Important information:A potential Canada Post service disruption could take place within the coming weeks.
Important Information: A potential Canada Post service disruption could take place within the coming weeks.
In the event of a widespread postal disruption, you may not receive your insurance documents or be able to mail premium payments or documents to us. You are still responsible for making your insurance premium payments by your due date to maintain your insurance coverage.
RBC Insurance’s next step in its client experience evolution
TORONTO, December 2, 2024 — RBC Insurance launched the next step in its client experience evolution. As of December 1, 2024, clients (and their advisors) applying for RBC YourTerm® life insurance will receive immediate notification if they are approved. With no delay in the response, and policy documentation available within 5 days, clients and advisors can move forward with confidence. RBC YourTerm® applications are eligible up to $2 million, up to and including age 50, with no requirement for medical interviews or exams (e.g., blood tests).
RBC Insurance believes in the value of insurance to support communities through difficult life moments, and recognizes that the process of purchasing insurance is cumbersome and complex, making it difficult for advisors to provide great client experiences. Through a relentless focus on simplifying insurance for everyone, RBC Insurance is rapidly advancing its digital and client service capabilities. Recent advancements include:
Launching a new Express Team in November 2023 to significantly expedite the underwriting process for Term insurance applications under $2 million with no requirement for medical exams. Cycle times were cut by 50% for fully underwritten Term applications.
Accelerating the underwriting process for Term, Disability and Par Whole Life Insurance. RBC Insurance provided an option for advisors to complete the Health & Lifestyle Questionnaire online, as of August 2024. This removed the need for eligible clients to participate in telephone interviews and paramedical appointments, which can add days or weeks to receive an approved policy.
About RBC Insurance RBC Insurance® offers a wide range of life, health, home, auto, travel, wealth, group benefits, annuities and reinsurance advice and solutions, as well as creditor and business insurance services to individual, business and group clients. RBC Insurance is the brand name for the insurance operating entities of Royal Bank of Canada, Canada’s biggest bank and one of the largest in the world, based on market capitalization. RBC Insurance is among the largest Canadian bank-owned insurance organizations, with 2,600 employees who serve 4.8 million clients globally.
*Home and auto insurance products are distributed by RBC Insurance Agency Ltd. and underwritten by Aviva General Insurance Company. In Quebec, RBC Insurance Agency Ltd. Is registered as a damage insurance agency. As a result of government-run auto insurance plans, auto insurance is not available through RBC Insurance in Manitoba, Saskatchewan and British Columbia.
This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.
If you were suddenly faced with a serious injury or illness, would you be able to care for and support yourself and your family? That’s the question we all need to answer when considering critical illness insurance and disability insurance.
Having the right coverage can mean a world of difference. It could be the factor that tips the balance between financial stability and all-consuming worry during an already-stressful time.
But what exactly are the differences between critical illness insurance and disability insurance? Is one better than the other, or are both necessary? This quick primer can help you understand the unique benefits of each type of policy and when one or both will best suit your needs.
Key takeaways
Critical illness insurance provides a one-time lump-sum benefit if you’re diagnosed with a serious health condition, such as life-threatening cancer, a heart attack, or a stroke.
Disability insurance helps with monthly income replacement if you can’t work for a period of time due to injury or illness.
Though critical illness insurance and disability insurance may overlap with coverage in some cases, they tend to provide protection for different illnesses and scenarios. They also have distinct exclusions and waiting periods.
Depending on your individual situation, one or both types of insurance might provide the best coverage for you and your family.
Understanding critical illness insurance
What is it?
Imagine you’re diagnosed with a serious illness, such as life-threatening cancer or experience a heart attack or a stroke. You may require specialized treatments, time off work, accommodations in your home, or help with self-care. These new needs may place a hefty financial burden on you and your family when you’re trying to recover.
While other health insurance policies may cover some of your medical expenses or help with income replacement, critical illness insurance directly pays out a one-time, tax-free lump sum. It’s designed to alleviate the financial stress associated with severe illness. And you can use the benefit however you want, such as paying for medications or treatments not covered by your other insurance, continuing to contribute to your retirement savings while you’re off work, upgrading your house or vehicle to suit your new needs, paying for childcare, or even taking a vacation to recharge. Critical illness insurance acts as a safety net and gives you flexibility during a challenging time.
Types of illnesses covered
The illnesses protected by your critical illness insurance will depend on the insurer and the plan you purchase. Typically, these conditions are commonly covered:
Life-threatening cancer
Heart attack
Stroke
Kidney failure
Major organ transplant
Coronary artery bypass surgery
Multiple sclerosis
More comprehensive plans may also provide coverage for conditions such as dementia, including Alzheimer’s disease, Parkinson’s disease, blindness, deafness, and even severe burns, paralysis, and loss of limbs. Before purchasing a policy, make sure you understand which illnesses are covered by the plan and any exclusions or limitations (such as waiting periods or survival periods before you’re eligible to claim your benefit).
Exclusions
Many plans will not pay out a lump sum or refund any premiums if you experience an illness, death, or other loss that results directly or indirectly from one of these situations:
Self-inflicted injury, attempted suicide, or suicide.
Intentional use of any drug (not prescribed by a doctor), intoxicant, narcotic, or poisonous substance.
Participation in a war or a hostile action, insurrection, or civil commotion.
Attempt to commit or commission a crime, whether you’re charged or not.
Operation of any land, water, or air conveyance that’s operated by any means other than your own muscle (think cars, motorboats, planes) while you’re under the influence of any drug, intoxicant, narcotic, or poisonous substance, including alcohol. For alcohol, the limit begins when the concentration of alcohol in 100 millilitres of blood exceeds 80 milligrams.
