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How Much Critical Illness Insurance Do You Need in Canada?

Critical Illness Insurance in canada with lifebuzz.ca
Critical Illness Insurance in canada with lifebuzz.ca

Being diagnosed with a severe illness can be incredibly stressful and challenging emotionally and financially. While recovering and getting proper treatment should be your top priority, you must also consider how you’ll continue paying your bills and providing for your family.

Critical illness insurance provides financial protection that can be used for any purpose if you suffer one of several covered conditions. But how much coverage should you get to safeguard yourself and your loved ones?

As a life insurance expert with over 15 years of experience in the Canadian industry, I’m often asked this question by clients. The answer depends on your unique situation, but there are some general guidelines you can follow.

In this comprehensive guide, Lifebuzz will outline the key factors to consider when determining the right critical illness insurance coverage amount for you. I’ll also bust some common myths and frequently asked questions Canadians have about these policies.

What is Critical Illness Insurance?

Before jumping into coverage amounts, let’s quickly review what critical illness insurance is and what conditions it covers.

Critical illness insurance in Canada provides a tax-free lump sum payment if you’re diagnosed with one of several specified severe illnesses. This payment can be used for medical bills, daily living expenses, paying off debts, and more.

Policies typically cover around 25 conditions. The major ones include:

  • Cancer
  • Heart attack
  • Stroke
  • Coronary artery bypass surgery
  • Major organ failure (kidney, liver, lungs, etc.)
  • Paralysis
  • Multiple sclerosis
  • ALS (Lou Gehrig’s disease)

Some less severe conditions, such as early-stage cancers and benign brain tumours, are also included on a partial payment basis.

Critical illness insurance differs from disability insurance, which covers lost income if you cannot work. The conditions and qualifying criteria differ between the two.

Now that you understand the basics of critical illness coverage let’s explore how to determine the right amount for your needs.

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Factors That Impact Your Coverage Amount

There are several important considerations when deciding how much critical illness insurance you need. They include:

Medical Expenses

While provincial health insurance covers hospitalization and doctor’s fees, many ancillary expenses are not included. For example, experimental treatments, alternative therapies, at-home nursing care, and prescription drugs can cost thousands of dollars.

Cancer medications alone can surpass $10,000 per month in some cases. Even a 5-10% coinsurance can be a significant expense if treatment lasts an extended period.

Tip: Aim to have at least $50,000 – $100,000 in coverage for potential medical costs not covered by provincial healthcare.

Daily Living Expenses

In addition to medical bills, you need to account for ongoing household expenses. The critical illness benefit can provide income replacement so you can take time off work without worry.

Necessary monthly costs include:

  • Mortgage/rent
  • Debt payments
  • Utilities
  • Phone/internet
  • Insurance premiums
  • Property taxes
  • Food/groceries
  • Transportation

Tip: Have enough coverage to pay 3-6 months of your regular living expenses while you recover. This equals around $15,000 – $30,000 for most households.

Lost Income

As mentioned, critical illness insurance can replace your income if you need extended time off work during and after treatment. The amount of lost wages can vary significantly based on your occupation.

You may also need to account for lost spousal income. If your husband or wife has to take unpaid leave to care for you, those lost earnings need coverage, too.

Tip: Have enough benefits to cover at least three months of income loss for yourself and your spouse. For example, $15,000 each.

Home Modifications

Unfortunately, some critical illness conditions result in permanent disabilities impacting mobility. Home modifications like wheelchair ramps, stair lifts, and grab bars may be required to navigate your residence safely.

These renovations are costly – most cost between $5,000 to $20,000, depending on the amount of custom work needed. It helps to allocate a portion of your critical illness benefit for potential home alterations.

Tip: Earmark around $10,000 – $15,000 of your coverage for possible home modifications.

Caregiving Needs

In the aftermath of a critical diagnosis, you may require in-home caregiving support. This is especially true if your mobility is affected. The assistance could include nursing care, meal prep, cleaning, transportation, and more.

Professional caregiving fees can exceed $5,000 per month. Having enough critical illness coverage to pay for at least a few months of caregiver services provides essential peace of mind.

Tip: Set aside $10,000 – $15,000 for potential in-home caregiving needs.

Travel Expenses

Seeking specialized treatment may involve significant travel, depending on where you live. For example, those in remote regions often need to fly to major cities for surgeries, clinical trials, or alternative therapies.

These trips add up quickly between airfare, accommodations, meals, and local transportation. If engaging in medical tourism outside Canada, these costs can total $15,000 or more.

Tip: Budget $10,000 – $15,000 of your critical illness benefit for potential travel expenses.

Now that we’ve explored the key cost areas, how much critical illness insurance should you get?

While the specific amount depends on your unique situation, needs, and budget, singles aim for $100,000 – $200,000 in coverage.

For couples, target $200,000 – $400,000 total coverage. Here’s a breakdown by common scenarios:

Singles

  • $100,000 – $150,000 for individuals with minimal debt and expenses
  • $150,000 – $200,000 for singles with moderate household costs
  • $200,000+ for those with high expenses and liabilities

Couples

  • $200,000 – $250,000 for dual-income couples with minimal expenses
  • $250,000 – $300,000 for average households with reasonable costs
  • $300,000 – $400,000+ for those with high expenses and home/family care responsibilities

These ranges account for the various costs outlined earlier. Of course, you may need more or less depending on your specific obligations and risks. But they provide reasonable starting targets.

I also recommend considering insurance inflation. Costs will likely rise over the 10+ years from when you first get coverage. So increase the amounts by 25-50% if you want your protection to better match future expenses.

What About Family Members?

