More and more Canadians who are concerned about the financial costs of major disease are turning to Critical Illness Insurance (CII) to gain peace-of-mind and protect their savings. CII pays a tax-free, lump-sum benefit, for a coverable illness/accident defined in the policy contract, typically 30 days after diagnosis, as long as the insured is alive. The most common illnesses insured include cancer, stroke, heart attack, and multiple sclerosis (MS), with most contracts covering over 20 ailments.
While Disability Insurance (DI) provides a monthly benefit to replace lost income due to a critical illness, CII helps to pay for the extra costs so often associated with being diagnosed with one.
CII also helps to cover income lost during the waiting period,
a period of time in which no benefits are paid under a
DI plan, as well as top up the benefit since DI typically
covers only 85% of after tax income.
Spouses who do not work outside the home need CII to cover the cost of hiring other skilled people to do the job they typically do; most often child care. In my experience, a critical illness affecting a spouse typically results in the other spouse having or wanting to take time off of work to care for the critically ill spouse and be with the family. While there is a small Compassion Care Benefit available for such instances through Employment Insurance, it is rarely enough, and for self-employed individuals, non-existent. CII provides the funds to allow the spouse to take time off work, if desired.
Sadly, children do get critical illnesses and there are special plans designed for the. Plans that cover childhood diseases such as congenital heart disease, cystic fibrosis and type 1 diabetes, as well as diseases common to children and adults alike. CII provides the funds to help either or both parents take time off work to care for their child or care for the siblings, access specialized care without having to consider government or personal health plan coverage, and cover costs such as transportation and accommodation if travel is needed. Many of these plans have automatic renewal privileges that extend coverage into adulthood and can include return of premium option that provides a return of the premiums paid, assuming no claim has been made, at age 25 to help the child purchase a home, get started in a career or pay off education costs; with a further return of premium at different ages in adulthood.
Although there are no concrete rules in the Income Tax Act in regards to the taxation of CII benefits, it is generally understood that premiums are paid with after-tax dollars and benefits are received tax-free. Typically CII is owned and paid for individually but it is possible to have the corporation own and pay for it, although getting the benefit out of the corporation often results in a taxable event ie payout from the corporation is as a taxable dividend.
There is a myriad of CII plans and options available on the market from plans that:
- cover 3 or 4 critical illnesses, to plans that cover over 25 critical illnesses
- have a stepped premium that increases every 10 or 20 years, to plans that have a level premium to age 65, 75, or life
- can be changed to Long Term Care plans without evidence of health
- include a Return of Premium option in which some or all of the premium is refunded after a number of years if no claim is made
- require proof of health, to plans that require little to no proof of health
At Zavitz Insurance, we work with you to find the right coverage for you and your family. As brokers with access to the major carriers in Canada, we shop the market for the best price and contract. Talk to us about Critical Illness Insurance and learn how you can get coverage that protects you and your family financially and provides for a return of premiums paid if there is no claim.