Speak with your insurer to confirm the details of your specific policy.
Understanding disability insurance
What is it?
If an illness or injury keeps you from working, disability insurance will typically pay out a monthly benefit to replace a portion of your lost income (often around 60 per cent to 85 per cent). Whether you experience a short-term disability, such as an injury that requires months of leave, or a long-term disability that means you can’t work for years, disability insurance acts like a consistent paycheque to help you cover your living expenses and medical bills.
Types of disabilities covered
As with critical illness insurance, the types of illnesses and disabilities covered will depend on your insurer and the plan you choose. You may receive protection in the following instances.
Total disability: When you’re unable to perform the essential duties of your occupation due to an illness or injury.
Residual disability: When your illness or disability prevents you from performing some of your essential work duties, resulting in a 20 per cent or more loss in earnings. You will eventually recover.
Partial disability: When you can’t perform any of the essential duties of your regular occupation and you experience a 20 per cent or more loss in earnings. You will eventually be able to go back to work.
Exclusions
Much like critical illness insurance, disability insurance will typically not cover any disability that results, whether directly or indirectly, from these situations:
An act or accident of war.
Normal pregnancy or childbirth (except complications).
Any injury or illness that occurs before your policy comes into effect or while your policy is not in force.
Some plans will also have these exclusions:
Any self-inflicted injury, whether or not it’s intentional, that occurs while you’re intoxicated.
Your use of any drug, unless it’s prescribed or directed by your physician.
Any suicide attempt or other intentionally self-inflicted harm.
Infections related to AIDS and HIV.
Any injury that occurs while you are committing or attempting to commit a crime, even if you’re not charged with that crime.
Subjective conditions, such as fibromyalgia and chronic fatigue syndrome.
Mental and nervous disorders, such as depression, anxiety, stress, and burnout.
Schedule a chat with your insurer if you’re not clear on the exclusions in your policy (or any policy you’re considering buying).
Key differences between critical illness insurance and disability insurance
Before you can decide whether to purchase critical illness insurance, disability insurance, or both, it’s important to understand how each type of coverage works and the ways each can provide you with financial stability during a health crisis. This chart can help you understand the primary differences between critical illness insurance and disability insurance.
Critical illness insurance
Disability insurance
Triggering event
You can make a claim if you’re diagnosed with one of the conditions or illnesses listed in your policy.
You can make a claim for benefits if you cannot complete some or all of the tasks required for your job due to injury or illness.
Waiting period
You will often need to live beyond the survival period (a.k.a. a set amount of time beyond your diagnosis, usually 30 days) before you are eligible for benefits.
You will have to wait the elimination period (a set number of days after you receive your diagnosis) before you begin getting payments.
Nature of benefits
You’ll receive a one-time lump sum, which, depending on your plan, can range from $10,000 to $3 million.
Designed to replace a portion of your lost income while you cannot work, this benefit is often paid out each month and lasts for as long as you remain disabled or until the end of your benefit period.
Duration of benefits
In most cases, your policy will end once you receive your one-time lump-sum payment. However, some insurance providers have riders that cover a second critical illness and payment.
You will receive ongoing payments for the duration of your disability, from a few months to many years, up to the limit defined in your policy. Some plans will pay for a disability that lasts until retirement age, while others have a benefit period of two, five, or 10 years.
Use of payout
You can use the lump-sum benefit however you want: to pay medical bills, upgrade your home, contribute to your RRSPs, try alternative treatments, or take a vacation to unwind.
These benefits are designed to cover living expenses while you cannot earn your regular income. While you can use the payments however you want, the amount you receive at one time is smaller and best for maintaining financial stability during a period of low or no income.
Who can apply
Anyone
Employed and self-employed people
Age eligibility
Coverage often ends between the ages of 65 and 75 years; although, some providers offer permanent insurance.
Coverage often ends between the ages of 55 and 69 years.
Premiums
Your premiums are based on the number of illnesses covered, the lump-sum payout amount you choose, your age, how long the coverage will be in place, and your overall health status.
Your premiums will depend on the disability types covered, your monthly benefit amount, how long you will be eligible to receive benefits, and your occupation.
Taxability
Tax-free
It’s tax-free income if you paid for it, and it’s taxable income if your employee paid for insurance for you.
How to best choose between critical illness insurance and disability insurance
Whether disability insurance or critical illness insurance will be right for you will depend on several factors, such as your occupation, financial situation, health risks, and more.
Financial needs and responsibilities: Take a look at your financial obligations, from mortgage payments to support of dependants. Critical illness insurance can help with large immediate expenses. Disability insurance is designed to provide ongoing income.
Health risks: Critical illnesses are common.Each year, around 247,000 Canadians will be diagnosed with cancer, and 108,000 will experience a stroke. Critical illness insurance could be an invaluable safety net if you’re affected by one of these conditions one day. If you have a job that increases your risk of injury or certain illnesses, then disability insurance may be the option for you.
Employment situation: Anyone is eligible for critical illness insurance; whereas, you must be employed or self-employed to purchase disability insurance. If you work for a company or organization, make sure you’re familiar with your employee benefits. For example, you may have comprehensive disability coverage, but no critical illness insurance. In that case, you might want to purchase your own critical illness policy.
Budget: In an ideal world, we’d all have premium disability and critical illness insurance coverage. In the real world, these plans cost money. It’s important to balance your coverage needs with the premiums that you can afford.
Dependants and family responsibilities: You may have a wide variety of people (children, aging parents, or family members with disabilities) and pets relying on your income. Critical illness insurance can provide flexibility with a larger payout if you’re diagnosed with a serious condition, while disability insurance can help to cover your day-to-day expenses.
