Critical illness insurance is a relatively new type of policy that is often misunderstood. Today, we will clarify what it is and what it covers.

How does critical illness insurance work?
Critical illness is similar to term life insurance, except that it pays out when you are diagnosed with a covered illness, rather than when you die. However, some people confuse this type of insurance with disability insurance, which replaces your income if you become disabled.

Health insurance, like term life insurance, is paid out in a lump sum, in the event you are diagnosed with a pre-defined disease, such as cancer. How this amount will be spent is up to you: some people allocate it for additional medical treatment (especially if there are some treatment methods that are not covered by provincial health), others decide to take time off work to be with family or to travel.

As with many insurance products, this type of insurance plan comes with an extensive insurance quoting, application, and underwriting process that is reviewed by the insurer before you can obtain a policy; And as with any insurance policy, a critical illness policy has advantages and disadvantages.

Let’s take a closer look at the pros and cons of this type of insurance.

Advantages of critical illness insurance
There are several positive aspects:

1. Funds that can help where needed: The lump sum you receive if you are diagnosed with a serious illness will allow you to get better treatment and hopefully a full recovery in some cases. You can also spend these funds on other needs or projects (such as travel or removing items from your wish list).
2. Protection for your own business: If you run your own business, you may be required to work part-time, after you have been diagnosed with a critical illness (reduced work hours are common where extensive medical treatment is required). Close the financial gap created by reduced hours at your company. With the funds, you could hire someone to help you with your business.
3. stackable protection: Unlike disability insurance, critical illness coverage is “stackable.” With disability insurance, coverage is limited because it is based on your income and you cannot exceed that limit, even if you have multiple disability policies. However, you can have multiple policies with varying amounts of coverage for different illnesses. If you have, for example, two policies with benefits of $250,000 and $300,000, you can get a payment of $550,000 when you file a claim.

Cons of Critical Illness Insurance

1. Expensive: This type of insurance policy is not cheap. As an example, a Term 10 insurance policy with $500,000 coverage (Term 10 means a policy that covers you for 10 years) for a 35 year old non-smoker with no preconditions costs about $180/month (exemplary quote) while that a 10 term life insurance policy with coverage of $1,000,000 for the same person costs about $50.
2. Definitions matter: If a diagnosed illness, such as a heart attack, does not align with the definition of this illness in the policy, your claim may not be paid.
3. It does not cover you immediately: The policy usually comes with a waiting period (for example, 90 days) during which you are not covered.
4. The payment is not immediate: If you are diagnosed with critical illness, there is a “survival period” (for example, 30 days). If you die within that period, your claim will not be paid.

Summary
Critical insurance provides solid coverage for when you are unexpectedly diagnosed with a serious illness, but this coverage comes at a cost. It’s a good idea to work with an insurance broker to get a critical illness insurance quote and apply for a policy. Brokers have access to multiple insurance companies and will help you navigate through the complex application process, especially if you have pre-existing medical conditions.