Critical Illness Insurance: Hope For the Best, Plan For the Worst

Critical illness insurance could be the smartest investment you ever make.

Let me tell you a story that was related to me not long ago. “Lynn” is a self-employed bookkeeper. She has a steady roster of clients and makes a good income. She’s 41 and the single mom of a 10-year-old. As a single parent, Lynn has been careful to plan for her daughter’s future. She has life insurance. Her will is up to date and she’s named a guardian in the event of her death. She has opened an RESP account, although she hasn’t yet been able to contribute very much. Still, she’s up-to-date with her bills and mortgage payments and maintains a comfortable lifestyle. All in all, her life is comfortable. Then, after experiencing some odd symptoms and undergoing tests, Lynn received devastating news: she has ovarian cancer and has to begin treatment immediately.

Every one of us knows someone like Lynn. Or like Robert, who had a massive heart attack at age 52. Or Steve, who is only 33 and battling luekemia. Or Elaine, an active, healthy 60-year old diagnosed with breast cancer last year.

The statistics are sobering. According to the Canadian Cancer Society, 617 people are diagnosed with cancer every day, and close to 50% of all Canadians will develop cancer during their lifetime. Statistics Canada reports that, every year, 63,200 people in Canada will suffer their first heart attack. Another serious and very prevalent illness, stroke, affects someone in Canada every 10 minutes.

Fortunately, there are excellent medical treatments available for many serious illnesses today. And, as Canadians, we can be thankful for access to high-quality, government-paid health care. After all, who hasn’t read horror stories about uninsured Americans filing for bankruptcy because of crippling medical bills? While that may not seem like a concern to Canadians, unfortunately, if you are self-employed or do not have access to supplemental health benefits to protect your income, a sudden and serious illness—like cancer or a heart attack—can be financially devastating. Treatable cancers, for example, often require months of chemotherapy and radiation. A heart attack combined with bypass surgery can mean a lengthy recovery and weeks of physical therapy

Besides losing months of income because they are unable to work, Canadians dealing with a serious illness can also face high out-of-pocket expenses. In Ontario, for example, if you are under 65, any treatment-related drugs that you take at home are not covered by OHIP, and some medications can cost hundreds or thousands of dollars. In one survey of more than 500 Canadian debtors, two-thirds cited medical expenses such as drug costs as a contributing factor in their bankruptcy. Critical illness insurance can also be a good option for a stay-at-home parent who doesn’t have income to replace, but who may need financial support to help them take care of their family if they are unable to.

What is critical illness insurance?

If you receive a diagnosis for a condition that is covered by your critical illness insurance policy, the insurance company will pay you a tax-free lump sum. Like any insurance, the amount depends on what level of coverage you have. So, for example, if you have a $100,000 policy that covers heart attacks, you’ll receive a tax-free lump-sum payment of $100,000 once you have provided proof that you have suffered the condition covered by your policy.

This money is yours to use any way you wish, from travel expenses, home care, and prescriptions to household bills. As with life insurance, you decide on the amount of coverage you need and then pay a regular premium over the term of your policy. And, like life insurance, the cost varies, depending on age and other factors. But unlike life insurance, a critical illness policy benefits you and your family while you are alive, helping you financially now, so you can concentrate on getting better.

The fact is, many people will be forced to deal with a serious illness at some point in their lives that affects not only their physical health, but their financial health, as well.

How much critical illness insurance you need will depend on your specific situation. To find out whether this is the right solution for you, talk to your financial advisor to discuss your options.