What is critical illness insurance? 

Why is it important to everyone? 

What are the conditions covered? 

Some examples 

Who can provide this kind of protection? 

Latest developments

Critical illness insurance (CI) was invented by heart surgeon Dr.  Marius Barnard, and first introduced in South Africa in 1983. Later, it became available, and very much sought, in several other countries; e.g. in the UK, it  has become the most popular kind of insurance product recently. It was first offered to Canadians in 1996.

The financial consequences of a serious illness are  often worse than those of death. In addition, the  chances of a critical illness attack on  any of us are much higher than those of death, at least before  retirement. (You can see statistical probabilities of suffering a critical illness at various ages, as well as the calculation of how it can impact RRSP savings and retirement income if you click here.)

Critical illness insurance is a kind of 'living benefit' protection and is also referred to as 'dreadful disease' or ‘critical care /  recovery’ insurance. This is a relatively new kind of policy that pays you a probably tax-free lump  sum a certain number of days after the diagnosis of one of the carefully  circumscribed conditions that make up the majority of life threatening illnesses. This waiting period is usually 30 days, but with some policies, it can be shorter, 14, or even 0 days. If the insured dies during the waiting  period, only the premium paid into the policy is paid back to the designated beneficiary.

Whether the insured  person recovers from the disease or not (and when) and whether (s)he is able or willing to work in that period or afterwards, have no effect on the paying out  of the benefit. Similarly, payment of the benefit is not tied to any other  insurance, and there is no restriction on what it is used for.

It can be bought as a separate policy or as a rider to certain traditional life insurance policies. In certain policies (term or UL), life insurance and critical illness insurance are, in a way, combined: a certain percentage of the face amount can be paid out as a living benefit, and both the amount payable later as death benefit and the premium are decreased accordingly. (One should not confuse this policy with a more traditional customary practice  of some life insurers: when the insured is not just critically but terminally ill (that is death is expected shortly), they sometimes pay part of the death  benefit, to ease that last period of life as much as possible. For critical illness benefit payment, chances of recovery or longevity are not considered at  all, beyond the precondition of survival for 30 days.)

There is even a  unique combination available: critical illness coverage as a rider in universal  life plans. The nice thing about this solution is that one can pay for the  critical illness protection from within the UL, that is with tax-free money. Another remarkable feature of some cash value life insurance policies is that  when some critical illness strikes, they allow access to the cash value on a tax-free basis. In a sense, self-insurance can be implemented this way, provided  there is enough cash value in the policy.
Critical illness insurance has also  appeared as a rider on certain long term disability plans.

The sum of the CI  benefit contracted is usually comparable to that of death benefits in life  policies. 

  • Some people think they and their families are well-protected, since they have not  just life insurance, but also disability insurance. They are probably wrong.  Basically, critical illness insurance is not a substitute for long term disability or life insurance;  rather, it fills a gap left in the protection provided by those two.  You need it not because you may die soon, but because you are going to live. (To  learn about another relatively new type of insurance, long term care insurance, brought about by medical advance and changing demographics, click  here.)


The logic behind offering this kind of protection is to serve a new need. People are not covered by traditional life or disability policies in the increasingly frequent cases of surviving - and for an increasingly long time - life threatening illnesses. In those cases, death benefit is obviously not paid, and monthly payment of disability insurance benefit may not be triggered or continued either. This is  because for that to happen, the person must be disabled ... usually for several months or even a few years, depending on the policy bought. However, when a life  threatening illness occurs, the patient might remain or very soon become able to work (again), and sometimes the disability benefit kicks in only for one or two  months, or even not at all.

  • While  formally not disabled perhaps, or not for a very long period, people with dreadful  diseases incur very serious financial consequences. This fact is reflected in the increasing number of bankruptcies in the last few years.

There may be a need, e.g.,

  • to cover significant expenses for recovery not  covered by government or group plans (Newspapers regularly report cases when families have to fork out tens or hundreds of thousands of dollars because they face situations where there is not enough outside support. Frequently, the necessary medical facilities and procedures are not available  in Canada, or at least not in time, and even when the provincial health plan  seemingly covers the bulk of the costs, those 'beyond-the-bulk' expenses (e.g., for travel and lodging) can accumulate very quickly.),
  • to substitute reduced or permanently lost income,
  • to pay out mortgages or other loans,
  • to change lifestyle (change a career, take an early retirement, change place of living, alter a home, take time off to focus on recovery, buy new services,  etc.),
  • to fulfill dreams,
  • to allow your spouse to take a leave of absence to help you recover,
  • to hire  someone to keep a small business going during the recovery,
  • to replace a key person, or a co-owner, in a business situation, when that person is forced by a critical illness to give up his/her position or cut back  activity in the business.

In case of a critical illness, reserves - that have other intended purposes, in the first place - are quickly depleted, and payment for mortgage, into retirement or education funds, or life insurance is hard to keep going, exactly when the need  for them would be the greatest.