Is it better to combine both types of insurance?
Even though both are types of health insurance, critical illness insurance provides different benefits than disability insurance. Critical illness insurance is designed to immediately alleviate financial strain if you’re diagnosed with a serious illness or condition. Disability insurance covers a broad range of illness and injuries that can affect your ability to work and helps with day-to-day expenses. You may want to combine both types of insurance if you’re looking for well-rounded coverage that protects you in many circumstances. Speak with an insurance advisor to help you make the decision that best suits your lifestyle. They can help you balance your current and long-term needs, consider your risks and budget, and help you choose the right policies to protect you and your family in all scenarios.
*Home and auto insurance products are distributed by RBC Insurance Agency Ltd. and underwritten by Aviva General Insurance Company. In Quebec, RBC Insurance Agency Ltd. Is registered as a damage insurance agency. As a result of government-run auto insurance plans, auto insurance is not available through RBC Insurance in Manitoba, Saskatchewan and British Columbia.
This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.
Why might you want to consider critical illness insurance? Consider this: Each year, more than a whopping 247,000 Canadians are diagnosed with cancer. More than 108,000 have a stroke. That means hundreds of thousands of people are experiencing the physical and mental stress of a critical illness at any given time.
Life-altering medical conditions can also have major financial implications, often requiring time off work and payments for childcare, medications, alternative treatments, and even home modifications.
That’s where critical illness insurance comes in. It can provide a benefit, so if you’re ever diagnosed with a serious illness, you don’t have to dip into your RRSPs or take on debt just to keep life on track.
Read on to learn how to choose the best critical illness insurance in Canada that works for you.
Key takeaways
Critical illness coverage is a type of insurance that pays a benefit if you’re diagnosed with a serious illness or condition, such as life-threatening cancer, a heart attack, or a stroke.
The benefit is a tax-free lump sum that you can use to fill gaps in your provincial health insurance, modify your home, cover daily expenses, or even continue to pay into your retirement savings.
This type of insurance has pros, including financial protection, income replacement, and flexibility.
There are also contract conditions to consider, such as no coverage for pre-existing conditions and potential overlap with other types of insurance you’ve purchased.
This insurance can be especially beneficial for primary breadwinners, caregivers, self-employed people, and business owners.
What is critical illness insurance, and why do I need it?
Critical illness insurance, sometimes called “critical care insurance” or “critical illness coverage,” is a type of coverage that pays out a tax-free lump sum if you’re diagnosed with a serious medical condition or illness. It’s designed to help Canadians or individuals living in Canada pay for all the additional costs (such as medications, home care, travel, accommodations, and childcare) and loss of income that can occur with certain types of life-threatening cancers, strokes, heart attacks, and more.
How does critical illness insurance work?
Are you interested in critical illness insurance? Here’s how to secure the right plan and, in the event of a serious illness, make a claim.
Choose a policy and coverage amount: First, you’ll need to choose the policy and coverage level that work for you. Typically, you can add a rider to another policy, such as life insurance, or buy a stand-alone policy. RBC Insurance, for example, has two stand-alone policies covering a different range of illnesses: Critical Illness Recovery Plan and Critical Illness Insurance Plan (a more basic type of coverage). You’ll then need to determine how much coverage (or the payout size) you want to receive in the event of a critical illness. The more coverage you want, the higher the premiums you’ll have to pay. Working with a licensed insurance advisor can help you get the right level of coverage for your unique situation.
Set your premium and pay it: You’ll need to pay a premium each month, quarter, or year (depending on the policy) in exchange for insurance coverage. The premium will depend on factors such as: the policy you choose, the coverage amount you want, your age, your overall health level, and your smoking status. Your premium may be fixed (meaning, it won’t change) or variable, depending on your policy.
File a claim: If you’re diagnosed with one of the illnesses covered in your policy, you’ll need to ensure that you meet all of the policy’s criteria for the survival period (number of days you’ve had the illness before the benefit will be paid out) and the severity. There may also be a waiting period after you purchase the insurance when you cannot make any claims. When you submit a claim to your provider, you’ll need medical documentation that proves the diagnosis and you may even require additional medical exams.
Receive the payout: If your claim is approved, your insurer will provide you with a lump-sum payout. It will be an amount that has been predetermined by your coverage level and is not tied to the actual cost of your lost wages or treatment. You can use the payout any way you want.
What is not covered by critical illness insurance?
All policies will have exemptions. Typically, critical illness insurance will not cover illness, injury, or death in these situations:
Self-inflicted injury, attempted suicide, or suicide.
Intentional use of any drug, intoxicant, narcotic, or poisonous substance.
Participation in a war or a hostile action (insurrection, civil commotion, etc.).
Attempt to commit or actual commission of a crime, whether charged or not.
Operating any land, water, or air conveyance (a.k.a. car, boat, or plane) that requires more than muscular power while under the influence of any drug, intoxicant, narcotic, or poisonous substance. For alcohol, the limit is 80 milligrams of alcohol per 100 millilitres of blood.
It’s best to check with your insurer for specific exclusions, since policies vary.
What are the advantages of critical illness insurance?
Financial protection: Treatments and time spent resting (not working) can be expensive. By using the lump-sum payout for your daily expenses, you can protect your savings and avoid drawing from your RRSPs and/or going into debt.
Income replacement: If you’re unable to work during your treatment and recovery, the lump sum can replace lost income. For business owners or those who are self-employed, it can even be used to maintain operations, cover business expenses, or hire help.
Coverage moves with you: If you have critical illness insurance through your employer and you lose your job or switch employers,you lose that coverage. Purchasing a policy separate from your employer ensures you have critical illness coverage regardless of your employer or employment status.
