Critical illness: the policy that pays you while you are alive.

What counts as a covered condition

Critical illness insurance pays you a tax-free lump sum when you are diagnosed with a condition listed in your policy and you survive a short waiting period, usually 30 days. You decide how to spend the money. Most people use it to keep paying the mortgage, replace lost income, or pay for care that OHIP does not cover.

The word that matters is listed. The policy pays only for conditions named in the contract, and only when your diagnosis meets the contract's definition.

The three conditions behind most claims

Life-threatening cancer, heart attack and stroke account for most critical illness claims in Canada. Almost every policy covers all three. The Canadian Cancer Society estimates that about 2 in 5 Canadians will be diagnosed with cancer in their lifetime, which is why cancer is the heart of most claims.

The longer list

Comprehensive policies cover 20 or more conditions. Common ones include:

• Coronary artery bypass surgery and aortic surgery
• Kidney failure and major organ transplant
• Multiple sclerosis, Parkinson's disease, ALS and other motor neuron diseases
• Benign brain tumour, bacterial meningitis and coma
• Loss of limbs, loss of independent existence, blindness, deafness and loss of speech
• Severe burns and paralysis

Basic policies cover fewer conditions and cost less. A basic policy that covers cancer, heart attack and stroke can make sense on a tight budget, as long as you know what it leaves out.

Definitions matter more than the count

Canadian insurers base many definitions on an industry benchmark, so a heart attack in one policy usually means much the same thing in another. Still, details differ. One policy may require a certain level of damage, a certain test result, or a symptom that lasts a set period. Two policies can list the same condition and pay in different situations. That is why I compare the wording, not just the number of conditions on the brochure.

Partial payments for early diagnoses

Many policies pay a smaller amount for less severe diagnoses, such as some early-stage cancers or a coronary angioplasty. This is usually a percentage of your coverage with a dollar cap, and the policy stays in force afterward. It is worth checking which early-stage conditions qualify, because they are common.

What is not covered

• The cancer waiting period. Most policies exclude cancer if signs, symptoms or tests that lead to the diagnosis begin within the first 90 days after the policy starts.
• Conditions you already have. An insurer may exclude a condition linked to your health history, or charge more for it.
• Diagnoses that do not meet the definition. Some early cancers and less severe events are excluded unless the policy has a partial benefit for them.
• Dying within the survival period. Critical illness coverage is not life insurance. If you die within the waiting period after diagnosis, the benefit is generally not paid. Some policies refund premiums in that case.

Answer every health question on the application fully and honestly. An incomplete answer is the most common reason a claim gets reviewed or denied.

Your work benefits and where they stop

"I have coverage at work" is the most common reason people skip critical illness insurance. Work benefits help, but they do a different job, and they usually have gaps.

What a typical group plan gives you

• Short-term disability or sick pay covers the first weeks or months, often at part of your salary.
• Long-term disability usually starts after a waiting period of about three to six months and pays a portion of your income, often around 60 to 70 percent. If your employer pays the premium, the payments are taxable.
• Group critical illness, if the plan has it at all, is often a small, fixed amount.

Where the gaps are

• Disability pays only while you cannot work. Many people keep working, or return part-time, during treatment. Disability benefits can shrink or stop. A critical illness payment does not depend on whether you work.
• The money is monthly and partial. A lump sum lets you pay for private treatment, travel for care, home changes or a spouse taking time off, all at once.
• It ends when the job ends. Group coverage usually stops when you leave, are laid off or retire. Buying your own policy later costs more because you are older, and any new health history can make it harder to qualify.
• Government programs are limited. EI sickness benefits pay part of your earnings for up to 26 weeks, up to a weekly maximum. Self-employed people receive them only if they registered and paid in ahead of time.

A quick check you can do today

Find your benefits booklet and look for three numbers: how much long-term disability pays each month, how long you wait before it starts, and whether there is any critical illness benefit. If you cannot find them, bring the booklet to our call and we will read it together.

Return of premium: when it is worth the price

Return of premium is an option you add to a critical illness policy. If you never make a claim, you get some or all of your premiums back. It is one of the most popular options in Canada, and one of the most misunderstood.

The common versions

• On cancellation or expiry. If you keep the policy a set number of years, often 15, or until it ends, you can cancel and receive your premiums back. Some versions refund part of your premiums sooner.
• On death. If you die without having claimed, your beneficiary receives the premiums you paid. Some policies include this at no extra cost.

What it costs

Adding return of premium raises your premium, often by a large amount. The exact increase depends on your age, the policy, and which version you choose. If you make a full claim, you receive the benefit and no refund. A partial claim for an early diagnosis can reduce the refund under some policies.

When it can be worth it

• You would not buy coverage at all unless you could get the money back. Paying more for coverage you keep beats having none.
• You are confident you can afford the higher premium for 15 years or more. The refund usually goes to people who keep paying.
• You own a business and want the company to pay the premium, with a possible refund later. The tax treatment of corporate-owned policies needs your accountant's review before you buy.

When it usually is not

• Money is tight. A bigger benefit without the option usually protects you better than a smaller benefit with it.
• You might drop the policy before the refund date. Leave early and you may get little or nothing back.
• You would invest the difference. Some people would do better buying the policy without the option and investing what they save each month. This only works if you actually invest it.

How I compare it

We price the same policy two ways: with the option and without it. Then we look at what the extra premium adds up to over 15 years, what you would get back, and what that same money could do invested. You decide with the numbers in front of you.

Who can skip it, and why that is fine

Not everyone needs critical illness insurance. Buying coverage you do not need costs money you could save or invest. Here is when it is reasonable to pass.

You may not need it if

• Your savings could carry you. You have enough in savings you can easily reach, outside your RRSP and your children's RESP, to cover a year or more of your household's costs plus treatment expenses.
• You have strong disability coverage that you own. An individual disability policy that pays a solid share of your income and follows you between jobs covers much of the same risk.
• Your costs are low and no one depends on your income. No mortgage, no dependants and modest fixed expenses mean a diagnosis is hard but may not be a financial crisis.
• Your retirement income is secure. A retiree with a pension and paid-off home has income that continues whether or not they are sick.

It is usually worth a look if

• You are self-employed or own a business, with no sick pay and no group plan.
• Your household needs both incomes to cover the mortgage and bills.
• Your only savings are in an RRSP or RESP you would rather not withdraw from.
• You have a family history of cancer, heart disease or stroke and are still healthy enough to qualify.

The honest answer

If your review shows you are covered, I will tell you, and that is a good outcome. If it shows a gap, we size the coverage to the gap, not to a round number. Either way, you leave with a free written plan that shows the math.