  • Since  the chances of getting into such a situation are significant for all of us  (see my primer and the collection of more detailed data for some facts), the  need for CI is even greater than the need for life insurance. Cancer especially has become more frequent and attacks people almost indiscriminately these days. (Click here for some update on the fight against it.)

 If you think such a  disaster will surely avoid you, think  again! Think of those people among your relatives, friends, or acquaintances, who have had such problems. Had it previously seemed likely that they would have such an illness? Do not deceive yourself: those statistics are  not about them, some miserable other group of people; they are  about us. In the UK, the average age of people making heart attack, cancer,  or stroke claims in the past three years was 41. A quarter of claims were from individuals under 35. According to Canada Life's Irish Division, 10% of their claims came form people younger than 30, 23% came form people between age 31 and 40, and 52% from people between age 41 and 50.


There are two basic  kinds of coverage:

one that includes

  • heart  attack,
  • stroke and
  • life threatening cancer,

the most frequent  life threatening conditions, and
another that may include also a few or more  items from the following list:

  • coronary artery bypass surgery,
  • multiple sclerosis,
  • kidney failure,
  • paralysis,
  • blindness,
  • deafness,
  • rheumatoid arthritis
  • benign brain tumor
  • dismemberment / loss of limbs
  • major  organ transplant
  • Alzheimer's disease
  • Parkinson's disease
  • motor  neuron disease (ALS - Lou Gehrig's disease)
  • coma
  • loss of  speech
  • severe burns
  • organ  transplant (or getting on the waiting list for that)
  • major  head trauma
  • occupational HIV infection
  • late onset insulin dependent diabetes
  • aortic surgery
  • heart  valve replacement
  • loss of  independence

In other words, the  list does not include everything, but the overwhelming majority of life  threatening illness occurrences are included. (To some extent, the name ‘critical _illness_ insurance’ is a misnomer. Since several of the benefit-triggering occurrences - severe burns, loss of speech, coma, deafness,  blindness, dismemberment, organ transplant, major head trauma - result, or can  result, from accidents and injuries rather than illnesses, it is more correct to  speak of 'critical conditions' as situations that are covered by this kind of policy.) There are, of course, quite detailed definitions for those conditions that trigger paying the benefit.

Applications for critical illness coverage, similarly to disability insurance, are much more closely scrutinized from the point of view of the health history of the  individual and his/her family than with life insurance applications. This  inclusion of the health history of parents and siblings in the underwriting of  CI is one more argument to get such protection early. It has happened in my practice that an application was declined by the insurer because of repeated  critical illness occurrences in the family. Others had to pay extra premium,  just because one of their parents had a heart attack or cancer at a relatively young age (for insurers it usually means before age 60 or 65). It might sound weird to some, but in a financial sense, insurability is always an important asset, ... and with CI it is especially so, enhanced by this inclusion of the  whole family in the assessment.

An important exclusion with CI policies is cancer occurring in the first 90 days of the  policy. In such a case, the premium is paid back in most cases and the policy terminates. With one company, in such a situation the policy can be kept in  force, but with the exclusion of cancer from the covered conditions. Similar  exclusions of certain preexisting conditions - e.g., blindness - are not out of  the question with some policies.

Since payment of the benefit is linked to well-defined medical conditions only, there is less  room for claim debates between insured and insurer than can be the case sometimes with disability insurance plans. 

It is important to recognize that the inclusion of loss of independence as a covered condition in effect means the inclusion of a kind of long-term care insurance coverage within  a critical illness policy. 


There are several insurance companies in Canada from which you can buy critical illness insurance. Recently, even banks have started to offer it as  a kind of mortgage insurance. (The problems with this particular offering are  the same as those with mortgage group life insurance from banks in general.) The lists and definitions of basic conditions of their policies are quite similar, but definitely not the same. (E.g., I know only of two companies that would pay after the early ('stage A') diagnosis of prostate cancer; for others, it is a non-life-threatening illness. Another example is that most companies deny  paying the benefit for cancer if it strikes while the insured is infected with HIV, but there are policies that would pay in that situation.) Most companies offer more than 20 covered conditions, but some offer fewer. Premiums are spread over a wide spectrum. If you buy without shopping around first, you may easily  end up with a policy for which you pay hundreds and thousands more than necessary over the years. Smokers pay significantly higher premiums than nonsmokers for CI. However, just as with life insurance, if the insured quits  smoking later, the premium can be decreased to the nonsmoker  level.

Critical illness insurance is available for Canadian residents between the ages of 18 and 65. The policies are usually renewable until age 75, or they are for life. This kind of insurance can be accessible for people who otherwise cannot, or cannot easily, buy any health insurance, such as homemakers, new job entrants, contract or part-time employees, home entrepreneurs, or those who have been declined for some other type of insurance.  It is not a perfect substitute for disability  protection, just as disability protection is not a substitute for critical illness protection. However, in situations when CI is the only protection  available, it is especially worthwhile.