Flexibility: Unlike regular health insurance, which usually pays directly to health-care providers, critical illness insurance pays a sum directly to you. You can use the payout however you want: for medication copayments, to take time off work to recover, for therapies not covered by health insurance, or even a vacation for you and your family during recovery.
Coverage for multiple conditions: Thanks to advancements in modern medicine, you have a high chance of surviving a serious illness. The bad news? Your finances could be hit hard while you recover. Luckily, critical illness insurance covers many conditions that could affect you during your lifetime.
Peace of mind: In the event that you do experience a critical illness, you won’t need to worry about finances and will be able to focus on your most important task: getting better. Plus, budgeting for annual premiums, which are typically fixed for a term, is a lot less stressful than falling ill and suddenly needing to come up with a huge sum of money without insurance.
What are the contract conditions to be aware of with critical illness insurance?
Lack of coverage for pre-existing health conditions: Typically, any illness you’ve already been diagnosed with before applying for insurance is not eligible for coverage. In some cases, you might not be eligible for critical illness insurance at all, or there may be a waiting period before coverage can begin.
Survival period requirement: Some policies have a “survival period” clause, which means you must survive your illness for a certain number of days before receiving a payout. RBC Insurance’s minimum survival period for most covered conditions is 30 days; although, some covered conditions require a longer period before benefits are payable.
Limited covered illnesses: Your policy will only cover you for a specified list of illnesses. The longer the list of covered conditions, the more you’ll pay in premiums. You won’t receive a payout if you’re diagnosed with an illness that’s not on the list.
Who should consider critical illness insurance?
There are certain people who will benefit the most from purchasing critical illness insurance.
Primary breadwinners: Your family relies on you to cover the big expenses, such as mortgage payments, school fees, credit card bills, and more. Critical illness insurance can give you financial stability even if you aren’t able to work for a period of time due to illness, reducing stress for you and your dependants.
Self-employed individuals and business owners: A payout from critical illness insurance can provide crucial financial support during a health crisis. It may even help to cover business expenses, hire temporary staff, and keep things running in your absence.
Caregivers with dependants: In addition to everything else you do, you’re a caregiver. And if you get sick, you might not be able to provide care to your children, aging parents, or family members with disabilities. Critical illness insurance can help you pay for substitute caregivers and other related costs if you need time off for treatment and rest.
People with high-stress occupations or lifestyles: Whether you work in a hazardous environment or have a high-stress job, you may be at a greater risk for certain illnesses and conditions. Even if a career change isn’t in the cards, you can help guard against financial strain from future health issues with insurance. (Note: Some occupations are excluded from coverage. Be sure to clarify with your provider.)
How much coverage do I need?
Getting an estimate for how much insurance coverage you need is a great first step if you’re looking to build a safety net for you and your family in case of serious illness. Start by trying out RBC Insurance’s critical illness insurance calculator. It can help you understand how much critical illness insurance you need.
Frequently asked questions
How do I choose the right critical illness insurance policy?
You’ll need to take a look at your unique situation and weigh these factors.
Covered illnesses: Are you at risk for certain health conditions, and are they covered?
Coverage amount: What lump-sum payout will be enough to cover your expenses?
Premium costs: How much can you afford to pay in premiums each year, considering they might increase over time?
Exclusions and limitations: Do you understand the potential exclusions or conditions that could affect your eligibility for a payout?
Length of coverage: How long do you need coverage? Do you need to consider adding a rider (if your provider allows) to extend the length of your coverage?
Insurer reputation: Does the insurer you want to use have a good reputation, financial stability, and a clear and reasonable claims-approval process?
What illnesses are typically covered by critical illness insurance?
Some policies are extensive, while others are limited. Here are some commonly covered illnesses:
Cancer (life-threatening)
Heart attack
Stroke
Kidney failure
Major organ transplant
Multiple sclerosis
Coronary artery bypass surgery
Dementia, including Alzheimer’s disease
If the disease or illness is not explicitly listed in your policy, you won’t receive any coverage for it.
How is critical illness insurance different from health insurance?
Critical illness insurance is a type of health insurance, but it’s different from health and dental insurance. Health and dental insurance typically cover medical costs directly related to treatment, such as hospitalization, surgery, medication, rehab, and medical equipment. The insurance payout directly goes to the health-care provider or reimburses the insured for their out-of-pocket expenses.
Critical illness insurance is a cash benefit paid directly to you. You can use it toward medical expenses, to take time off work to recover, to pay your mortgage, or to hire a babysitter to look after your kids when you need a nap. How you use the payout is entirely at your discretion.
How is critical illness insurance different from life insurance?
Life insurance and critical illness insurance are two different things. Critical illness insurance pays out when you’re diagnosed with a serious illness and need financial support. Life insurance only pays out a benefit to your estate or listed beneficiary/beneficiaries if/when you pass away.
Can my premiums increase over time?
They might. Renewable policies adjust the premium based on your age or health status. That said, some policies have fixed premiums (meaning, they don’t increase) for a certain period or even for the policy’s duration.
Is critical illness insurance expensive?
The cost depends on many factors, from the policy you choose and the level of coverage you need to personal information, such as age, assigned sex at birth, health status, and whether or not you smoke. Generally speaking, you’ll pay less for critical illness insurance if you’re young, healthy, and nicotine-free. No one wants to imagine being diagnosed with a serious illness. But if you’re a primary breadwinner, parent, business owner, or someone with responsibilities, it’s the “worst-case- scenario” thinking that’s worth doing. Many Canadians will experience (life-threatening) cancer, a heart attack, a stroke, organ failure, or dementia at some point in their lives. If you’re one of them, will you have a plan? Book an appointment with your RBC Insurance advisor now to discuss your options.