In addition to yourself, you may want critical illness coverage for your spouse and children. Their financial needs also require protection.

Here are some tips on family member coverage amounts:

Spouse

  • Non-income earning spouses should have at least $100,000 – $150,000
  • Match the income-earning spouse’s amount if possible
  • Maximum $250,000 coverage for non-working spouses

Children

  • $20,000 minimum, ideally matching parent’s coverage
  • Maximum $200,000 – $500,000 depending on age
  • Must ensure all children equally

Work with an experienced advisor to navigate insurer rules for spouse and child coverage amounts. There are some restrictions, but protecting your whole family is generally recommended.

Addressing Common Concerns

I want to tackle a few frequent worries and misconceptions Canadians have about critical illness insurance amounts.

“I already have life insurance – isn’t that enough protection?”

Life and critical illness coverage serve different purposes. Life insurance pays if you pass away, while critical illness insurance helps if you survive a significant diagnosis.

Roughly 90% of critical illness claimants live, underscoring why dedicated coverage is crucial. Both types of protection are recommended for comprehensive financial security.

“I have disability insurance – why get critical illness coverage too?”

As mentioned, disability insurance replaces income lost due to any injury/illness preventing you from working. Critical illness insurance in Canada pays a lump sum upon diagnosing specific severe diseases.

You can get disabled without having one of the 25+ conditions covered by critical illness insurance. That’s why having both provides more complete protection.

“Isn’t getting a large lump sum unwise for spending control?”

It’s understandable to worry about properly managing a big one-time payout. However, flexibility is one of the benefits of critical illness insurance. You can use the funds as preferred for your situation.

Work with a financial advisor to develop a prudent plan for utilizing the payout. And remember, taxes aren’t owed on the benefits, so you get the total amount.

“I have good provincial healthcare – why do I need extra coverage?”

Public health insurance certainly provides vital coverage but doesn’t account for all costs. You still need to pay for drugs, experimental treatments, income loss, travel, home modifications, and more out of pocket.

Supplementing government healthcare with critical illness insurance helps fill these financial gaps—the two work together to provide more complete protection.

Critical Illness Insurance: Frequently Asked Questions

To help you make an informed decision about coverage amounts, here are answers to some frequently asked questions about critical illness insurance in Canada:

How do higher coverage amounts impact premiums?

Premiums go up as your coverage amount increases. However, critical illness premiums are affordable compared to the lump sum payouts.

For example, a healthy 40-year-old male might pay $50 monthly for $150,000 of coverage. This is an excellent value, given the financial risks involved.

What conditions may make me ineligible for coverage?

Insurers look closely at your medical history. Conditions often leading to declination include cancer, heart disease, stroke, kidney disorders, alcohol abuse, and mental health disorders.

However, minor impairments like joint issues, asthma, or managed mental illness may still qualify if well-controlled. It depends on severity.

Can I get coverage without a medical exam?

Yes, many insurers now offer “simplified issue” plans up to $250,000 without any medical testing. You answer some health questions on the application.

This streamlined process is excellent for healthy applicants wanting fast approval. However, those with medical issues often need an exam and lab work for full coverage.

What is the process for receiving benefits?

Once diagnosed, complete the insurer’s claim form and include documentation confirming your eligible condition. Typically, you’ll get the lump sum payment within a few weeks.

Understanding the exact definitions and criteria for triggering each covered illness within your policy is essential. Be sure to meet all requirements.

Are mental health conditions covered?

Unfortunately, critical illness insurance does not cover mental illnesses like anxiety, depression, bipolar disorder, PTSD, and schizophrenia.

Some policies include Alzheimer’s disease, Parkinson’s disease, and loss of independent living. However, psychiatric conditions are generally excluded.

How long will my benefits last?

Most critical illness policies pay one lump sum amount upon initial diagnosis. Some insurers offer optional “return of premium” riders, allowing additional payouts for subsequent unrelated illnesses.

There are also “recurring claim” policies permitting multiple payouts over time. But, the initial lump sum is the most common benefit structure.

Finding the Right Critical Illness Insurance Advisor

I hope this guide provides a helpful overview of recommended critical illness insurance coverage amounts and factors to consider. Please get in touch with me if you have any other questions.

As an experienced life insurance broker, I’m happy to assess your financial obligations, lifestyle needs, and health risks to determine the appropriate level of critical illness protection.

My expert advice is free since I work on commission through insurance companies. I represent over 15 top Canadian insurers to find you the best-suited policy.

Critical illness insurance can provide invaluable peace of mind when you or your loved ones face a significant diagnosis. Let’s discuss implementing a plan that fits your budget while delivering sufficient financial security.

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Written by Ben Nguyen

Ben Nguyen is an award-winning insurance expert and industry veteran with over 20 years of experience. He is the chairman and director of IDC Insurance Direct Canada Inc., one of Canada's leading online insurance brokerages.

Ben is renowned for his extensive knowledge of life, health, disability, and travel insurance products. He is the prolific author of over 1,000 educational articles published on LifeBuzz, BestInsuranceOnline, and InsuranceDirectCanada. His articles provide Canadians with advice on making smart insurance decisions.

With a Bachelor's degree in Actuarial Science and a Fellow of the Canadian Institute of Actuaries (FCIA) designation, Ben is frequently interviewed by media as an insurance industry spokesperson.

He has received numerous honors including the Insurance Council of Canada’s Pivotal Leadership Award, the Canadian Insurance Hall of Fame induction, and the President’s Medal from the Canadian Institute of Actuaries.

Ben continues to shape the vision and strategy of IDC Insurance Direct as chairman. He is dedicated to advancing the insurance industry through his insightful leadership.

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