait for the claim to be processed.

Then you will get a letter in the mail. If your claim is approved, the letter will state that and include a cheque. At this point, your policy is terminated.

Or, if your claim is denied, you will get a letter explaining why and outlining the appeal process.

Limitations on Critical Illness Insurance

The main limitation of critical illness insurance is that the funds are payable just once. If you are diagnosed with a certain illness and given your payout, that's the end of your coverage. The policy is closed. 

If in 5 months you are diagnosed with another critical illness, you will not receive another lump sum.

Bottom Line

Thanks for reading. We hope we've answered your questions about what is critical illness insurance? 

As you can see, critical illness insurance is a great way that you can safeguard against future times of illness and uncertainty.

If your main concern is about your mortgage, check out our blog post on mortgage insurance and why you need it.  

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