*Home and auto insurance products are distributed by RBC Insurance Agency Ltd. and underwritten by Aviva General Insurance Company. In Quebec, RBC Insurance Agency Ltd. Is registered as a damage insurance agency. As a result of government-run auto insurance plans, auto insurance is not available through RBC Insurance in Manitoba, Saskatchewan and British Columbia.
This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.
Life-altering medical conditions can also have major financial implications, often requiring time off work and payments for childcare, medications, alternative treatments, and even home modifications.
That’s where critical illness insurance comes in. It can provide a benefit, so if you’re ever diagnosed with a serious illness, you don’t have to dip into your RRSPs or take on debt just to keep life on track.
Read on to learn how to choose the best critical illness insurance in Canada that works for you.
Key takeaways
Critical illness coverage is a type of insurance that pays a benefit if you’re diagnosed with a serious illness or condition, such as life-threatening cancer, a heart attack, or a stroke.
The benefit is a tax-free lump sum that you can use to fill gaps in your provincial health insurance, modify your home, cover daily expenses, or even continue to pay into your retirement savings.
This type of insurance has pros, including financial protection, income replacement, and flexibility.
There are also contract conditions to consider, such as no coverage for pre-existing conditions and potential overlap with other types of insurance you’ve purchased.
This insurance can be especially beneficial for primary breadwinners, caregivers, self-employed people, and business owners.
What is critical illness insurance, and why do I need it?
Critical illness insurance, sometimes called “critical care insurance” or “critical illness coverage,” is a type of coverage that pays out a tax-free lump sum if you’re diagnosed with a serious medical condition or illness. It’s designed to help Canadians or individuals living in Canada pay for all the additional costs (such as medications, home care, travel, accommodations, and childcare) and loss of income that can occur with certain types of life-threatening cancers, strokes, heart attacks, and more.
How does critical illness insurance work?
Are you interested in critical illness insurance? Here’s how to secure the right plan and, in the event of a serious illness, make a claim.
Choose a policy and coverage amount: First, you’ll need to choose the policy and coverage level that work for you. Typically, you can add a rider to another policy, such as life insurance, or buy a stand-alone policy. RBC Insurance, for example, has two stand-alone policies covering a different range of illnesses: Critical Illness Recovery Plan and Critical Illness InsurancePlan (a more basic type of coverage). You’ll then need to determine how much coverage (or the payout size) you want to receive in the event of a critical illness. The more coverage you want, the higher the premiums you’ll have to pay. Working with a licensed insurance advisor can help you get the right level of coverage for your unique situation.
Set your premium and pay it: You’ll need to pay a premium each month, quarter, or year (depending on the policy) in exchange for insurance coverage. The premium will depend on factors such as: the policy you choose, the coverage amount you want, your age, your overall health level, and your smoking status. Your premium may be fixed (meaning, it won’t change) or variable, depending on your policy.
File a claim: If you’re diagnosed with one of the illnesses covered in your policy, you’ll need to ensure that you meet all of the policy’s criteria for the survival period (number of days you’ve had the illness before the benefit will be paid out) and the severity. There may also be a waiting period after you purchase the insurance when you cannot make any claims. When you submit a claim to your provider, you’ll need medical documentation that proves the diagnosis and you may even require additional medical exams.
Receive the payout: If your claim is approved, your insurer will provide you with a lump-sum payout. It will be an amount that has been predetermined by your coverage level and is not tied to the actual cost of your lost wages or treatment. You can use the payout any way you want.
What is not covered by critical illness insurance?
All policies will have exemptions. Typically, critical illness insurance will not cover illness, injury, or death in these situations:
Self-inflicted injury, attempted suicide, or suicide.
Intentional use of any drug, intoxicant, narcotic, or poisonous substance.
Participation in a war or a hostile action (insurrection, civil commotion, etc.).
Attempt to commit or actual commission of a crime, whether charged or not.
Operating any land, water, or air conveyance (a.k.a. car, boat, or plane) that requires more than muscular power while under the influence of any drug, intoxicant, narcotic, or poisonous substance. For alcohol, the limit is 80 milligrams of alcohol per 100 millilitres of blood.
It’s best to check with your insurer for specific exclusions, since policies vary.
What are the advantages of critical illness insurance?
Financial protection: Treatments and time spent resting (not working) can be expensive. By using the lump-sum payout for your daily expenses, you can protect your savings and avoid drawing from your RRSPs and/or going into debt.
Income replacement: If you’re unable to work during your treatment and recovery, the lump sum can replace lost income. For business owners or those who are self-employed, it can even be used to maintain operations, cover business expenses, or hire help.
Coverage moves with you: If you have critical illness insurance through your employer and you lose your job or switch employers,you lose that coverage. Purchasing a policy separate from your employer ensures you have critical illness coverage regardless of your employer or employment status.
Flexibility: Unlike regular health insurance, which usually pays directly to health-care providers, critical illness insurance pays a sum directly to you. You can use the payout however you want: for medication copayments, to take time off work to recover, for therapies not covered by health insurance, or even a vacation for you and your family during recovery.
Coverage for multiple conditions: Thanks to advancements in modern medicine, you have a high chance of surviving a serious illness. The bad news? Your finances could be hit hard while you recover. Luckily, critical illness insurance covers many conditions that could affect you during your lifetime.
Peace of mind: In the event that you do experience a critical illness, you won’t need to worry about finances and will be able to focus on your most important task: getting better. Plus, budgeting for annual premiums, which are typically fixed for a term, is a lot less stressful than falling ill and suddenly needing to come up with a huge sum of money without insurance.
What are the contract conditions to be aware of with critical illness insurance?
