What would happen to you if you were diagnosed with cancer, had a stroke, or suffered from another critical illness? In Canada, we’re fortunate to have universal healthcare. However, our healthcare system won’t cover all the costs of having a critical illness, which is where Critical Illness Insurance comes into play.

What is Critical Illness insurance?

As with most insurance, critical illness insurance covers a low probability, high cost event. With Critical Illness Insurance, you’ll receive a lump sum payment if you suffer from one of the conditions covered in the policy. Every policy will be different. Each policy will have a list of the various illnesses they cover; some can cover up to 30 critical illnesses. There are specific definitions of each illness that you will have to meet in order to receive a payout. You generally must live for a certain period of time after receiving a diagnosis before you are paid out the lump sum. Some providers have other benefits in addition to the lump sum payment, like access to health care specialists, information and resources to help you manage the illness, etc. The term or length of the coverage can also vary depending on the plan, with most available until age 65 or 75. Finally, there are several different premium options available, including a return of premiums if you don’t experience a critical illness while the policy is in force. Since there are so many options, it’s important to look at what’s covered, for how long, and the various other features of the plan, not just the monthly premiums.

Why Might you Want Critical Illness Insurance?

Now we know what Critical Illness Insurance is, let’s consider why you might want this coverage. Insurance is all about mitigating financial risks. In essence, there are two financial risks that Critical Illness Insurance is meant to cover: loss of income, and increased expenses. An obvious example of loss of income is if you cannot work for a period of time because you are sick or must take time off to attend multiple medical appointments. A less obvious example is your spouse or relative taking time off work to drive you to medical appointments and care for you. There will likely also be additional expenses associated with a critical illness. These include medications, medical equipment, perhaps out-of-country treatments if you choose, modifications to your home, in-home care services, child care, other services to ease the burden on you and your family like cooking and cleaning services, etc.

However, you may already have some resources in place to cover these.

Resources Available to Cover Costs Associated with a Critical Illness

Here is a brief summary of those resources:

Short-term and Long-term disability insurance plans – privately or through work. This should cover the loss of income of the person who gets sick. You may also be fortunate to work for a company that offers generous vacation, personal, and sick days that could provide pay for a portion of the time you take off.

EI Benefits – EI Sickness Benefits covers you if you cannot work because of a critical illness. EI Caregiving Benefits and leave provides financial assistance to a caregiver that is or is like family for a critically ill or injured person and additional weeks available if end-of-life care is required.

Family members – you may be in the fortunate situation where you have family that could help if you become ill. Perhaps you have family that isn’t currently working, or they have very flexible work schedules, vacation and personal days. For example, my mom is a retired nurse who would be able to help out with care, transportation to appointments, babysitting, etc.

Emergency Fund – this can cover both the income lost as a result of you or a family member taking time off work and also increased expenses associated with a critical illness.

Other Assets – I would strongly suggest thinking twice about planning to use retirement savings to cover a critical illness, but if you have short-term savings earmarked for another goal that could be cancelled or delayed in the event of a critical illness, you can consider incorporating those as an available asset.

Health Spending Account or Group Health Benefits through a work plan or private insurance can help cover some of the medical costs associated with an illness.

Government Drug Plans – for example, the Ontario Trillium Drug Program offers coverage for those between the ages of 25 and 65 for high cost drugs. You pay a deductible, usually 4% of household income after taxes, and the Trillium Drug program will cover the remaining costs.

Taxes – medical costs paid out-of-pocket can be claimed on your taxes to reduce the amount of taxes you pay.

While the purpose of getting Critical Illness Insurance is to cover increased expenses and loss of income, the actual lump sum benefit can be used however you want. If you have outstanding debt, you can use the lump sum payment to wipe that out. If your expenses are largely covered by other resources or your income loss isn’t as high as you thought, you can use the money however you wish, like achieving a long-term goal more quickly.

While there may be several resources available to you, you need to consider what those will actually pay out, and what maximums and limitations are associated with any coverage. If there is an expected shortfall, Critical Illness can help to cover that. Critical Illness insurance may not be right for everyone, but it can be a useful tool to cover the costs of becoming ill. You’ll want to consider your own personal and financial situation and the resources available to you to determine if paying a regular premium to offset the financial risk of suffering from a critical illness is necessary and worth the cost.