What Is Critical Illness Insurance and How Does It Work?
Critical illness insurance provides a lump-sum payment if you're diagnosed with a covered illness and meet the conditions of your policy.
Unlike insurance that reimburses medical expenses, critical illness insurance pays you a sum of money that you can generally use however you choose. For example, you could use it to pay your mortgage, cover everyday expenses, travel for treatment, or get help at home.
The amount you receive is generally based on the coverage specified in your policy. For example, if you have $50,000 in coverage, you could receive the full amount if your claim is approved, regardless of your financial situation.
Benefits from a personal critical illness insurance policy are generally tax-free.
What Illnesses Does Critical Illness Insurance Cover?
Coverage varies from one policy to another. Some policies cover only a few illnesses, while others may cover 20, 25, or even more.
Common illnesses and medical conditions that may be covered include:
- Life-threatening cancer
- Heart attack (myocardial infarction)
- Stroke
- Multiple sclerosis
- Alzheimer's disease
- Parkinson's disease
- Kidney failure
- Major organ transplant
Please note: This list is for reference only. Other illnesses and medical conditions may also be covered. Covered illnesses, their definitions, and exclusions vary depending on the insurer and the policy.
Being diagnosed with an illness listed in your policy doesn't automatically guarantee a payout. For example, some early-stage cancers may be excluded from the main coverage or qualify for a partial benefit, depending on the policy.
That's why the number of covered illnesses is only one part of the protection. How those illnesses are defined and what exclusions apply are just as important.
Do You Need Critical Illness Insurance If You Already Have RAMQ and Group Insurance?
RAMQ and critical illness insurance serve different purposes. In Quebec, RAMQ covers many medically necessary services, including eligible consultations, tests, and treatments. However, it may not cover every expense that comes with a serious illness.
Even when medical care is covered, you still have to pay for things like rent, your mortgage, groceries, and other everyday expenses.
Group insurance through your employer may include disability insurance, life insurance, supplemental health insurance, and sometimes critical illness coverage. However, the benefits and coverage amounts vary from one plan to another.
Individual critical illness insurance is a separate type of protection that can complement the coverage you already have through RAMQ or your employer's group insurance plan.
Critical Illness Insurance, Life Insurance, and Disability Insurance: What's the Difference?
These three types of insurance are sometimes confused, but they provide protection in different situations.
Critical illness insurance pays a lump sum after you're diagnosed with a covered illness, provided you meet the conditions of your policy.
Life insurance pays a benefit to your beneficiaries when you pass away, according to the terms of your policy.
Disability insurance (income replacement insurance) is designed to replace part of your income if a covered illness or injury prevents you from working.
This means you could receive a critical illness insurance payout even if you're still able to work. On the other hand, someone who can't work might qualify for disability benefits without having an illness covered by their critical illness policy.
How Much Does Critical Illness Insurance Cost?
The cost depends on your personal profile, the amount of coverage, and the type of protection you choose. There's no single monthly premium that applies to everyone.
Factors such as your age, health, medical history, smoking status, coverage amount, and policy length can all affect the price. Additional coverage and benefits may also increase the cost.
Some policies offer fixed premiums for a set period, while others have premiums that increase with age or at renewal. Insurers may also set age limits for purchasing certain products.
What Are the Requirements to Receive a Payout?
Critical illness insurance doesn't automatically pay a benefit as soon as you're diagnosed. Several conditions may apply.
The Survival Period
Some policies require you to survive for a certain period after your diagnosis, often 30 days. If you pass away before that period ends, the benefit may not be paid.
Waiting Periods and Exclusions
Some policies include waiting periods, particularly for certain types of cancer.
For example, a policy may limit coverage if cancer is diagnosed or its first signs or symptoms appear within the first 90 days after the policy takes effect.
Other exclusions may apply to certain pre-existing conditions, some types of skin cancer, or specific situations outlined in the policy.
Pre-Existing Medical Conditions
An illness or health condition you had before applying for insurance may affect your eligibility, lead to exclusions, change the terms of coverage, or even result in your application being declined.
When applying for critical illness insurance, you'll generally need to complete a health questionnaire. Depending on your age, medical history, and the amount of coverage requested, additional medical tests may also be required.
How Do You Make a Critical Illness Insurance Claim?
If you're diagnosed with an illness that may be covered, you'll need to submit a claim to your insurance company. The insurer will generally ask you to complete a claim form and provide medical documents confirming your diagnosis.
The insurance company then reviews your claim to determine whether your diagnosis meets the policy's definition of a covered illness and whether all other conditions have been met.
If your claim is approved, the insurer pays the benefit according to the terms of your policy. Many policies end after the insured amount has been paid, but some allow multiple claims.
Can You Get Your Premiums Back If You Never Develop a Critical Illness?
Some critical illness insurance policies offer a return-of-premium option. Depending on the policy, this feature may allow you to recover some or all eligible premiums when your coverage expires, if you cancel your policy, or in certain circumstances involving death.
This option isn't included in every policy and may come at an additional cost. The refund conditions and who receives the money depend on the specific coverage.
