Since its introduction to Canada in 1996, critical illness insurance continues to be one of the fastest growing sectors of the insurance market. This is because of the increased rate of life-threatening illnesses such as heart attack, stroke, and cancer. Critical illness insurance was designed to cover financial and medical costs associated with these life-altering illnesses. It not only replaces lost income, it also allows people to focus on what matters most-getting better.
How Critical Illness Insurance Works
Unlike disability insurance, which pays you a monthly benefit based on your inability to work, critical illness insurance pays you a lump sum benefit if diagnosed with one of a number of covered conditions. After the diagnosis you must satisfy a 30-day survival period. Once the benefit is paid, you decide where the money goes.
There are a number of Canadian insurance companies that offer critical illness insurance. These companies compete with each other in a bid to offer their customers the best protection at an affordable rate. Some of the top insurance companies will cover up to 25 conditions.
Covered conditions for critical illness insurance can include: heart attack, stroke, life threatening cancer, kidney failure, severe burns, aplastic anaemia, loss of speech, Alzheimer’s disease, loss of limbs, bacterial meningitis, major organ transplant, benign brain tumour, motor neuron disease, blindness, multiple sclerosis, coma, occupational HIV infection, coronary artery bypass, paralysis, deafness, Parkinson’s disease, heart valve replacement, aortic surgery and loss of independence existence.
Each insurer has its own definitions and exclusions of these covered conditions and understanding the definitions and exclusions is of paramount importance.
Personally Owned or Owned by Your Medical Professional Corporation
Critical illness insurance can be purchased on an individual basis either personally or through your corporation. For a personally owned plan, you simply pay the insurance premiums with after tax dollars. If a claim is made, you will be paid the lump sum benefit tax-free.
Using the corporate-owned method, you purchase critical illness insurance through your Medical Professional Corporation (MPC). If you use your MPC to pay for the plan, then your MPC will also own the plan. There are several advantages to purchasing the plan this way.
First and foremost is the ability to use lower after-tax corporate dollars to pay the insurance premiums. You don’t have to take money out of your MPC; you simply move that money from your corporate savings account to pay for the insurance plan. The money never leaves the corporation and no taxable dividend needs to be paid out. Secondly, by moving money out of your MPC you pay less corporate tax on the money that remains invested in the corporation thus reducing your current tax exposure.
If there is a claim, your MPC will receive the lump sum payment tax-free. Once in the corporation the shareholder would decide the most effective way to receive the payment; by taxable dividend, salary or bonus, or repayment of an outstanding shareholder loan or repayment of paid up capital. There is no obligation to distribute the full lump sum amount in a taxable dividend in one year. The amount could be distributed over a period of time when needed.
How is Critical Illness Insurance Priced?
Because your chances of getting a serious illness and surviving are greater than your chances of dying, critical illness insurance costs more than a traditional life insurance policy. Premiums are computed according to gender, age, smoking status, and a thorough evaluation of your health, lifestyle, and family health history.
Along with the above criteria, other factors that influence the cost of insurance include the type of product and the amount of coverage purchased, with term insurance being the least expensive and permanent insurance the most expensive. Most companies will accept an application starting at $10,000 up to a maximum of 2.5 million. The more coverage you want, the more it costs. Before purchasing insurance, always get a quote before you commit.
If you want to discuss your insurance needs or want a second opinion on your existing critical illness insurance policy, let’s talk. I can help find the best insurance strategy for your needs.