Coverage that kicks in when plan members really need it
The two biggest questions I get asked when I talk to clients about their benefits plans are, “Have we got all the bases covered?” and “Are we getting the best possible value for our money?” But another question I’m hearing more and more is, “What else is out there that we could be looking at?”
Well, there’s “critical illness insurance.”
Quite simply, CI insurance offers a one-time lump-sum payout if you are diagnosed with a covered critical illness. This payout can be used for any purpose, such as covering incidental expenses, making the recovery period more comfortable, paying off debts, or replacing any lost income. This allows you to focus on recovery without worrying about the financial impact.
Critical illness (CI) insurance is designed to provide financial support if you are diagnosed with certain severe health conditions. It should be noted that CI insurance is entirely separate from – and in addition to – long-term disability (LTD) benefits. In other words, CI insurance does not replace LTD or affect LTD eligibility and coverage in any way.
The specific illnesses covered by CI insurance will vary by policy. Some policies also cover early-stage critical illnesses, which are diagnosed at a less severe stage but can have long-term implications.
Of course, different plans cover different condition, and some plans have multiple tiers offering expanded coverage. The most common illnesses and conditions covered by CI insurance in Canada typically include the following:
- Heart Attack
- Stroke
- Cancer: Various types of cancer can be covered, often including both early and advanced stages.
- Coronary Artery Bypass Surgery
- Kidney Failure
- Multiple Sclerosis
- ALS
- Major Organ Transplant
- Paralysis
- Blindness
- Deafness
These conditions can be included in CI insurance policies, but the specific coverage will vary by provider and policy, and there is usually considerable flexibility in coverage that a plan sponsor can specify.
If the premiums for CI insurance are paid by the employer, they are considered to be a taxable benefit by the Canada Revenue Agency. That means that the employer-paid premiums are listed on the plan member’s T4 tax slip as income. However, any lump-sum benefit paid out in a CI insurance claim are entirely tax-free to the plan member.
There are several common exclusions in critical illness insurance policies that you should be aware of. These exclusions can vary somewhat by provider and policy, but here are some typical ones:
- Pre-existing Conditions: Most policies will not cover illnesses that were diagnosed or being treated before the policy was purchased.
- Self-Inflicted Injuries: Any critical conditions resulting from self-inflicted injuries or attempted suicide are generally not covered.
- Substance Abuse: Illnesses that arise due to the abuse of alcohol or drugs are typically excluded from coverage.
- Non-Compliance with Medical Advice: If you fail to follow medical advice or prescribed treatments, your claim may be denied.
- War and Criminal Activities: Illnesses or injuries that occur as a result of war, terrorism, or participation in criminal activities are usually excluded.
- Specific Illness Exclusions: Some policies may have specific exclusions for certain illnesses or conditions. For example, a policy might exclude coverage for certain types of cancer or heart conditions.
Then there is the issue of “survival period.” Many, though not all, policies require that you survive for a certain period (such as 30 days, for example) after being diagnosed with a critical illness before you can receive the payout.
The survival period helps insurers manage the financial risk associated with providing coverage for critical illnesses. It ensures that only those who survive the initial period post-diagnosis receive the lump sum payout. If you pass away during the survival period, the insurer does not disburse the lump sum payment.
What it basically means is that the CI insurance does not replace any death benefit or life insurance provision in the benefits plan.
Different CI insurance plans offer different terms, conditions and coverage. That’s why I think it’s important for plan sponsors to turn to their benefits consultant for information and help in working out the details of the coverage they want to secure. Things like the total amount of coverage, whether or not pre-existing conditions are covered, if there is a survival period required, the termination age, and so on. “By working with your benefits consultant, you can ensure you have the best coverage with minimal restrictions for when it comes time to claim”.
Considerations that may apply include the following:
- Total claims. A plan may limit coverage to one claim, or one claim per specified time period, while others may offer more flexibility.
- Second event. This refers to, for example, coverage for a second heart attack within a given time period.
- Dependent child. Many plans offer coverage for dependent children.
- Portability. Can the plan member continue coverage after leaving the employer?
- Termination age. Is there a maximum age at which coverage is terminated?
One thing that I’ve noticed, when I have the conversation about CI insurance, is that while most clients have heard of it and are familiar with the concept, many haven’t considered it as an option for their own plans. However, once it’s on the table as an option, it does seem to generate a lot of interest.
I hear about claims that go through all the time, and I think a lot of people would be surprised to hear how often plan members receive this added support just when they need it most.
When a client’s benefits plan is a key part of their recruitment and retention efforts, it seems to strike a chord – both with younger employees who are hard to impress and with members of management and ownership who would also appreciate having the extra safety net that CI insurance can provide.
The Plan Sponsor’s Guide to Women’s Health
Check this out – a terrific resource for plan sponsors.
***
I really appreciate comments, ideas, suggestions or just observations about the blog or any
other topics in benefits management. I always look forward to hearing from readers. If there’s
anything you want to share, please email me at bill@penmorebenefits.com.
Copyright Notice
© Penmore Benefits 2025. All rights reserved. All of the content herein is the sole property of
the Penmore Benefits, and may not be reproduced, transmitted, or stored in a retrieval system
– in whole or in part – without the written permission of the Penmore Benefits. Links to the
originating article are permitted.