Lack of coverage for pre-existing health conditions: Typically, any illness you’ve already been diagnosed with before applying for insurance is not eligible for coverage. In some cases, you might not be eligible for critical illness insurance at all, or there may be a waiting period before coverage can begin.
Survival period requirement: Some policies have a “survival period” clause, which means you must survive your illness for a certain number of days before receiving a payout. RBC Insurance’s minimum survival period for most covered conditions is 30 days; although, some covered conditions require a longer period before benefits are payable.
Limited covered illnesses: Your policy will only cover you for a specified list of illnesses. The longer the list of covered conditions, the more you’ll pay in premiums. You won’t receive a payout if you’re diagnosed with an illness that’s not on the list.
Who should consider critical illness insurance?
There are certain people who will benefit the most from purchasing critical illness insurance.
Primary breadwinners: Your family relies on you to cover the big expenses, such as mortgage payments, school fees, credit card bills, and more. Critical illness insurance can give you financial stability even if you aren’t able to work for a period of time due to illness, reducing stress for you and your dependants.
Self-employed individuals and business owners: A payout from critical illness insurance can provide crucial financial support during a health crisis. It may even help to cover business expenses, hire temporary staff, and keep things running in your absence.
Caregivers with dependants: In addition to everything else you do, you’re a caregiver. And if you get sick, you might not be able to provide care to your children, aging parents, or family members with disabilities. Critical illness insurance can help you pay for substitute caregivers and other related costs if you need time off for treatment and rest.
People with high-stress occupations or lifestyles: Whether you work in a hazardous environment or have a high-stress job, you may be at a greater risk for certain illnesses and conditions. Even if a career change isn’t in the cards, you can help guard against financial strain from future health issues with insurance. (Note: Some occupations are excluded from coverage. Be sure to clarify with your provider.)
Frequently asked questions
How do I choose the right critical illness insurance policy?
You’ll need to take a look at your unique situation and weigh these factors.
Covered illnesses: Are you at risk for certain health conditions, and are they covered?
Coverage amount: What lump-sum payout will be enough to cover your expenses?
Premium costs: How much can you afford to pay in premiums each year, considering they might increase over time?
Exclusions and limitations: Do you understand the potential exclusions or conditions that could affect your eligibility for a payout?
Length of coverage: How long do you need coverage? Do you need to consider adding a rider (if your provider allows) to extend the length of your coverage?
Insurer reputation: Does the insurer you want to use have a good reputation, financial stability, and a clear and reasonable claims-approval process?
What illnesses are typically covered by critical illness insurance?
Some policies are extensive, while others are limited. Here are some commonly covered illnesses:
Cancer (life-threatening)
Heart attack
Stroke
Kidney failure
Major organ transplant
Multiple sclerosis
Coronary artery bypass surgery
Dementia, including Alzheimer’s disease
If the disease or illness is not explicitly listed in your policy, you won’t receive any coverage for it.
How is critical illness insurance different from health insurance?
Critical illness insurance is a type of health insurance, but it’s different from health and dental insurance. Health and dental insurance typically cover medical costs directly related to treatment, such as hospitalization, surgery, medication, rehab, and medical equipment. The insurance payout directly goes to the health-care provider or reimburses the insured for their out-of-pocket expenses.
Critical illness insurance is a cash benefit paid directly to you. You can use it toward medical expenses, to take time off work to recover, to pay your mortgage, or to hire a babysitter to look after your kids when you need a nap. How you use the payout is entirely at your discretion.
How is critical illness insurance different from life insurance?
Life insurance and critical illness insurance are two different things. Critical illness insurance pays out when you’re diagnosed with a serious illness and need financial support. Life insurance only pays out a benefit to your estate or listed beneficiary/beneficiaries if/when you pass away.
Can my premiums increase over time?
They might. Renewable policies adjust the premium based on your age or health status. That said, some policies have fixed premiums (meaning, they don’t increase) for a certain period or even for the policy’s duration.
Is critical illness insurance expensive?
The cost depends on many factors, from the policy you choose and the level of coverage you need to personal information, such as age, assigned sex at birth, health status, and whether or not you smoke. Generally speaking, you’ll pay less for critical illness insurance if you’re young, healthy, and nicotine-free.
No one wants to imagine being diagnosed with a serious illness. But if you’re a primary breadwinner, parent, business owner, or someone with responsibilities, it’s the “worst-case- scenario” thinking that’s worth doing. Many Canadians will experience (life-threatening) cancer, a heart attack, a stroke, organ failure, or dementia at some point in their lives. If you’re one of them, will you have a plan? Book an appointment with your insurance advisor now to discuss your options.
*Home and auto insurance products are distributed by RBC Insurance Agency Ltd. and underwritten by Aviva General Insurance Company. In Quebec, RBC Insurance Agency Ltd. Is registered as a damage insurance agency. As a result of government-run auto insurance plans, auto insurance is not available through RBC Insurance in Manitoba, Saskatchewan and British Columbia.
This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.
In the event that something happens to you, a solid life insurance policy can give your loved ones some financial security by providing a death benefit that’s paid to your beneficiary or estate. The payout amount can be used to cover funeral expenses, pay off debt you leave behind, supplement income, or help provide for other needs. In most cases, the death benefit is tax free; however, occasionally, taxes are owed. Here’s what you need to know about life insurance payouts and taxation in Canada.
Key Takeaways
A life insurance beneficiary is the person or entity who will receive your death benefit if you pass away. You can name multiple beneficiaries.
Your beneficiaries will each receive a portion of your death benefit as a tax-free lump sum.
