Many working Canadians are familiar with long-term disability insurance, the purpose of which is to provide income replacement when someone becomes ill or injured and is unable to work for a prolonged period. Long-term disability (LTD) payments are generally tax-free when the individual has paid 100% of their premiums, but taxable if the employer has paid the LTD premiums.
Like LTD coverage, critical illness (CI) insurance plans provide a policyholder with compensation in the event of an unexpected illness or disability. And, both LTD and CI plans can be purchased through an independent insurance broker, although LTD coverage is often available to employees through workplace group plans.
However, there are several ways in which critical illness coverage differs from long-term disability coverage. LTD benefits take the form of income replacement, typically paid monthly to a claimant; whereas CI plans pay out a lump sum payment when someone is diagnosed with a life-altering illness covered by their policy. The CI payment is tax-free and can be spent in any way a person sees fit. Also, the CI payment has no affect on the amount of LTD benefits a claimant may also be receiving.
A key objective of CI coverage is to help claimants pay for the best available medical treatment, which may not be covered by Ontario health insurance. Other common expenses that often arise when someone sustains a serious illness are care-giver expenses and lost-income if a family member must stay home to support and care for the claimant. CI payments can also pay travel expenses for someone who seeks out of-the-province medical care. Essentially, you can use this coverage any way you wish.
Critical illness insurance policies are not standardized and differ significantly between insurance providers. Some plans cover only one illness (such as cancer); others may cover a few common conditions (for example, cancer, heart disease and stroke); while some cover a long list of serious illnesses and conditions. If your plan covers cancer, as most basic plans do, check the fine print to determine whether it will pay for all types of cancer or only the more serious forms of cancer. Be aware that there may be numerous exclusions in your policy, and it is prudent to check the fine print and ask your broker about exclusions, before signing up to pay for a particular coverage.
Persons who are already ill or have a pre-existing condition will generally not be eligible for critical illness coverage. Most CI coverage providers specify a long list of illnesses and conditions that exclude a person from seeking coverage. These may include Alzheimer's Disease, cancer, insulin-dependant diabetes, HIV-positive, heart attack, kidney failure, and many more.
Policies may also specify a survival period that must be met after the illness has been diagnosed before a payout will be made. For example, there may be a requirement that the claimant survives 30 days after diagnosis before receiving payment.
If you are considering making an ‘either or’ choice between long-term disability coverage or critical illness coverage, experts generally advise purchasing LTD coverage as it will provide income replacement when any type of disability or illness prevents you from working, including injuries sustained in a motor vehicle accident or another harmful event. Critical illness insurance only provides help if you sustain one of the specific illnesses specified in your plan. Also, CI insurance pays only the amount agreed to in your policy, but LTD coverage will provide an income to age 65 if you are unable to perform any type of work for which you are reasonably suited, as a result of your disability, injury or illness.
Critical illness coverage is generally intended to supplement LTD coverage. However, a stay-at-home parent who is not eligible for LTD may wish to purchase CI coverage while their children are young, to provide security in the unfortunate event of a serious illness. If a parent who is the care-giver of their young children became seriously ill, the family would clearly suffer a substantial impact on their life style.
If you are interested in purchasing critical illness coverage, it’s a good idea to shop around, since all CI providers don’t offer the same rates, nor do they cover you for the same illnesses. In most cases, persons applying for CI coverage must submit to a medical exam and healthier applicants have lower premiums than those who are less healthy.
Something that both critical illness coverage and long-term disability benefits have in common is the fact that insurance companies sometimes unfairly deny coverage for persons who are legitimately sick or disabled. In December 2018, Global News reported a case where a man was diagnosed with a rare type of brain tumour that was growing on the man’s brain stem. An eight-hour surgery was performed to remove the tumour, however, not all of the tumour could be removed and there is no other treatment for this condition. The patient, Mark Blackwell, believes that this means that the tumour will almost certainly grow back. Mr. Blackwell was unable to work for two months but TD denied his claim for CI coverage on the grounds that the insurance he purchased only covers life-threatening cancer.
When a claim for CI or LTD coverage is denied by an insurance provider, the best course of action for a claimant is to seek representation from a CI and disability claims lawyer who has the requisite knowledge and experience to go against the large insurance companies. Insurance companies have a team of medical experts and lawyers whose specialize in insurance law and insurance claims disputes, which puts members of the public at a distinct disadvantage when ‘going it alone’ and appealing a denied claim.