There are both renewable 10 year term and level priced policies available, up to age 65, 75, or 100. In addition to these basic types, there are more and more policies with  unique features. For example, one policy is for a 25 year period, with either level or decreasing benefit, ... to match the structure of policies offered by lenders. Another policy provides protection up to age 75, but premiums are payable until age 65 only. A next one offers automatic benefit increase for the  first 10 years, with increasing premiums, ... but based on original issue age  and without further medical underwriting. Reduced/partial benefit is paid from some policies if non-life-threatening cancer happens. Finally, from some  insurers, one can expect a monthly benefit (as a partial prepayment of the  contracted CI benefit) if one is unable to perform activities of daily living (ADL, a term more often used in relation to long-term care insurance). All these  differentiating features make sense, and it is up to consumers and brokers to evaluate and compare them before selecting the policy the clients are most  comfortable with.

Most policies offer  access to the services of Best Doctors, a network of world-renowned physicians and medical facilities. Their service may include  consultation with family and attending physician, identification of best experts worldwide for special situations, personalized assistance for medical  appointments, travel and accommodation arrangements, and coordination of patient inquiries, 24/7. 

Another  recent critical illness product on the market is for small groups, and families of their members. Its particular twist is that it combines group critical  illness protection with a medical review process to ensure that clients get the  best possible care. There are four different levels of benefits. The first level  provides a lump sum benefit and medical review on the diagnosis of a critical illness or if the client has a condition for which they remain undiagnosed after 90 days. The second level provides access and funding for the proper diagnosis of an illness. The third level provides access and funding for medical treatment  in the US. The fourth level provides access and reimbursement to preferred providers for voluntary diagnostic testing. This is a unique package of benefits  that is particularly attractive to senior executives and professional  groups.

The face amount of (that is the contracted benefit payable by) CI policies can be between $10,000  and $2,000,000; usually not more than five to nine times the annual income plus the unpaid mortgage of the person is allowed. For people in certain occupations  some companies charge somewhat higher premiums. The maximum protection for someone without their own income (if their spouse has decent income) is about  $250,000. A single person without a T4 tax slip can probably buy no more than a  $100-150K policy.

Unlike with life insurance policies, the free looking period usually is not 10 but 30 days.  Another difference from life insurance is that with critical illness policies usually there is only a more restricted temporary coverage (or none) that is available from the application date until the policy issue date.

Some insurers offer  their policies with a return of premium (ROP) option, whereby (for some modest extra premium, of course) they commit themselves that at some point in the future (usually at age 65 or 75, or after a specified number of years) they will  pay back (with or without interest) all or a large part of all premiums paid if the policy is still in force then (that is when there was no benefit payment,  but the premiums were paid regularly).

Beside the availability of disability premium waiver, one can buy a child protection rider  as well that covers all the existing and future kids up until age 21.  Since the number of children is not a factor in the cost calculation, this rider is especially advantageous for families with several kids. On the list of  covered conditions in this case are the most frequent life threatening situations happening specifically to children. The contracted benefit is much more limited than with adults.


One of the latest variants on CI insurance is what the issuing company calls global medical care insurance. Yes, it can be contrasted with the typical CI policies in many respects (for some details, read  on or click here, then on 'Life insurance', then on 'CriticalADVANTAGE'),  but basically it is still to provide solution when one of the 10 predetermined critical illnesses occur. In such an event, the insured would have access (via Best Doctors) to the  best information, facilities, and personnel in the specific field, anywhere in the world, ... and practically without financial limitation, since the policy guarantees $1,000,000 out-of-country medical expense coverage plus  lifetime access to the Best Doctors information services, and travel and repatriation benefits.  If, upon the diagnosis and initial involvement of relevant experts, the claim is approved, the client and their treating physician will have the choice of either (i) going for treatment outside Canada, and benefit from both the up to 1 million dollar available, and  Best Doctors invaluable services regarding finding the best doctors and places, and implementing the provision of care without ever sending a bill to the client,  or (ii) staying in Canada, in which case $25,000 lump sum is paid to the client.  This plan is much more affordable than most other critical illness policies; on  the other hand, the range of covered conditions is narrower, the benefit is not a freely spendable lump sum (so it will not solve the issue of paying off the  mortgage, or substituting income, etc.), except the case of the $25,000 when the client chooses getting treatment in Canada, and (with some restrictions)  the coverage is cancelable and the premiums are not guaranteed. It seems quite  reasonable to state that the best solution is perhaps to own a combination of this policy with a (perhaps smaller, when affordability is an issue)  more mainstream CI policy.

Guarantees and premium levels have been hot issues in  general, regarding CI insurance, lately. Allegedly, Canada is the only country where one can still buy CI coverage with guaranteed future premiums. Since there  are just a very few reinsurers in the world (these are the insurers of ordinary  insurance companies, ... the top level in global insurance business), and they  have nobody to pass risks on, it seems plausible that they will soon force Canadian insurance companies as well to 'stand into the line', and withdraw offering guaranteed premiums. There have been premium increases already recently, ... thus, one can argue for the urgency of dealing with this kind of  protection from money saving perspective as well.


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