If you don’t name a beneficiary, your estate will automatically become the beneficiary in the event of your death and the death benefit will be subject to estate
There are other instances where a life insurance policy may be taxable in Canada, such as when you withdraw from the cash value of a permanent policy or you sell or cancel a permanent policy.
If you or your beneficiaries owe tax on life insurance policy payouts, the insurance company will send out a T5 slip.
What is a life insurance beneficiary?
A life insurance beneficiary is the person, people, or entity that will “benefit” from your life insurance payout, called a “death benefit,” if you pass away. Ideally, you’ll appoint a beneficiary on your policy to simplify the settlement process after your death and eliminate extra fees and potential taxes. Your beneficiary can be a spouse, child, other family member, friend, or even a charitable organization, trust, or business. You can list multiple beneficiaries.
If you pass away and you haven’t assigned one or more beneficiaries, your estate will automatically become the beneficiary of your life insurance policy and the amount will be distributed according to the terms in your will. The death benefit will then be subject to estate taxes. Creditors can also claim it to pay off any of your outstanding debts.
Is life insurance taxable in Canada?
You may be worried that any loved ones you’ve listed as beneficiaries will be forced to report and pay taxes on the death benefit from your life insurance. Luckily, that’s not the case. Most financial gifts and inheritances, including those from a life insurance policy, are not considered taxable income in Canada. Read on for instances where this isn’t the case.
When a life insurance taxable event can occur
Certain types of permanent life insurance have a cash value that accumulates from a portion of the premiums you pay. This cash value will grow based on a set formula or may be invested so it can earn interest. Taxes are deferred on this growth while the policy is in effect unless it exceeds government limits. If you withdraw from the cash value or cancel your policy (known as “surrender”) in exchange for the cash value, you may be subject to taxes or fees (known as a “surrender charge”).
If you pass away and your beneficiaries receive a payout, the interest earned on your policy will likely be taxed as income.
If your estate is the beneficiary of your death benefit, either by default or because that’s how you chose to set up your life insurance, it will owe estate taxes on the amount. The estate itself is responsible for paying those taxes to the government, not the individual person or people listed in the will.
Here’s a summary of when a life insurance policy payout is taxable in Canada:
You do not name a beneficiary in your life insurance policy: In this case, your estate will become the default beneficiary and will owe estate taxes to the government on the amount of the death benefit.
You withdraw from the cash value of a permanent life insurance policy: The cash value of your policy is tax deferrable within certain limits while it remains in your policy. If you withdraw a portion of the cash value, you will likely owe some tax.
You cancel your permanent policy: If you cash out (a.k.a. surrender) a life insurance policy that was supposed to last for your entire life, some of that money may be taxable.
Your beneficiaries get interest earnings from your policy: In addition to the death benefit, your beneficiaries may receive interest from the cash value of your policy. If they do, it will likely be taxed as income.
You sell your permanent life insurance policy while you’re still alive: If your insurance provider allows policy holders to sell their policies and you live in a province, like Quebec or Saskatchewan, where it’s legal, the amount you receive in payment may be taxed as income.
Tax reporting rules for life insurance payouts
In most cases, beneficiaries who receive a life insurance payout don’t need to report it to the Canada Revenue Agency because it doesn’t count as taxable income.
However, if the policy has earned interest or dividends that do owe tax, the insurance company will send beneficiaries a T5 slip that lists the investment income they need to report to the government. Those earnings must be reported on line 12100 of that year’s tax return.
If you surrender your own policy for its cash value, you may need to report it on line 12100 of your own income tax filing. Your insurance company will send you a T5 slip if that’s the case.
How to make life insurance easy for your beneficiaries
With a little planning, you can make things simpler for your beneficiaries. Here’s what you need to do:
Name your beneficiaries in your policy so the death benefit doesn’t get directed to your estate. It could also speed up the settlement process if you pass away.
Keep a written record of your policy and track any updates.
Name your secondary or contingent beneficiaries, too, in case any of your primary beneficiaries pass away before you. That way, the death benefit will remain tax free.
If you experience any major life changes, including marriage or divorce, the birth of a child, the loss of a loved one, retirement, change of health, the purchase of a new home, or the launch of a business, consider updating your life insurance policy.
Additional FAQs
Is the cash surrender value of life insurance taxable in Canada?
It may be. If you cancel your life insurance policy, any cash value amount you receive that exceeds the total premiums you paid is considered a taxable gain. It will be subject to your marginal tax rate on your income tax report.
Is the Canada Pension Plan death benefit taxable in Canada?
Yes. The one-time payout, which is available to the estate or beneficiary of qualifying CPP contributors, is considered taxable income.
Is life insurance tax deductible in Canada?
In most cases, life insurance premiums are not tax deductible. There are a few exceptions, like if you’re a business owner and pay premiums for your employees. No matter what your situation, make sure you chat with your RBC Insurance advisor to get clarification.
In short, life insurance shouldn’t be a complicated part of your financial plan. Speak with anRBC life insurance advisor or call us at 1-866-223-7113 if you’re in doubt about how much coverage you need or whether any portion of your policy may be taxable.
RBC Life Insurance
Protect Your Loved Ones With Dependable Life Insurance
*Home and auto insurance products are distributed by RBC Insurance Agency Ltd. and underwritten by Aviva General Insurance Company. In Quebec, RBC Insurance Agency Ltd. Is registered as a damage insurance agency. As a result of government-run auto insurance plans, auto insurance is not available through RBC Insurance in Manitoba, Saskatchewan and British Columbia.
This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.
