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Understanding Critical Illness Insurance: A Guide for Canadians

Navigating the world of insurance can be complex, especially when it comes to understanding specific products like critical illness insurance. This guide is designed to provide Canadians with essential information about critical illness insurance, helping you make informed decisions about your health and financial security.


What is Critical Illness Insurance?

Critical illness insurance is a type of insurance policy that provides a lump sum payment if you are diagnosed with one of the specific illnesses covered by the policy. Unlike traditional health insurance, which typically covers medical expenses and treatments, critical illness insurance offers financial support to use as you see fit. This can include covering living expenses, paying for private care, or even funding a much-needed vacation during recovery. Its primary purpose is to alleviate financial stress during a challenging time, allowing you to focus on your health and recovery.


What Illnesses does Critical Illness Insurance Cover?

The range of illnesses covered by critical illness insurance policies can vary, but there are several common conditions that most policies include:

  • Cancer: Coverage often includes various types of cancer, but it’s important to check the specifics, as some early-stage cancers may not be covered.
  • Heart Attack: Typically, policies cover heart attacks, but the severity and medical definition can impact the coverage.
  • Stroke: Coverage for strokes usually requires a certain level of severity or lasting symptoms.
  • Kidney Failure: This often includes end-stage renal failure requiring dialysis.
  • Major Organ Transplant: Coverage for awaiting or undergoing major organ transplant procedures.
  • Multiple Sclerosis: Usually covered, especially when leading to persistent symptoms.

It’s vital to review the specifics of each policy, as the definitions and coverage can vary. The Financial Consumer Agency of Canada provides resources that can help in understanding these details. The Government of Canada posts detailed information on the leading causes of illness and death in Canada which you can compare to the coverage provided in any critical illness insurance policy.


Rates and Eligibility

The rates and eligibility for critical illness insurance depend on several factors, including age, medical history, lifestyle choices (such as smoking), and the level of coverage chosen. Generally, the younger and healthier you are when you apply, the lower the premiums. It’s important to accurately disclose all relevant health information during the application process to ensure proper coverage.


With the variety of online insurance quotes available, it’s fairly easy to assess potential coverage levels and premium costs within a few minutes. However, in a study conducted with LARi Insight’s market research panel, the majority of Canadians told us they approach these quotes with some skepticism. Just 8.6% indicated they believe that they trust online insurance quotes to help them make an informed purchase decision, while 73.7% said “somewhat” and 17.7% said “no”.


Understanding these factors is crucial in determining both your eligibility and the potential cost of your policy. Remember, critical illness insurance is designed to offer peace of mind and financial stability during difficult times, making it a valuable consideration in your overall financial planning process. If you’re looking for professional help with your plan or your insurance decisions, check out What is Financial Planning?, and What is a Certified Financial Planner?.

Navigating the complexities of critical illness insurance in Canada can be challenging. Let’s explore determining the right coverage amount, understanding the purchase process, and addressing frequently asked questions. Our aim is to provide Canadians with the knowledge needed to make informed decisions about critical illness insurance.


How Much Coverage to Buy

Deciding on the amount of critical illness insurance coverage requires careful consideration. Key factors to evaluate include:

  • Financial Situation and Needs: Consider your current financial responsibilities, debts, and regular expenses.
  • Healthcare Costs: Factor in potential medical expenses that may not be covered by your provincial health plan or existing health insurance. Consider the full spectrum of retirement healthcare costs.
  • Income and Dependents: Assess the impact of your potential inability to work and how it would affect your dependents.
  • Existing Coverage: Examine other insurance policies you have, including term and permanent life insurance, to identify gaps that critical illness insurance can fill. There are typically additional, optional riders with these policies. You may find it’s time to review or change your life insurance.

Ultimately, it’s a balance between ensuring adequate coverage and the cost of premiums.


The Purchase Process

Purchasing critical illness insurance involves several key steps:

  1. Getting a Quote: Start by comparing quotes from multiple providers. Use online tools or consult with insurance brokers. Websites like can be a good starting point.
  2. Underwriting Process: This process assesses your risk level based on health, lifestyle, and medical history. It’s crucial for determining your coverage terms and premium rates.
  3. Medical Exam: Many insurers require a medical exam to assess your health status. This could include blood tests, medical history reviews, and physical examinations.
  4. Finalizing the Policy: Review the policy terms carefully before acceptance. Ensure you understand the coverage, exclusions, and conditions.


FAQs on Critical Illness Insurance

  1. Is critical illness insurance payout taxed? In Canada, critical illness insurance payouts are generally tax-free. However, it’s advisable to consult with a financial advisor for specific tax advice. The Canada Revenue Agency can provide additional information.
  2. Can I get critical illness insurance if I am a smoker? Smokers can obtain critical illness insurance, but typically at higher premium rates due to increased health risks.
  3. What is the difference between critical illness insurance and disability insurance? While both offer financial protection, critical illness insurance provides a lump sum for specific illnesses, whereas disability insurance offers regular payments if you’re unable to work due to illness or injury.
  4. How long does it take to receive a payout after a diagnosis? The payout timeline can vary. Usually, there’s a waiting period post-diagnosis before the benefit is paid out.
  5. Can I purchase critical illness insurance for my child? Yes, some insurers offer critical illness policies for children, covering specific childhood conditions.
  6.  Is Critical Illness Insurance a suitable replacement for life insurance? No. Think of critical illness as a supplement to your existing life insurance coverage. To explore how much life insurance is right for you, we’ve developed a Life Insurance Calculator for Canada
  7. What happens to my policy if I never make a claim? Typically, if you don’t make a claim, the policy will simply expire. Some policies may offer a return of premium option at an additional cost.
  8. Is critical illness insurance worth it for older individuals? It can be beneficial, but it’s important to weigh the higher premiums against the potential benefits, considering age-related health risks.
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