What is critical illness insurance?

Q -One of our neighbours recently told us that her husband had been diagnosed with cancer.  He went through all the “chemo” and it appears that he’ll be fine.  The thing that confused us was that she said that they were able to pay off their mortgage with his insurance money.  What kind of coverage is that? – A.N.

A – It sounds as though your neighbour is referring to a relatively new insurance product available in Canada called Critical Illness Insurance – CII for short.  The first such policy in Canada was issued in 1987.  Medical science has dramatically improved our chances of surviving many critical illnesses.  This can be a good news, bad news situation. 

Mortality rates are falling.  You may survive the illness, but what will that do to your savings, your family’s well-being, etc?  The financial resources required to maintain an independent lifestyle after suffering a “life-altering” illness may be very high. 

In the simplest terms, if you are diagnosed with any of the critical illnesses covered by the policy, and you are still alive 30 days after the diagnosis, a lu sum benefit is paid to you.  That’s CII.  The payout could range between $20,000 and $1 million, depending on the policy and your needs.  The average size of a CII policy purchased in Canada is currently about $75,000.  And the benefit is tax-free.

The critical conditions the policy could cover include blindness, deafness, cancer, stroke, a heart attack, bypass surgery, kidney failure, organ transplants, multiple sclerosis, Parkinson’s disease, severe burns, and paralysis.  Few, if any, cover HIV.  But HIV acquired through one’s occupation might be eligible. 

Note that CII is not a replacement for either life or disability insurance.  Rather CII complements life and disability coverages in a number of ways.  CII is paid directly to you, the insured.  It is not based on your inability to work.  And the benefits are not repayable to the insurance company should you enjoy a full recovery. 

Let’s say you’ve suffered a heart attack, or been diagnosed with cancer.  Your disability insurance coverage could be such that financial necessity forces you to return to work earlier than you might wish.  This also may not be medically practical.  With critical illness insurance, however, once the diagnosis has been made and 30 days have passed, you receive the benefit.  You can spend the money as you see fit; on alternative medical treatment, or to reduce debt and improve your cash flow.  The beauty of this benefit is that it helps you to maintain your present lifestyle, and may help to relieve financial stress.  You have the freedom to focus on your recovery, not on financial restraint. – G.P.N.