TORONTO, October 31, 2024 — RBC Insurance has been selected to participate in a $1.5 billion pension risk transfer transaction with IBM Canada Ltd. (IBM Canada), the second-largest pension risk transfer ever in the Canadian market. Under the terms of the agreement, RBC Insurance and Brookfield Annuity Company will each insure 25 per cent and 75 per cent, respectively, of the pension benefit payments for each of the approximately 6,000 plan participants and beneficiaries included in the transaction.
RBC Insurance will act as the lead administrator in providing protected retirement income payments to this full population of retirees and their beneficiaries included in the transaction beginning May 1, 2025. Brookfield Annuity will settle the liabilities under its group annuity contract directly with RBC Insurance.
“RBC Insurance is proud to partner with IBM Canada, offering our financial strength, stability and client-focused approach to safeguarding Canadians’ path to a healthy and comfortable retirement,” said Abid Kazmi, Vice President Longevity Solutions, RBC Insurance. “We’re committed to ensuring the retirement income they worked hard to earn is protected.”
RBC Insurance Group Annuity delivers retirement security to defined benefit pension plan members. With a commitment to best-in-class service, RBC Insurance provides plan sponsors with the stability of a risk management solution dedicated to their needs and backed by RBC’s purpose-driven, principles-led approach to delivering leading performance. RBC is the only global systemically important bank operating in the Canadian pension risk transfer market.
About RBC Insurance RBC Insurance® offers a wide range of life, health, home, auto, travel, wealth, group benefits, annuities and reinsurance advice and solutions, as well as creditor and business insurance services to individual, business and group clients. RBC Insurance is the brand name for the insurance operating entities of Royal Bank of Canada, Canada’s biggest bank and one of the largest in the world, based on market capitalization. RBC Insurance is among the largest Canadian bank-owned insurance organizations, with 2,700 employees who serve nearly 5 million clients globally.
Coverage gap: Over one-quarter of working Canadians (26 per cent) do not, or are unsure if they have employer-provided benefits
Knowledge gap: Nearly one-quarter (24 per cent) of employees with employer-provided benefits admit they do not know much about their coverage
Engagement gap: Only 5 per cent of those with employer-provided benefits (either through their employer or spouse’s employer) turn to them as their ‘go-to’ support with well-being needs
TORONTO, Sept. 10, 2024 – With rising economic pressures leading to a myriad of stressors, a recent survey from RBC Insurance finds that working Canadians are feeling the negative impact on their overall well-being, starting with declining perceptions of mental health (57 per cent), job satisfaction (55 per cent), and financial health (44 per cent), each down 5 points since 2023. Yet as the cost-of-living soars, many are not turning to – or are even unaware of – their employer-provided benefits plans, which can provide a financial safety net to access much-needed services.
Among those who have employer-provided benefits, nearly one-quarter (24 per cent) admit they do not know much about their coverage. A mere five per cent of those with employer-provided benefits turn to them as their ‘go-to’ for help or support with well-being needs. Over a quarter (26 per cent) of working Canadians either do not have or are unsure if they have employer-provided benefits.
“These findings emphasize the need for employers to take a more proactive approach in educating their employees about the supports available to them through their employee benefits programs,” said Andrejka Massicotte, head of Group Benefits, RBC Insurance. “In today’s challenging economic environment, it’s essential for Canadians to fully understand and access their existing employer-provided benefits, which can significantly support their financial and overall health and well-being needs.”
Affordability and impacts to well-being The survey reveals a disconnect between the availability of and engagement with benefits programs as a tool to support both financial and overall well-being. Among the factors impacting their well-being, working Canadians are struggling most with financial security (56 per cent), followed by sleep quality (50 per cent) and physical fitness (39 per cent).
In addition, more than half (52 per cent) of working Canadians report that they or their spouse are contending with at least one mental or physical health condition. Of these, 30 per cent reported a mental health-related disability, indicating the need for accessible and effective mental health support within employer-provided benefits plans.
Barriers to well-being While virtually all working Canadians say they need to improve their health and well-being, with physical and financial fitness leading as the areas requiring attention, they cite several barriers to actually doing so. The findings show that once again, affordability is a top barrier to improving well-being for 54 per cent of working Canadians, followed by lack of motivation (35 per cent), busy schedules (33 per cent), mental health (25 per cent) and long working hours (19 per cent).
Additionally, many are either uncertain about where to start (17 per cent) and/or lack access to resources (15 per cent) that could help improve their well-being. Women are more likely to list affordability issues (59 per cent), motivation (39 per cent), and mental health (31 per cent) as barriers, compared to men.
“This disconnect points to a critical opportunity for employers and insurers to better educate and engage employees, showing them the value-added services they may already have access to, that can assist with addressing various aspects of their well-being,” adds Massicotte. “Employers should look to improve communication around benefits, work with their benefits provider to offer more personalized solutions, and make it easier for employees to access the support they need, when they need it.”
About the RBC Insurance Survey These are some of the findings from an Ipsos poll conducted on behalf of RBC Insurance. For this survey, a sample of 1,000 working Canadians ages 18-65 were surveyed between July 5 to 9, 2024. The precision of online polls is measured using a credibility interval. In this case, the results are accurate to within ± 3.8 percentage points, 19 times out of 20, of what the results would have been had the entire population of working adults aged 18-65 in Canada been surveyed. Credibility intervals will be wider for smaller subsets of the population.
About RBC Insurance RBC Insurance® offers a wide range of life, health, home, auto, travel, wealth, group benefits, annuities and reinsurance advice and solutions, as well as creditor and business insurance services to individual, business and group clients. RBC Insurance is the brand name for the insurance operating entities of Royal Bank of Canada, Canada’s biggest bank and one of the largest in the world, based on market capitalization. RBC Insurance is among the largest Canadian bank-owned insurance organizations, with 2,600 employees who serve 4.8 million clients globally.
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